FEATURE: Iran aims for global methanol markets with planned 10 million mt production July 02, 2014 05:04 AM GMT

SINGAPORE, 2014-07-02

Iran aims to penetrate global methanol markets with its planned production of 10 million mt/year of methanol, sources close to the matter told TPS.

An Iranian producer told TPS that Iran will try to direct the supply of methanol to every market in the world, although this would still depend on arbitrage opportunities once international sanctions are further eased.

“If  it  were  in  my  hands,  I  would  not  direct this supply of methanol solely to China and India. I would direct it to every single methanol market in the world, although this would depend on the market opportunities  which  Iran  has  in  the  future,”  the  producer  said.

IRAN’S  METHANOL  PROJECTS

Local media had previously reported that the Middle Eastern country had seven methanol projects coming up, much of it financed with Chinese capital, with construction of each project likely to kick off every six months.

According to the local media reports, construction of the first project in Dayar City had already started as long as eight months ago.

Name Owner Location Capacity (mt/yr)

Projected Production date

Progress (as of Mar 2014)

7th Methanol

Marjan Petrochem Pars 1.65 million 2016 21.5%

8th Methanol

Sabalan Petchem

South Pars 1.65 million 2016 17.2%

9th Methanol Dena Petchem South

Pars 1.65 million 2016 17.2%

10th Methanol Kaveh Metanol Dayyaer 2.31 million 2015 64.1%

11th Methanol

Veniran Apadana Pars 1.65 million 2016 9.3%

12th Methanol

ME Kimiya Pars

South Pars 1.65 million 2016 9.1%

13th Methanol

Di Polymer Aryan

South Pars 1.65 million 2016 NA

14th Methanol

Arman Methanol

South Pars 1.65 million 2016 11%

15th Methanol Siraf Energy Dayer 1.65 million 2017 19%

Total Capacity 15.51 million Source: NPC Petrochemical projects 20th Edition

WHERE WILL THE METHANOL BE HEADED?

China

Market participants said a significant portion of the planned 10 million mt/year of methanol could be funnelled to the Chinese market because it is increasingly used as a petrochemical feedstock and for gasoline blending. By end 2013, China domestic methanol production is around 60 million mt/year but operation rate hovers at around 70% or less.

China imported 2 million mt of Iranian methanol in 2013, and the volume has been consistent since 2010.

A Saudi methanol producer was confident that China will receive most of the Iranian methanol exports:  “China  has  always  been  one  of  the  largest  consumers of Iranian methanol so far, especially if  the  MTO  and  MTP  plants  start  up  on  time.”

“But  we  need  to  give  it  a  bit  more  time  to  check  on  the  progress  of  the  lifting  of  sanctions  before  we  can gauge how the Iranian methanol will affect the methanol markets,”  he  added.

Chinese traders told TPS that China would be able to absorb the extraneous Iranian methanol cargoes as local demand is expected to increase with each coming year. Furthermore, not all of the expected two million mt/year Iranian cargo will head to China.

“China  typically  uses  about  three  million  mt  of  methanol  a  year.  About  2  million  mt  is  produced  domestically,  China  can  import  about  one  million  mt  annually,”  a  Shanghai  trader  said.

“Even  if  demand  for  methanol  goes  up  to  four  million  mt/year  in  five  years’  times,  China  can  still  import  more  than  one  million  mt  of  Iranian  methanol  by  then,”  another  trader  said.

Other traders said new uses for the methanol such as the upcoming Methanol-to-Olefin (MTO) and Methanol-to-Propylene (MTP) plants would drink up the Iranian methanol.

“The  upcoming  MTO  plants  can  easily  absorb  one  million  mt  of  methanol  a  year  by  themselves,”  a  Chinese trader said.

China  Petroleum  and  Chemical  Industry  Federation  estimates  the  country’s  methanol  demand  to  be  46 million mt/year by 2015, rising to 70 million mt/year by 2020.

India

However, the excess supply of Iranian methanol is not likely to make a big impact in India, its second largest importer.

Indian traders told TPS that local prices would not drop drastically as price movements had already mellowed.

“Methanol  prices  in  India  have  already  bottomed  out  so  far.  Right  now,  India  is  also  short of methanol,  hence  any  Iranian  imports  would  not  make  a  difference,”  he  said.

Another Indian trader said prices could move slowly downwards, mirroring present trends.

“Prices  are  not  even  at  $300/mt  right  now.  The  Iranian  methanol  supply  could  exert  a  slight downward  pressure  on  prices,  although  not  by  much,”  he  said.

India mainly uses methanol for the production of formaldehyde, which is in turn used to make wooden boards in the country.

PRICE DISPARITY

The current price difference between Iranian and non-Iranian prices is expected to normalise once Iranian methanol exports hit the market. At present, Iran origin methanol is sold at a discount of $5-10/mt on a CFR China basis due to the sanctions.

There is no price disparity between Iran and non-Iran cargoes on CFR India basis as India qualifies for Iran sanctions exception.

“The  disparity  in  Iranian  and  non-Iranian prices will go away once Iranian methanol exports hit the market. Historically, this has been so. We may not see Iranian cargoes being offered at a discount anymore,”  the  Middle  East  producer  said.

However, whether the Iranian exports will affect global methanol prices will depend on the demand and supply situation further down the road.

Prices may move north, a Chinese trader said, instead of southwards as dictated by arbitrage economics. Iran is also not expected to sell at too low a price.

“Prices  may  actually  increase  if  the  demand  for  Iranian  methanol  goes  up  once  the  international  sanctions  on  Iran  are  completely  lifted,”  he  said.  “Iran  usually sells at official listed prices and will not offer cargoes at too much of a discount to global market prices once they are allowed to export officially.”

However, most market participants said prices would likely dip if Iranian methanol floods the market.

“Price-wise, the Iranian methanol may have to compete with shale gas-based methanol from the US, hence  prices  may  dip,”  a  Chinese  trader  said.

“On-site methanol production capabilities that come with MTO and MTP plants could also depress prices further  by  quite  a  large  amount,”  a  Chinese  broker  said.

-- Paul Lim, paul.lim@petchemstandard.com