Analysts: North American methanol prices to recover over long-term

Methanol prices should recover in the long-term, but the recent declines in oil and oil-linked commodities, as well as overall global economic headwinds, are likely to continue to pressure methanol prices for now, according to a new report from Fitch Ratings. 

Fitch says it expects methanol's price recovery to be primarily driven by gradually rising energy prices, as well as growth in methanol used for energy applications, such as fuel blending, and methanol-to-olefins (MTO) processes, which use methanol as a feedstock to make chemical derivatives such as propylene and ethylene. 

These nontraditional uses now account for approximately 40% of global methanol demand.

China is the main source of demand growth in energy applications and accounts for 43% of global methanol demand, according to Methanex. Chinese demand has led to increased competition for methanol as a fuel substitute as well as lower global olefin prices, which have reduced the margin advantage of MTO.

However, methanol use for fuel blending is still expected to be a strong source of global demand growth as countries impose fuel-efficiency standards and seek to reduce their carbon footprint, Fitch says. Methanol can be easily integrated into existing energy infrastructure, and blending methanol into gasoline produces a cleaner-burning, higher-octane fuel with lower emissions than conventional gasoline.

Fitch sees MTO demand as most at risk as it could be displaced by lower cost naphtha, but Fitch expects North American producers will remain competitive in a pressured oil and gas price environment. Access to low-cost natural gas feedstock will help buoy operating margins and help offset revenue declines from cheaper methanol. 

A large portion of North American methanol production is consumed internally to produce methanol derivatives, but Fitch expects these chemical producers will receive some margin benefit as well.

The remaining 60% of global methanol demand comes primarily from traditional applications such as the production of formaldehyde and acetic acid. These applications have historically grown at rates similar to GDP growth and Fitch views additional growth prospects in these segments to remain tied to overall economic growth.