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.

IRANS 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 countrys 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