In recent weeks, there has been sharpened focus on the price of oil. The price of oil has collapsed dramatically due to the Russia-Saudi Arabia price war and then further exacerbated by weak demand brought about by the novel coronavirus.
Petrochemical prices, however, have also turned downward, especially methanol and ammonia.
Demand for petrochemicals has also been significantly affected by measures implemented to curb the spread of COVID-19. According to John Floren, President and CEO of Methanex, ‘We anticipate that methanol demand could be impacted in the second quarter of 2020 as there has been a substantial reduction in manufacturing activity in countries that have had significant outbreaks of COVID-19. As a result, we are reducing production at our methanol facilities, where we have flexibility in our gas agreements, to prepare for lower demand for methanol’.
Floren made these statements as Methanex announced the idling of its Titan plant in Trinidad and its Chile IV plant. The decision to idle these plants will be for an indefinite period.
While the posted contract prices in the markets are above $200 per metric ton, industry insiders say that in reality the prices at spot markets can be as low as $160 per metric ton.
According to an industry source, ‘It’s anyone’s guess where prices are heading at this time as the markets are still volatile’.
The source said that ‘The apparent ‘strength’ of the U.S. market is supported by lower production in the Americas, particularly now that Methanex has effectively idled Titan and its Chile IV plant. In North America, the overall industry average operating rate is estimated at a reduced 70% as other U.S. producers were reportedly down as well’.
He said that ‘In terms of pricing, while the U.S. spot vs contract price differential is normally in the range of 20% below contract, reflective of the discount levels we are now facing, towards the end of March and into April, we’ve seen spot price drop as much as 40% below contract prices’.
He added that ‘In Europe, prices continue to fall and as an example, this week’s European spot price for April delivery decreased to £150 per metric ton, down a further £15 per metric ton from last week’s average price.
With significant demand reduction all over, the global markets are very much over-supplied.
The source said that there is a disconnect between methanol price and crude. He said, ‘We’ve seen this happen in 2008/9 and 2016 during what we call ‘distressed times’’. What is a little concerning, he added, is that the upward bounce in crude oil pricing back then likely played an influential role in the price recoveries, and that scenario is not expected in the near term this time due to the crude oil price war, coupled with the drastic reductions in oil demand.
He said that regarding the ammonia market, agricultural demand has held up well so far, but industrial demand has been heavily impacted. The market is very over-supplied and we expect to see some significant price reductions in the next couple months.