Author: Pang Xiao Source: China Chemical Industry News October 28, 2019

Influenced by geopolitical factors, China's MTO plant operating rate declined, and methanol fuel demand declined

According to reports, IHS Markit’s vice president in charge of the syngas chemicals business, Mike Nash, said that since last year, due to geopolitical threats, the economic performance of China’s methanol-to-olefins (MTO) plant and the decline in plant operating rates and China’s Under the influence of the decline in methanol demand, global methanol demand has weakened. At the 37th Global Methanol Annual Meeting of IHS Markit held in Berlin, Germany, Nash said that IHS Markit has lowered the forecast of the global methanol plant operating rate.

Geopolitics influences demand

Nash said that geopolitics is leading to increased uncertainty in the international methanol market, and will also lead to a decline in consumer confidence and demand. The trade friction between the United States and China is destroying the economies of the two countries, and China is the world's largest methanol market, accounting for 59% of global demand. US sanctions on Iran have restricted the export of methanol from Iran to China and India, which is the main producer of methanol. The recent attacks on Saudi Aramco’s oil production facilities indicate that Saudi Arabia’s production facilities have insufficient protection capacity, and Saudi Arabia is also a major methanol producer.

At the same time, three chemical plants in China have experienced explosions and safety incidents this year, including two methanol and acetyl plants, which has weakened China's methanol demand. Nash said that this has prompted the Chinese government to strictly control the environmental control and inspection of domestic chemical plants, especially small chemical plants, which will reduce the production of formaldehyde. Formaldehyde is the second most important methanol demand area in China, accounting for 23% of its methanol demand.

MTO outlook pessimistic

Nash said that the prospect of MTO will also become more pessimistic, MTO is China's largest methanol demand field, accounting for 24% of its total demand. China's MTO, which includes methanol to ethylene and propylene, is the world's most costly manufacturing route for olefins. Nash said that the low international crude oil prices in the past two years have improved the competitiveness of naphtha crackers and challenged the economics of MTO.

The economic performance of MTO will be the long-term and main factor affecting methanol prices. IHS Markit said that it is expected that the price of methanol breakeven in China's non-integrated MTO plant will be lower than China's actual methanol price in the next 10 years. Therefore, the average operating rate of MTO devices in China (currently about 79%) is expected to fall to 65% to 70% from 2022 to 2026. Nash said that unless crude oil prices rise, MTO will enter a difficult period.

IHS Markit said that China’s E10 gasoline policy aims to increase the ethanol content of gasoline, and will also suppress the demand for methanol and methyl tert-butyl ether (MTBE) as a gasoline blending component. China's full implementation of the E10 gasoline policy in 2020 will bring major challenges to the use of MTBE in gasoline. Currently, China has 4.4 million tons of methanol for MTBE production every year. However, because China's current ethanol capacity under construction, combined with its existing production capacity, is far below the expected demand next year, there may not be enough ethanol to meet the demand for full implementation of the E10 gasoline policy in 2020.

New capacity is about to be released

IHS Markit said that in the past year, due to the decline in the economy and operating rate of Chinese MTO installations, the US sanctions on Iran and the Sino-US trade war, global methanol prices have fallen all the way. Methanol is expected to recover from the fourth quarter of 2019 to mid-2020, and then maintain a volatile trend in the second half of 2020.

At the same time, the slowdown in the growth of Iran's methanol production capacity will also be offset by the acceleration in the growth of US methanol production capacity. Nash said that US sanctions on Iran will delay the construction of new methanol projects in Iran, and some new methanol projects in the United States will be put into production earlier than expected.

IHS Markit predicts that China's methanol consumption will decline in 2022, mainly due to the decline in methanol demand from MTO and fuel. IHS Markit predicts that the average annual growth rate of China's methanol demand from 2018 to 2024 will be 1.9%, far below the average annual growth rate of more than 10% from 2008 to 2018.

At the same time, the Sino-U.S. trade war has increased China’s tariffs on U.S. methanol imports from 5.5% to 30.5% in September 2019. IHS Markit said that the US is becoming a net exporter of methanol, and tariffs may cause US methanol to shift to other Asian countries. IHS Markit said that in the next five years, about 6 million tons of new methanol capacity will be put into operation in North America. Among them, the United States will build four new methanol plants, and Trinidad will build a new plant.