Fitch: North American Methanol Prices Set for Slow Rebound
Global methanol prices have recovered somewhat from their 2016 lows due to higher demand from newly commissioned Chinese methanol to olefins (MTO) facilities and the rebound in oil prices that began late in the first quarter. However, the expected start-up of additional capacity, including OCI N.V.'s 1.8 million tonne methanol facility in late 2017, and our revised long-term crude oil projections, will likely mute much of the benefit of the rebound in oil prices in the near term.
The shrinking US methanol supply deficit and reduced international shipping costs have reversed the price premium enjoyed by US producers over China, adding to the decline in global prices. Five million tonnes in new US supply since the start of 2012 more than doubled U.S. capacity and reduced U.S. methanol imports by nearly 30% between 2012 and 2015.
Low-cost North American producers will remain competitive in a pressured oil price environment, although depressed prices have strained their credit metrics. Fitch forecasts Brent and WTI will remain at approximately USD42 a barrel in 2016, but our long-term oil forecast of USD65 a barrel has historically equated to roughly USD350/t for methanol. Fitch expects the US will likely remain a net importer of methanol through the next few years, but some differential should return as overall demand increases.
China is the largest consumer of methanol and the main demand source for energy applications, such as fuel blending and MTO. MTO profitability has been reduced by the fall in the price of crude oil derivatives. However, we believe integrated MTO facilities have been running at generally healthy operating rates, buoyed by strong end-market demand for plastics. We expect China will continue to drive pricing trends and serve as an important export destination for North American merchant methanol producers as an additional three new Chinese MTO plants are scheduled to come online in 2016.