Chemical Conversations: Methanol Market Puts-and-Takes

Dave: Hi, all. It's Cassidy Staggers and Dave McCaskill here again. Happy New Year. Happy upcoming Lunar New Year. We're continuing our cadence of our monthly podcast series. We started this about four or five months ago. We think it's been successful. We want to continue with that. There hopefully is a few things that we can collectively talk about in this podcast. Cassidy, what have you got for me?

Cassidy: Yeah. Happy New Year to you too, Dave. Let's dive right in. Okay. We're going to talk a lot about 2025, kind of looking forward here, but let's go ahead and look back to 2024 and kind of recap what you saw happen in the market leading us up until this point.

Dave: Absolutely. I mean, I was prepared for you to start out with a hard question, but I think I can tackle it. So, how do we start? Let's see. The good was the methanol industry looks to have broken away from the stagnant or flat demand that we've seen the last handful of years. And right now, based on what we're seeing, it looks like we're on track, returning to positive year-over-year growth, likely through the decade. We think 2024 saw increased demand of about 2 million tons over 2023, so that ended up being about 90.5 million tons. And this is without the big CTO sector. Forecasts and economic projections suggest the industry, we think, will see circa 3 million tons per year growth year over year, and as I said, easily through the decade. So, we hope we've separated from blah and we're on our way to a little bit more excitement on the demand side. The numbers could be bigger if we want to include bunker fuel applications, but most of this is going to come from low-carbon methanol technologies and not directly connected to this gray or fossil-based industry, where I kind of try to entrench myself.

On the bad side, I'd tell you 2024 methanol operations performance may have been one of the worst on record. Planned outages, unplanned outages, delays in new capacity commissioning essentially kept the market sold out the entire year. One really only has to look or had to look at what prices did in major markets all through 2024 to easily recognize this supply-demand imbalance. If we think about prices or if I think about prices, spot prices in the U.S. began 2024 near 95 cents a gallon. It ended at $1.20 plus per gallon. So, it was quite a large increase. However, the reality, and most everyone knows this, posted prices were more shocking. Beginning last year at $1.74 per gallon, but ended at what I will interject, a whopping $2.70 per gallon.

Clearly, sellers took advantage of the situation, and I've tried to politely label it opportunistic leverage. It's politically correct. It's the situation. The buyers had the leverage, product was short. They could move prices how and when and to what levels they saw them. It's not unusual in a commodity market at all. So, this is exactly what happened. Now, Europe. Europe saw maybe less traumatic increases in posted prices, but more so in spot prices. Spot prices began the year at €2.70 euros per ton and ended near €4.40 per ton levels, again, euro basis. Posted prices for whatever combination of reasons were much more contained moving from €4.95 per ton in Q1 and ending the year at €5.40 per ton, again, euro basis.

Cassidy: Wow. That's great information and a recap, Dave. I just want to go back to something that you mentioned. The forecast suggests about a 3 million ton year-over-year growth through the end of the decade. What regions do you see leading that growth and leading that demand?

Dave: Again, great question as we complement each other here. China has dominated our market growth for years, 10 years, 15 years. And for the next two or three more years, maybe through '27 or '28, that looks like what is going to continue to happen. MTO, while it's certainly at the end of its growth curve, has one more flaming rocket left. We've got a few MTO units coming up in 2025 and '26. And so that's going to keep China dominating the growth package for the industry. Now, beyond that, when China kind of, again, goes more toward a plateau, to me, what's interesting is the rest of the world and the rest of the world being GDP-driven, they're going to take up more than half of the growth going forward. So, again, good or bad, China will continue to be the biggest, but rest of world growth, based on what we hope will be solid, good GDP numbers, not great, but certainly good and far better than the last handful of years, are going to drive North America, Europe, Southeast Asia, India, drive the GDP-type products, formaldehyde, acetic acid, MMA, etc., to step up and contribute more of the fair share.

Cassidy: Okay. Interesting. And what about prices? I guess looking back on 2024, what was kind of, like, the highlight, or the most shocking part of 2024 prices, whether it's not the ebb and flow, but maybe the stark increase that we saw towards the backend of the year or, you know, European prices? What really stood out to you in all of your many years of being in the methadone industry, what stood out to you from 2024 for the prices?

Dave: And I think you actually touched on it. The January increase, and I'm sure we'll continue to talk a bit about that, was... Well, I looked at numbers back to 2019 and I did not find a month-over-month increase that matched what we saw from December to January. So, I think that was certainly shocking. I will certainly tell you the feedback I got from the buy side was one of shock and awe. You know, but at the same time in the conversations I had with them, I said, "Where was the pushback?" I mean, we truly, our industry has a lot of sectors that are cost pass-through based. So, higher raw material prices that can be successfully passed through are to the windfall of those derivative producers as well. And I'm not saying that badly. I mean, everyone in this industry, production side, demand side, they're all here to make money. So, that's going to be the goal. I think just the... Again, not only December to January being just one of the largest jumps in history, but maybe the entire year, and I did not look at that, may have been the largest increase from beginning to end.

Cassidy: Wow. Yeah. All right. One more historical question for you, Dave. Also, looking far back, what was the price when you entered the methanol market, when you started working with methanol? Just for our listeners to get a little taste of how much it's changed in the decades.

Dave: Well, I mean, I can vividly remember spot prices in the U.S. being 19 cents, 20 cents, 21 cents a gallon.

Cassidy: Wow.

Dave: And posted prices being 40 cents and 50 cents. Now, good or bad, there may not be very many people that remember all that, but that probably puts it back in the '95, '96 timeframe.

Cassidy: Yeah. We won't be seeing those prices anytime soon, right?

Dave: We will not be seeing those.

Cassidy: Not at all.

Dave: I don't expect.

Cassidy: Not in 2025. No.

Dave: No. No.

Cassidy: Okay, Dave. We've talked a lot about the past history and highlighted what happened in 2024, a lot of good, some bad. But looking ahead, what do you see on the radar for 2025? And if you could kind of zoom in closely, especially the Q1 as we're sitting in Q1, what types of themes and aspects of the market are you looking at?

Dave: Well, I'll say this jokingly. Hopefully, the listeners will appreciate my humor. I can't really say that my forecasting through 2024 is much to be proud of, but I'm also going to say that if anyone wants to say they anticipated all the supply side issues, I'm happy to pass over my crystal ball and let anyone else start calling some shots. 2024 was a tough year. And I'll pound this once again if you will. It was all supply-side issues. I'm hoping. And I'm going to say, maybe with a capital H here, supply-side issues are ending or certainly will end sooner than later. We've got to see better. That's just an inevitability. It's only a matter of time. Not sure when it's going to, but there certainly are positive signs this last week of January that supplies are improving. Not going to say they're back to full, and we continue to have surprises, but directionally I'm going to say they're improving maybe with a uncapital "I".

So, what do we see? We've got Iran productions returning from their traditional winter curtailments, but this is much more beneficial to Asia, and specifically China, so it's not an Atlantic basin issue other than by indirect impact maybe. Europe's Equinor is said to be returning in Q1. And I want to say U.S. Gulf Coast methanol production is better, but not all of the gremlins are gone for sure. Directionally, I think U.S. sentiment will finally see a pause, or the strengthened sentiment will see a pause, and possibly January posted prices could represent a high at least for a while in this new year. I have to believe February's a roll. By the time this comes out, I'm going to be proven right or wrong.

So, here, again, January, February posted prices may represent the peak of the roller-coaster ride, but that's not to say prices are going to start crashing. I'd look for a very controlled retrench in posted prices, but without doubt falling spot values have to lead that parade. And we have seen some slight, very slight weakness in the U.S., and the same is true for Europe. And again, maybe that's just new thoughts, lack of energy starting the year, combination of all kinds of things. Winter time is a lull for demand. Supplies probably were plentiful right as the year ended, new year began. So, I can see the... It's easy to imagine the need for less spot buying. And what happens when there's less spot buying? Typically, spot prices start to drift down a bit. But like I said, Europe, that's more of the enigma for me. I think it's going to be very much more interesting in the European arena. They're seeing a turndown of the German refinery-based methanol production. Again, they've been living with the loss of Ecuador for at least 9 months to 10 months. And it's still ongoing, but I hope maybe by March we see them operational.

And as the year started, and this I think was very critical to the large jump in posted prices in Europe for Q1, the industry was made aware the Equatorial Guinea unit had been down for a number of months and perhaps down indefinitely. There are many, many rumors out there about the return to operations or not returning to operations, but since we don't have firsthand knowledge, I'm just going to leave those rumors alone. But unquestionably, it impacted the sentiment for Q1. And as I say, depending on how that develops, they're back or they're not, or even some reduced level, that's probably going to moderate some of the high-posted prices we see in Q1. But here too, I've always got to say but, it's going to depend on what's going on around the rest of the world.

But regardless, again, on Europe, they are having and will have increased import needs, basically, meaning prices there have to be attractive enough to draw supplies from other markets. Thus, does Europe potentially graduate or gravitate to the highest-price market in the world? Possibly, but in my sick humor sometimes, the U.S. is going to have to get out of the way first before Europe can claim highest-price market in the world. Asia's got its challenges when I look at it as well. Many, and I do, and others say China is the price setter of the world from which everyone follows. While that's certainly more true for the rest of Asia, certainly through 2024, the Atlantic basin has far separated itself from China. And I'm not sure when this is going to change. China pricing is clearly corralled by MTO affordability and there's no reason to expect otherwise. If anything, again, looking at next month, next month, next month, next quarter, as Iran pushes volumes again to China and resumes production and we see the new Southeast Asia production contributing more solidly, spot prices are going to see downward pressure across that region. I suspect the Atlantic basin will kind of be looking the other way as this happens, as I said, is this clear divide.

So, to recap, it's really a lot of the same dominoes in a way, whether it's Iran production, U.S., Europe methanol production performance, or, sadly to say, underperformance, this will be the driver pushing or pulling prices up or down. On the demand side, again, the good news is we expect growth. Three million tons, I alluded to that, year-over-year, alluded to it earlier. Economies at least for now are better. Now, the unknowns out there on that radar screen, what kind of sanctions are we going to see coming out of Washington is a very big domino all to itself. And again, we all will just have to wait and see.

Cassidy: A lot to consider for 2025. I do have a question just maybe going back to Methanol 101. You said wintertime is a lull for demand. We're obviously coming up on Lunar New Year. Can you walk us through kind of what the demand flows look like as far as, like, seasonality and a typical year as far as winter, spring, summer, and then back into fall, winter, and any highlights on regions?

Dave: Let me start with spring, and so I won't start on a calendar year. So, spring tends to be the biggest boost in the industry, if there's going to be one from a traditional standpoint. Most everybody's coming out of winter. So, construction returns, people wanting to buy houses, while challenged anymore, you know, pops up...

Cassidy: The GDP-driven aspects return maybe.

Dave: The GDP blooms. The spring bloom of GDP. And so through February, March, the formaldehyde guys, this is starting to be their big production season in anticipation of what's coming. Paints and coatings, automotive, so that's acetic acid, methyl methacrylate, all those things kind of boom, March, April, May. And then these GDP products will sag until middle of summer, typically, what I've seen, and you get an uptick. It's not as high as the roller-coaster of February, March, April, but it's better than maybe May, June. And then you start to get to fall, and everybody, to me's mentality, is let's start slowing down and bring it at home to close out the year.

And of course, we see through the Thanksgiving and Atlantic Basin kind of holidays, the formaldehyde guys will start closing facilities for weeks at a time because demand has fallen off. Clearly, winter is coming. And so we see those big sectors drift maybe to the all-time low for a year at a time. Now, the good news in there if you try to find some, windshield wash booms in September, October, and November. And then depending on how cold it is, it can string into Q1. But unfortunately, it's not much of a dial mover as far as volume. But for those that it's a big piece of their business slate, very important. So, it's a roller coaster-ride that peaks and ebbs, whatever that right word is, two peaks, two ebbs.

Cassidy: Yeah. Okay. So, anything to anticipate for Lunar New Year coming up specifically or is that not as impactful?

Dave: It's impactful to China. It's impactful to Asia. It's not very... Other than as observers, the West, that's just what we are. Again, we're already seeing it as it's fast approaching, interest in methanol purchases have well died down. Manufacturing facilities have closed. People are going back home for the holidays. So, there's very little interest, and not unusual. And it's the case right now. Spot prices there are falling a little bit. But day one when all of these people are back, the methanol-purchasing people are going to be active. So, we'll see an uptick in demand. We'll see prices spike, but I'm not talking $30 and $40 a ton. We'll see $5, $10 a ton pickup for a week. And then we fall back to a stable, you know, in between all of those ups and downs. Like I said, from here, we'll just watch.

Cassidy: Okay. So, I want to get you "on the record." You talked about forecasting in '24, was difficult and you are projecting potentially a roll into February for the first time in, I think it would be like a year it would be if it did roll. How confident are you in that?

Dave: Well, down deep, I have to believe in the broken clock syndrome. Twice a day, I ought to be right. We've had such a long run of poor supply-side performance that believing wholeheartedly it's going to turn around in a matter of weeks is an extremely iffy forecast. But right now, I'm on record that March ought to see a little softness in posted prices. They're not going to go down fast. I said that earlier. It will be very, very controlled. Not meaning this badly at all. It is still a seller's market. They set the rules of engagement and their shareholders want to make money just like all of us do. So, I'm not hoping because it makes me seem like I'm on a side. I have belief that directionally, supplies improve. Better demand is not going to boost pricing. What's boosting prices and has been the last year plus is that lack of supply that I beat that to death. So, supplies improve, prices have to come down. Is it March 1st, April 1st, May 1st? Yes.

Cassidy: Yes, one of them.

Dave: So, enough of listening to me. Let's turn the table here a bit. And I know, Cassidy, you've recently, in fact, just last week, had a podcast with Greg Dolan of the Methanol Institute, obviously, talking, I suspect, much about the low-carbon arena. Not wanting to steal again from that, what were some of the highlights that you could kind of share with this podcast?

Cassidy: Yeah. Don't want to steal thunder from Greg's very interesting and meaningful conversation that we had, so go back and listen. But he had a lot to say and a lot of great information to share, particularly on sustainability, decarbonization efforts globally. Of course, with that, we talked about policy. So, we talked about MI's presence with the IMO and impending regulations that will hopefully be voted on in March, which would be the 84th session of MEPC. And then they hope for that to become into play the middle of 2027 if those initiatives can get passed in the fall. So, he did talk in more detail about that, which I've been closely following along for the past handful of months.

We focused also, you know, with the new Trump administration incoming and what did the Biden administration handle right before they left the White House. He went into detail about that. He's based out of DC, so he's very knowledgeable in those areas. And I thought what he had to say looking forward on the IRA and the incentives were very interesting. So, I encourage everybody who's interested in that, which hopefully is the whole methanol market should be watching it in the Gulf Coast, for sure, and in the U.S. Go back and listen to hear what he had to say in some detail. And then we kind of talked about some newer prospects for methanol with methanol to jet. And then he did talk about methanol for heat and power generation is very common in Asia and what that could look like in, like, Europe and North America. So, great conversation. As always, great talking with Greg and a wealth of information and knowledge. So, I really enjoyed chatting with him and definitely learned a lot.

Dave: So, thanks for that, Cassidy. And again, I didn't knowingly or willingly want to put you on the spot. And I know there's a lot of good information in that podcast you had with Greg. And speaking of that, where can listeners, if they're interested, find that podcast?

Cassidy: Great question. The podcast is on all the typical streaming podcast channels, Apple, Spotify, Podbean. Subscribe and you'll get same-day notification when those are posted. We also have them shared on our social media accounts on LinkedIn for Argus Chemicals and Argus Media. And you can always find it on argusmedia.com as well.

Dave: Well, with that then we will conclude. But before, I do want to say, and I'm sure most of our listeners ideally are well aware, the AFPM Spring Meetings are coming up in San Antonio, I think the last week of March. We're already starting to have people request time with us so we can spend more of our stories with them. If any of you are likewise interested in having time with us, reach out. We will be located in the Marriott Riverwalk, Salon D. We have been there for 10 years. So, if you're a typical attender, you should know right where we are. And with that, thank you very much.