The recent rally in the spot methanol market, an uptick in the energy complex overall following OPEC's planned production cut and remaining global supply concerns are pointing to a likely hefty rise in methanol European contract prices for the first quarter next year.
While the negotiations are yet to start, first ideas have already been circulated, with the lower end of a potential negotiation range, proposed by a consumer, around Eur275-280/mt ($293-299/mt) and the high-end around Eur315/mt.
This would represent a rise of around Eur30-70/mt from Q4. The Q4 ECP was agreed at Eur248/mt FOB Rotterdam.
Consumers typically receive discounts from the industry-accepted level, with these discounts averaging 18% this year. As such, the net ECP negotiations range will be Eur225-258/mt.
Spot prices in Europe are currently hovering around Eur265-270/mt FOB Rotterdam levels, suggesting higher numbers for the ECP.
Globally methanol prices are also high, with US Gulf prices rising 17% from the start of November to 97 cents/gallon ($334.96/mt) FOB USG Thursday amid supply constraints domestically and lower imports from Venezuela and Trinidad and Tobago.
Domestically in the US, OCI has shut its methanol unit in Beaumont, Texas, Wednesday, while Celanese/Mitsui plant in Clear Lake, Texas has restarted after an outage at the end of November.
The surge in the US prices has triggered an unusual westbound trans-Atlantic arbitrage from Europe, with up to 80,000 mt reportedly fixed and shipped since mid-October.
In Asia, Chinese prices are also hovering around their highest levels since July last year, assessed at $292/mt Friday.
Chinese methanol-to-olefins plants are said to be running at around 80% operation rates, and two new units are expected to start over December/Q1.
With crude oil prices rising in the wake of the OPEC's decision to cut output, the economics of methanol-to-olefins should become more favorable too.
Methanol competes with more traditional feedstocks such as naphtha and ethane for the production of olefins. The higher the price of naphtha, which is determined by the direction of crude oil, versus methanol, the more favorable are the MTO economics.
In both regions Methanex, the biggest global methanol producer, has hiked its contract price for December: in the US it rose by 14 cents to 110 cents/gallon, and in Asia, the ACP was up $40/mt to $350/mt.
However, traders said a sudden hike of prices will be unwelcome for most players, as the methanol market was looking for stability.
Contract prices in Europe, unlike in other regions, are set on a quarterly basis, and negotiations over the Q1 ECP are likely to start next week, according to sources.
