Chemical Conversations: Methanol Market Puts-and-Takes

Cassidy: Welcome to the "Methanol Market Puts-and-Takes" podcast, part of Argus Chemical Conversations podcast series. I'm Cassidy Staggers, Senior Analyst alongside Argus Methanol Expert, Dave McCaskill. This podcast is particularly timely as we were part of many discussions with market players surrounding the AFPM conference. Dave, we had a lot of discussions. What do you think was the overall pulse of the market from what we had heard? 

Dave: I want to reiterate, I think this is one of our better AFPM outings. As you've just said, many clients got great feedback, got requests to do things differently. But, of course, our charge when we sit there is to first answer clients' questions, but then as well give our views. We're going to recap some of those views as well as try to integrate the feedback that came from our many meetings. The overall pulse, I've been trying to think of the best descriptor, and I'm just going to go with cautious. I think most do believe we're in a better economic position, and I can say that globally as well as specific to the methanol market. But, yes, there are concerns. There are concerns around tariffs, there are concerns around ongoing geopolitical conflicts, there are concerns, you know, country-specific about a particular demand sector or exposure. It's the first quarter of the year, essentially. It's a low quarter for most regions anyway. So, people are not saying that it's a spectacular Q1 and great things are going to happen. Q1 is about normal, given these other things that are potentially going to cause interference. People are still thinking that the rest of the year will be better. For me, and most again, we do believe there will be year-over-year growth in the methanol space. 

Cassidy: So we're entering Q2. What does Q2 in a calm, smooth year typically look like? Because I think that's kind of what's keeping everybody on their toes is what is Q2 going to look like? 

Dave: If you look at the methanol space, and other cyclicality can be quite different, but in the world of methanol, historically, Q2 and early Q4 tend to be the highest. Those are the peak quarters for demand. Even when I break that down, it's really a late Q1, early Q2. We're coming out of winter, spring is springing. So, people are restocking, generally, in the automotive sector, in the housing sector, paints and coatings, people are getting ready for the spring surge to what degree that happens. Then we kind of lull then a little bit in the summer with heat, vacations, and all those things. Then we pick up in the fall when, it's kind of the maybe the last planning of a year for people that will be building inventories. Not unlike any other month or quarter in the past or years past for the most part, where everyone's hopeful that Q2, spring, we're going to see an uptick. That was the general overtone of most conversations. 

But just as I had said a few minutes ago, tariffs are causing indigestion. Maybe settlements of some conflicts soon will be viewed as an upside, but Middle East tensions, you know, kind of swinging the other way, they're ongoing, maybe they're accelerating a bit. There's a lot of these grander outside factors that again are causing caution. But the formaldehyde sector ought to be starting to stock up. Automotive, normally, maybe they would be starting to build inventory, bump up production. Clearly these tariff issues are making it near impossible to see or to anticipate what is indeed going to happen there. Interest rates not moving hurts consumer spending, hurts housing interest, buying new homes, and the like. 

I realize I'm just going back and forth on goods and moderates and bads. I think without question; we will see an uptick in methanol demand almost globally. Now, is it 10%, 15%? It is not. But 5%, 6%, 7%, that's going to be noteworthy in some derivatives. It's going to be very, not only region-specific, but it will be very country specific. But overall, do I think 2025 will show growth in methanol demand globally versus 2024? Absolutely. Is it going to be 3 million tons, which was my original thinking late last year? I've revised that downwards, maybe towards 2.5 million tons as I'm starting to redo the thought processes now and digest feedback from the conference meetings. Maybe it's going to be a 2-million-ton year-over-year growth. But we should see positive direction. 

Cassidy: What derivatives or sectors specifically do you think are going to be leading that decrease? I know we heard a lot about biodiesel, and you said housing construction, automotive. Are that kind of the three big areas that you think are kind of pulling that growth a little bit slower? 

Dave: I think when you say leading the decrease, to me, that's a bit of a funny way of saying it. But where are the areas that I think are going to be slower than my fall thinking? You really touched on them. I'll just expand a little bit. Biodiesel, particularly the Atlantic Basin, so we're looking at U.S. and Europe. The U.S., you know, the government offers a tax incentive to the biodiesel sector. That expired at the end of last year, and it is yet to be renewed. There's also been some, reshuffling of who gets the credit, whether it's been the blender historically, but now it's pushed back to the producer, but it's at a lower level. So, we've seen U.S. biodiesel production reduced. Demand is the secondary thing. It's the physical production has been reduced since Q4, and we've seen it all and we're seeing it all through Q1. I had kind of felt like it was maybe a 20% to 25% reduction. Luckily that was validated by a handful again of people that we talked to in the meetings. 

Europe overall biodiesel is demand or production, let's say, is being reduced as well. That doesn't mean that imports might be increasing. And I can't speak to that right now. We may see situations that production is reduced in one region for specific economic drivers, our failure of economic drivers, but trade is picking up the actual demand. Maybe South America is going to be producing more. While I speak to declines in biodiesel, I can't ignore Indonesia, where their demand is going to be jumping another 5%, 6%, 7% as their government has mandated that they move, from a biodiesel blend in their diesel pool from 35% to 40%. So, that's a big jump. They're using millions of tons of methanol into biodiesel. Again, the minute I make a statement, I know I'm wrong somewhere. Some people may contend I'm wrong everywhere.  

Cassidy: One more question in demand. Where does MTO fit into all of this? We didn't touch on that just yet. 

Dave: Have not. MTO, sadly, I'm going to label it disappointing. If we look at years back, it capped at maybe 19 million tons of methanol appetite. Last year, it was closer in the 11-to-12-million-ton range for lots of reasons. Honestly, the pace we're on through Q1, excuse me, we're going to be lucky to match that number. In the fall, we were expecting some new MTO capacity in 2025, which would generate more demand. I mean, that was the conclusion. That was the expectation. That 2025 unit has now been delayed into the first quarter of '26. Again, not good news for incremental upside demand. MTO being a very key and very visible component of the methanol industry appetite, it may be flat. That's going to reduce our expectations from the fall. 

Cassidy: That's a good transition to my next question, one that we had a lot of discussion on capacity addition and those expectations. What were you thinking kind of in the fall? What are you thinking now? What do you see for the rest of the year or early parts of next year? 

Dave: That's an interesting question as well, and probably the one even just in the last few days behind the AFPM meetings, the one I've spent the most thinking around. Capacity additions in the next five years are going to be greatly reduced trend-wise from capacity additions we've seen the last decade plus. For me, my thinking it was really coming down to a Southeast Asia methanol unit getting up and running consistently. Sarawak, it's out there. It has had times of operation but really hadn't lined out. Now, big picture then as well while I quickly shift to the U.S., got Methanex's Geismar 3 unit started up essentially fall of last year, ups and downs still happens to be, or is again down as we speak for maybe up to two months. But post that, I hope we recognize the full swath of that new capacity operating in the last six, seven months of the year. 

Around the world, there's a new Iranian unit that has just started operations. There are two more originally that I had expected in '25. I'm pushing them out a couple of years. I think the Iranian natural gas infrastructure or lack of infrastructure is driving the uncertainty of these new units. And there are many of them that are in varying degrees of construction progress, but you don't have the feedstock. You can be sitting there ready to run, but without gas, you're not running. Then I had kind of given way to expectations of more capacity in the U.S., albeit, and I say this comfortably, mostly, it is all tagged as being blue or a low-carbon methanol. 

I got quite a bit of pushback on timing and thinking that there could be as many as one, two, or three new units in North and South America, or in North America and maybe Mexico in the next five-year time frame. And I think specifically there, what adds to my concern are really kind of two things. And being that these facilities are tagged blue or low carbon, the thing that troubles me now, twofold. It's from the economics and the ability to drive the progression of these facilities. So, what's happened? Particularly for the U.S., we're basically looking at natural gas costs having doubled since the Trump admin has come in and pushing for the drill, baby drill, and export, export, export, if you will, in reference to that being LNG, which is obviously liquefied natural gas. 

So, we're now seeing U.S. natural gas prices double what they had been running up and down. They're $4 level gas prices per million BTU versus the one and a half twos, two and a half threes that they cycle, you know, in the past several years, that in a way, depending on how you want to do the math, but let me just simply say, doubles the cost of making any kind of methanol in the U.S. That ought to be a trouble, sadly, for new potential units. I think the other side then comes from the end use where these blue methanol and greens and ease are looking into and working aggressively to get into the low carbon or the bunker substitution area. What we’re seeing as well is our expectations of lower oil prices, and lower oil prices are going to translate into lower bunker prices, and lower bunker prices translate into the substitution value, or the equivalent value of low-carbon methanol become lower. 

I think specifically the blue area is particularly challenged for those two things, not so much the green or ease or any of the other colors we want to pick out, but blue being a small step up from gray fossil, I think is particularly exposed. What does all that rambling mean? I'll condense it down. I think as I look now at the next several months before we publish what we will call our official 10-year outlook, I've got to think hard about pulling some of that North America methanol capacity expectation. What's that mean? That means we're fast-compressing supply versus demand globally because the global demand is expected to grow incrementally year over year. We're essentially down to just one or two or three new units over the next five years. That's going to compress the oversupply opportunity. Good news for sellers, you can easily translate that into meaning better prices for methanol, higher prices for methanol. 

Cassidy: That's interesting. Just to understand the different low-carbon aspects, and how that'll filter into the traditional gray market or maybe not, and the variation among the regions, I think, is yet to be seen and realized, for sure. You started touching on prices. Let's talk about prices. We are towards the end of the month. The posted prices have been available to us. What are your thoughts and kind of recap the discussion with the market that we had kind of surrounding those? 

Dave: We had expected forecast methanol prices in the Atlantic Basin to decline. Luckily for us, Europe came out first and had a clear reduction of some 80 euros plus or minus from the Q1 level of benchmark posting of, I think it was 700. So, that one seemed easily predictable. It turned out, if I take credit for what we did, we call that one. Now, I don't get to take credit, or we don't get to take credit for those very often, particularly in 2024 as history. But that one was clear. Spot prices had dropped 100 euros per ton almost overnight in February. Again, demand was not robust, rather flat last year versus this, very much met expectations. Then we turned to the North America or the U.S. 

Likewise, I thought there was at least a crack in the door, an opening in the door to see lower prices. I went with that direction as well. Now, I guess I was 50% lucky. One producer did opt to lower their posting by 5 cents. The other producer opted to roll. And that was very much a topic of discussion at the conference as well. Talking to buyers, there's no surprise that they all wanted lower pricing. Sellers could justify perhaps the other way. I can see that as well. I think the key for me when I look at that and see that one didn't reduce, the other did, who's right or wrong in, in a few months, we will collectively find out. While I might historically think the market could be dropping, I try to step back far enough and say, "Okay, why are the reasons some would look like or think and deduce that it shouldn't be dropping?" 

We know there's an acquisition from one of the most major players in the market of a slightly smaller player. That's got to clear a lot of hurdles. I think, you know, certainly for many people, we heard the FTC was taking a hard look, which is their job and their right. Maybe this producer thought stability was the best thing to do and not roll prices, not suggest that prices need to be volatile. And they've been a strong advocate. I don't argue with that at all, that the reality is stability is probably better than up and down every other month. So, they opted for stability. Maybe I'll close on that or start to close with this statement. At the end of the day, it is clear the producers have much better vision, much better visibility to what's going on in the market. If, just as an example, and maybe it's a stretch, but they certainly would know if they had outage issues ahead of them, planned outages that are going to change the landscape, they choose not to share that information, 100% within their right. But, you know, it took me a long time to finally learn, don't second guess, don't criticize because I'll always bet, they know more than most anyone in the market. 

So wished everyone would have come down, if I'm saying that from a buyer's standpoint. I do contend that spot price direction for the Atlantic Basin, 100% when I say this, is weakening. Prices are coming down. Posted prices will come down. Maybe not quickly, probably not quickly. But I think barring the yet again, major unexpected outage that we cannot forecast, the industry is recovering on inventories, recovering on supplies, and directionally for the rest of the year, yes, yet again, my thinking is that all prices will trend down in the Atlantic Basin. China is a different beast. China very much dominates the direction in Asia, although there, again, are region-centric, or country-centric issues that come into play. But China, we talked about MTO demand a little bit earlier. Our olefins people are very bearish on ethylene propylene prices in China. That drives MTO methanol affordability. If olefin prices are expected to remain flat, current China market prices are going to follow. Good or bad, right or wrong, and the answer is probably more wrong as time will tell. I see China as a 295, 310 per ton market, perhaps for the next two years, which again means there'll be times it'll be 400 and there'll be times it might be 280. But both of those ought to be infrequent. 

Cassidy: So, things to look forward to for April, I think kind of understanding where that contract is going to roll or decrease, or if there are unforeseen things happening in the summer that, like you said, others know about that most of the market doesn't know about and can't anticipate. And you said the spot price is starting to decrease. Can you elaborate a little bit more on that area? 

Dave: Firstly, in Europe and certainly in the U.S., to say the market is illiquid is the gentlest thing you can say. Europe's got a little more flexibility because they rely so heavily on imports, while the U.S. is comfortably oversupplied if all domestic producers are running decently. They don't have to be running perfectly. By the numbers, the U.S. can produce several million tons more than they can consume. So, there's a lot more latitude in the U.S. Normally, if you're seeing outages, then exports decrease, but U.S. demand is taken care of as a priority, as it should be. But beginning of the first of the year, well, in the U.S., rightly or wrongly, the dominance of spot business is conducted by producers when they have issues. If they have supply problems, and their first charge will be to protect their contract volumes to everyone in their customer base, and so they're going to come into the market and buy spot material to make sure they cover 100% what they should be doing. 

But to the sellers that have that methanol, the price of methanol just immediately starts going up. It's just funny how that works when a seller sees and senses a little bit of blood in the water, so to speak. Well, since February, no producer that we can see easily has bought notable or any spot volume. So, the U.S. spot market has just absolutely dried up. I think for March, we're going to find, and it may be done by now, literally, one spot deal was recorded in March. It was at a much lower number to February and January numbers. So, is one deal indicative of the market? I can't really argue yes, and I can't really say no, but it's not very many, for sure. So, it's a questionable mark. We've now seen business done for April at similar lower prices, directionally validating that. But as long as the producers, and hopefully, when I say this, they're running well and they don't need to buy spot, it is almost an invisible market. And here, too, there was a bit of discussion on, is the spot market valid at any level? Should it remain? Will it remain? Interesting tidbits for forward-thinking to see how that goes. I think I drifted a bit away from your specific question.  

Cassidy: No, you kind of transitioned into my last final question on this topic. I think just for maybe newer listeners or people newer to the methanol market, what percentage of the volume would you say is done contract versus spot? I know you said spot is very illiquid. Maybe has that changed in recent years? Is it vastly different? I know it's different for Europe because they're importing a lot. But what kind of figures would you put on that just to help somebody kind of wrap their head around it? 

Dave: When we try to look at actual spot barges transacted, and we make best efforts to capture that because it's part of our offering to the U.S. market, to the North American market, same for Europe. So, if I think about just the raw numbers. 

Cassidy: Or percentage of the numbers.  

Dave: Several years ago, I probably casually, and I'm not sure anybody knows the exact answer, but generically, I would say it was an 80% contract, 20% spot. So far in 2025, I drive it as far up as 95% contract, 5% spot. The spot market is really, good or bad, very irrelevant to what's going on. Yes, it's a data point. It's a line in the sand. But we know when producers, I don't say this badly, are in the market, the prices are going to go up. It's a commodity. Traders are there to make their profits and losses on pennies. They raise the selling price when there's interest, and they must lower the price to generate interest. Back to the point, the spot portion of U.S. market is very, very small. Europe, it's probably better at 80%, 20%. I'd probably still stick with that kind of a split. Again, somewhere in that range, 60% of the demand in Europe is supplied by imports. They're dependent on a much broader swath of supplies, domestically and internationally. 

Cassidy: Good to know. Just to have that basic knowledge of the volumes I think is helpful. Historically, AFPM is more geared towards gray methanol producers and not so much the low-carbon methanol producers, but we did meet and talk with a few. What do you think is kind of the pulse on that market right now from a global standpoint? 

Dave: A big picture, and I feel this way as well, and I have admitted to many, I'm not investing all my energy in that market or in the failure or success. Most of the people we talk to are in the fossil sector, so they're observing the low carbon. Not against it, supportive, but it's a different sector. So, I will say the consensus there, I think there's just a lot of "pause." I mean, is there progress? Unquestionably. Are there new vessels being built that are dual-fueled for methanol? Have several vessels been built and retrofitted to burn methanol? Yes. In fact, you're probably better positioned, well better positioned than I am. As many as 100 dual-fueled vessels out there right now, is that number kind of, right? 

Cassidy: I think it's a little under 100, and I think, there's obviously hundreds on order still for the next couple years. That's about where it's at. 

Dave: So, it is a sector. It's going to have a position, it's going to have a niche, but it's probably going to be much greener and e-methanol funded, if you will, rather than blue. And blue, that's that gray area, no pun intended. It's just a little bit better than gray, but it doesn't have the environmental advantages that the greens and the e-methanol are going to have because those are significantly more advantage. But for the fossil group such as myself and many of most of our customers, looking at the blue, they've become more cautious. I think I touched on that way early in this reporting. Gas prices in the U.S. have doubled, maybe going to stay that way, likely to stay that way, at least under this administration. Crude oil prices are lower, lower bunker prices, lower equivalent value for some of the low-carbon methanol when you equate on a penalty per penalty or a carbon reduction per carbon reduction. 

So, I think our audience, most of our audience, is in the wait-and-see. We all are waiting for the IMO regulations to come out. I think that's going to be incredibly key to what, if you say there are multiple successful paths in methanol as a low-carbon fuel, IMO is going to really narrow that down to one path. These are the regulations the globe must adhere to, not just the European community, which is kind of the way it sits right now. We watch it, many of our customers watch it, but it's been quiet. We've been in a lull of activity. I think warranted by just some of the unknowns, some of the waiting-on clarity that that market is seeing. 

Cassidy: I think I'd follow up on that. You said there's pause. I would just say, I think, people are growing, the market is growing weary in the waiting. We're waiting for EU ETS to be 100%, waiting for FuelEU Maritime to kick in, waiting to see kind of what happened with some IRA stuff on the North America U.S. side. I think we're eager to hear what's going to happen at IMO next month. But then even once they kind of release their consensus of where they think this policy should go, we're still years from implementation on that, right? So, two years. So, it feels like, "Oh, just so much waiting." Then not to mention the FuelEU Maritime policy, yes, it's decreasing the carbonization, but it's doing so rather slowly. So the maritime industry is not feeling the tightening of the belt per se, that they must switch right now, they must switch all their volumes right now to something low carbon. So, I think that factors into it. 

Then there's also so many low-carbon options, right? We talk about, you know, VLSFO is viable, blue methanol is there. Obviously, the RED policy out of Europe is really kind of the driving force between maybe what's going to be a long-term option and what isn't going to be a long-term option, but IMO could change that. Then, of course, there's all those other, bio-LNG. There are tons of options. So, it's almost like when you walk into a buffet and you're like, "I'm not sure what to eat to fill my plate," right? And then I think maybe we'll find a little bit more information at the close of the year and the start of '26, as the maritime industry starts to be held accountable when they close their books at the end of the year, what did their decarbonization efforts look like? Hopefully, that can kind of start to move the needle a little bit more. But listeners are probably tired of hearing us say it's a waiting game, it's a waiting game, it's a waiting game. It is, and it feels like that. I know the low-carbon producers don't want to hear that, right? They want to start building now so that they can get product out there by the, you know, '29 or 2030. It just feels like it's really moving at a sales pace, but I anticipate it picking up. I don't know exactly when that'll be. 

Dave: Agreed. And I can't speak to other industries, but I've been in this one a long time and certainly have opinions. The fossil industry, because I want to separate it from the low-carbon, the low-carbon people are talking two, three, four, five years to see huge success as many things come to fruition. The gray market is, to me, much more oriented, "Is it going to happen in '25 or '26? If it's going to happen in '27, then tell me about that in '26." If you will, a one-year forward is the dominant radar screen. And not that they want to exclude it, but, you know, the gray area is very well established, automotive, housing, GDP, fuels of all kinds, MTO. Again, you know, their plans are for 2025. And in the fall, they'll plan for 2026. So, when we're looking farther ahead, where I think the green and low-carbon sector is more oriented, it's a, again, "Tell me in a year that I need to be paying more attention." In fairness, in another year, I have no doubt we will have better clarity than we have now. I'm not saying it's unclear, but tapping on IMO, if anything else, we've got to have them come out with what the global policies are going to be. 

Cassidy: You kind of hit the nail on the head there of just the gray market being the mature market kind of looking, you know, one to two years in advance, and the low-carbon market just being in its infancy is, you know, "What are we going to do in 2035? Where are you getting your fuel in 2035?" And I think, yeah, the gray market doesn't necessarily function like that. A good thing to keep in mind. Will we be seeing you in September anywhere? 

Dave: I think we have a forum if I'm not mistaken coming up. 

Cassidy: We do. 

Dave: What a great lead-in. We will have the September methanol forum in Houston.  

Cassidy: Yeah, the 8th through the 10th. 

Dave: 8th through the 10th. That really ties back to what I just said. I stand up there, have done it for 20 years, and give 5-year outlooks. And then when it's over, someone will come up and say, "Great information, but if it's beyond next year, then tell me next year what's coming. I just really am looking at the next 24 months." So, due to the maturity, due to the nature of the business, makes perfect sense. But we do have that forum. We encourage participation. We encourage if you have interest in speaking, speak up. We will be glad to add you to the agenda. We probably will require it to be methanol-related, but if that's the case, we probably have already started canvassing for speaker content and agenda content as it's just a handful of months away now as you've reminded me. 

Cassidy: Yeah, it'd be great to see everybody, again, at the forum in September. And we can include a link in the details of the podcast so folks can start to tentatively block their calendars and maybe make those travel arrangements. We hope to see everybody there. I'm sure we'll be hearing some new updates and maybe a different story come September, but again, we'll have to wait and see. 

Dave: We will wait and see. Absolutely. 

Cassidy: This series is a presentation of Argus Media, a leader in market reporting and commodity pricing information. For more details on all things methanol, visit argusmedia.com/methanol.