Welcome to another edition of the Methanol Puts-and-Takes podcast series, a production of Argus Media, a leading independent provider of pricing and commodity market information. Alongside Cassidy Staggers, once again, here's Dave McCaskill.
Dave: Hi all and happy holidays. Welcome to what will be the final 2024 edition of our Puts-and-Takes podcast series. Cassidy and I have hoped you have found our monthly discussions of value. And as always, if there are ever any specific topics you might like to hear, please let us know. For this month's discussion, I'd like to go in two directions. One, a recap of 2024 and how we currently see and have seen very high spot and posted prices, particularly in the Atlantic basin. Second, my views on what the next several months will look like in terms of supply, demand and of course, pricing. Well, then I'll then pass this off to Cassidy and let her give us an update around the low carbon arena. So, for 2024, what can be said? I think just what a ride. I can't believe anyone predicted correctly the path the year has taken. I know and I'll admit I missed it badly. Now if you're a Fox News fan and know of a gentleman by the name of Karl Rowe, he always brings out a whiteboard to highlight key points. I can't do that. So, let's just review some of the year and numbers by talking through them.
In North America, spot prices began the year near $0.95 a gallon. December's now in the $1.20, $1.22 range up some 30%. Posted prices began the year near $1.75 and in the year at $2.45 per US gallon levels, up 40%. And if you ask why the difference, I think some of this can be explained away with the higher discount levels we've seen this year helping to drive that higher spread. European spot prices began the year at €272 per ton, rising to 440 levels currently. And that's a strong or whopping 60% increase while posted prices from January our Q1 at €495 jumped to 540 for Q4 up only about 10%. Now here again, we know that the European community is a net importer, so they have to buy product that competitive or better than competitive prices to the rest of the world. So again, what's that mean? It means they have to pay more. And if spot prices are high in the US or somewhere in other regions, then they have to be at or above those kind of levels to continue drawing imports. And I'll talk about it in a bit. But imports needed to be at higher levels this year because the European community methanol production arena didn't have a stellar year.
Now for both North America and Europe, year in pricing probably could be a bit more elevated than "normal." And as such percentages could be seeing a little what I'll call timing distortion effect. You know, so the gains are a little higher or a little lower depending on the math, but it's very much just mathematical. But there's no doubt prices have risen notably across the year. Asia, or touching on Asia and particularly China. They saw we saw much more calm prices throughout the year in that region. China spot prices began the year around $280 a ton and currently up to near $300 a ton, only a 5, 6, 7% increase across the year. China pricing, Asia pricing is very much kept in check by MTO methanol affordability. We talk about that all the time. And it's a basis for our views on the way China prices are going to move. And through the year, ethylene and propylene prices maybe unfortunately remain mostly flat, failing to open the door for notably higher methanol prices there. The region was better supplied than the Atlantic basin as well, helping to keep a lid on run-up pricing in addition. So why did the rest of the world, specifically the Atlantic basin, see such strength in methanol prices?
The answer, I think, is obvious to all those invested in the methanol space. Supply, supply, supply, or really lack of supply. I want to repeat what I often try to explain to people, and that is the rest of the world, i.e. non-China, is designed and operates in a sold-out mode, particularly true in the Atlantic basin. And what do I mean by that? The rest of the world produces just about all the methanol it can all the time. There's always short of a little bit less production, and there's some time there's more production. But in 2024, for example, there's some 13 million tons of excess methanol supplied in the rest of the world that needs to find and needed to find and did find a home, as these volumes have lower cost of production than a lot of China domestic production. This excess moves rather easily to China, and then the China domestic methanol production operates to balance China's needs. The world is balanced. Again, what does this mean for the Atlantic basin? With sellers sold out, if you will, any notable supply upset forces producer, marketer, suppliers to jump into the spot market and drive-up spot price levels, which then often lead to higher posted prices either on the monthly or quarterly mechanism. So, what were the big-ticket supply issues in 2024? The list is large, and I'll only highlight more of the majors. But in a nutshell, around the world, the new Southeast Asia methanol unit expected early late last year, got delayed another six to nine months in commissioning and we understand is only now beginning to operate. Methanex's Geissmer 3 unit was damaged in initial startup attempts in Q1 and was then forced to remain down for another six plus months. So, there's two units specifically that we expected new supply that failed, if you will, I don't mean that badly to materialize in 2024 or the bulk of 2024.
Europe saw the Equinor unit enter planned turnaround in the spring and has yet to return. Although here, too, we understand a Q1 '25 restart is now expected. Other around the world, it was thought Iran would commission two new methanol units in 2024, which didn't occur. And now these two units are expected, "sometime across 2025." Now while these units, some might say, don't impact the Atlantic basin directly, and that's somewhat true, their production would have targeted China and to a lesser degree, India, backing out supplies from other traditional suppliers. And likely then these other suppliers would have redirected some of these volumes into other regions. There's always a direct and an indirect impact globally. The pylon of outages continued with and has continued. German refinery-based methanol units have been idled and shut down for extended period. Venezuela production issues, New Zealand production issues, and certainly ongoing production in the issues in the US. For example, by our numbers, the US lost some 2.2 million tons of what we would have said was expected production in 2024 versus 1.4 million tons last year. This impact was very real and certainly helped drive higher prices in the US and European markets. And these are just the highlights of 2024. And I know I didn't cover them all in this whirlwind recap. But I'll certainly say 2024 was a tough year for methanol production and clearly underpinning upward prices through the year.
Let's just briefly talk about methanol demand. Merchant methanol demand, not including the large captive China CTO sector, we think reached somewhere around 90.5 million tons in 2024. The good news is this is up from the 2019-2023, what is the five-year historic average, of just about 88 million tons. So, it does look like the methanol sector is finally rebounding from the plethora of issues the last five years that methanol and the world saw. And we now expect this space to return to a consistent 2 to 3% year over year growth looking forward. Now just as another data point, world methanol demand without China averaged about 35.5 million tons the last five years. And here too for 2024 improved by about a million tons to 36.5 million for 2024. This is encouraging, but at the same time I think it demonstrates how large the China appetite truly is. And we've said it and I think other people have said it, China by itself represents 50% of the world's methanol appetite, but at the same time represents about 50% of the world's supply. So, it dominates the sentiment often for our industry. So that's 2024. What do we see in the crystal ball for the next several months? If you're a buyer wanting lower prices, I'm going to tell you the news isn't necessarily great. Some sellers probably see this certainly differently. I do believe methanol prices will weaken in 2025, but I think there's at least a couple of months momentum which will continue at these higher price levels. The Atlantic basin is obviously supply constricted with all the issues I discussed earlier, but we do expect to see an extended outage by one US producer soon ending maybe before the year ends. We also expect, as I talked about, European supply to improve in Q1, opening the door for spot prices to retrench at least some. However, price softness is and always will be somewhat fickle. Could be faster, could be slower.
In the US, for example, as producer buying dries up, assuming no further surprise outages, which is a risk based on the last few years, spot prices can drop quickly. This week, we've already seen spot prices slip $0.02 to 0.03 per gallon, but it's likely too late, in my view, to avoid a January posted price increase as December average prices are several cents above November levels. We could anticipate a 5, $0.10 per gallon increases in posted prices for January. Then, assuming supplies do continue a return path, the January posted levels maybe roll into February, and then we could see posted prices beginning to come down in March, and then I would expect further weakness through the remainder of the year. Moving to Europe, I'm going to go out on a bit of a limb here. I think it's a short limb, but I don't believe anyone isn't expecting a Q1 increase in posted prices for Europe. Here, it's only a question of how much, and I think an increase is as much as, let's say, plus or minus €100 per ton, must be on the discussion table at this point in time. But again, that's between buyers and sellers, and we'll just note where the increase or roll or decrease unlikely ends up being. Asia and China, on the other hand, we just aren't seeing a lot of opportunity for notably higher or softer prices.
The new Southeast Asia Methanol Unit is understood to now be operating, which is a supply plus, but many Iran Methanol Units are down as winter is settling in and natural gas is prioritized to power and our heating needs. With these pluses and minuses, China olefin prices still are moving sideways, and as such, methanol affordability values are unchanged. We look for China methanol prices to move more sideways through 2025, and I'll just say near plus or minus $300 per ton levels, until we see olefins make a big move up on down. MTO affordability and China spot prices, I think, are just going to be again in a more sideways path. Supply outages are a little less impactful because of the big MTO appetite increasing or decreasing depending on olefin prices and methanol affordability.
Let me close with what I think is good news for the industry. Stagnant demand looks to be behind us. We saw improving demand in 2024 to the tune of two to two and a half million tons, and 2025 should continue to see growth at or near these levels. Supplies should improve on better operations here as well. Likewise, we do expect some new capacity in 2025, maybe not as many new units as we had once thought, but we do look for new capacity in 2025, and we think there'll of course be new capacity looking further ahead. I'm going to pass this to Cassidy in a moment, but I will say some of this new capacity is certainly going to be of low carbon by nature, either blue or green, and it's going to be targeting, we all know at least initially and is, the bunker substitution, the marine shipping industry. So that's going to be part of the equation as well. I've gone a long time. Let's move to Cassidy and a current snapshot of the low carbon world.
Cassidy: Thanks, Dave. A lot of great analysis of the past year. Looking at the low carbon methanol world, it has really started to take hold in the industry, whether it's blue, bio or e-methanol. What used to be somewhat theoretical in a lot of ways regarding policy and production has now really started to gain some momentum. The evolution of knowledge and questions we've asked ourselves since the beginning of the year has changed drastically. And as the industry unfolds before us, it has been equal parts fun, but also very challenging. Argus has taken steps towards helping educate the industry, whether it be through our bio methanol prices in Europe and the US Gulf Coast, or the data and analysis and methanol analytics, and even working alongside our consulting team on specific projects. Given the nature of low carbon methanol, we've had to collaborate across several teams like biofuels and marine fuels. And it's been interesting to evaluate the entire competitive landscape. And it's another part of the low carbon methanol world that will continue to evolve quickly. In a little sneak peek into 2025, the Argus methanol team is working towards offering the clients in the industry more low carbon methanol data, prices and analysis. In September, Argus announced our partnership with the Methanol Institute. While we've been collaborating with them for several years, we're happy to bring our partnership into an unofficial capacity. We've been working behind the scenes the past few months on how to bring forth the best knowledge and information to the industry. We're happy to announce you can now find historical and forecasted Argus data and information on the Methanol Institute website. We're also very excited to welcome Greg Dolan, CEO of the Methanol Institute, to our Methanol Puts-and-Takes podcast in January. Thank you again to all our listeners and be sure to stay tuned in the new year for a lot of great and collaborative content and podcasts. Happy holidays.
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