Welcome to another edition of the Methanol Market 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: Welcome back. When originally planning this month's podcast, our thinking was to talk about our upcoming fall analytics, which will be publishing 6th of December. We are going to talk about that. However, in light of the growing number of methanol unit outages and the resulting further rise in spot and posted prices recently, I want to talk about this additionally and first. So, in the near term, what's happening? Supply-side operations, well, it's just a bit of a disaster right now. Some 12 million tons of capacity is currently offline, and that number is probably conservative. But we've got ongoing outages in the U.S., in Europe, now in Venezuela, and as well now in Iran, where four units have shut down due to winter natural gas shortages recently, and more than likely a few more will shut soon.
These 12 million tons monthly is about 800,000 tons per month. Demand is about 7.5 million tons per month in 2024. So right now, we're seeing as much as 10% of normal supply not in the market. That is pressuring markets everywhere. And as such, spot prices in these major markets continue to rise. Now with China's loss of Iranian imports, China prices are expected to see further rise as well. Now for China, this is not going to be good news. As MTO producers are already in the red, higher prices and MTO operations will clearly be butting heads shortly. We're going to have to watch and see what happens there. Higher prices will hurt MTO, MTO rates are likely to cut. This is the typical thing that we see happening. And we're then of course expecting that to happen. And then that will tend to balance out or offset the loss of Iranian product. Nonetheless, if I'm telling people what the big dots on our radar screens are right now, these outages and now how China is being impacted are some of the bigger dots.
Turning to the Atlantic basin, if you're a buyer wanting lower prices, then all of this is bad news. December spot and posted prices are now well higher and Europe can certainly expect an increase in their quarterly contract come January 1. Now people will ask when does this never-ending run of high prices end, which is truly a great question. Right now, I'd say maybe towards the end of Q1. But that still means Europe Q2 may rise further. That U.S. may be seeing signs of weakening by then, but the Q1 momentum will still be strong. So, I believe Europe remains vulnerable to higher prices both in Q1 and Q2 before the industry then in total should start seeing directionally softer prices. But there are a lot of facilities around the world that are currently out unplanned. They're all going to have to be running again before we see supply-side relief.
Now, let's talk about our fall analytics update. As a reminder, this is our 10-year forecast of global supply and demand by country, looking at production, trade and derivative demand by some 90 countries or so. In a nutshell, it now looks like 2024 net methanol demand will reach about 90 million tons. As a reminder, we don't include CTO and CTP, the captive olefin production in China, as we view it as exactly that, captive. We address the merchant market without that. And that's what I mean when I talk about a 90-million-ton demand. This is up about 2 million tons from '23. This is going to be the first noticeable improvement really since 2020.
Looking ahead, we expect the industry to continue growing at about 2% to 3% or let's say return to positive growth of 2% to 3%. And this is a very positive change against the last four years where we saw demand essentially flat at 87, 88 million tons.
Another notable correction for the fall update is we've realized we've been overstating China production and demand data for years. So, we've lowered China overall demand by a couple of million tons. This was across major derivatives from aldehyde, acetic acid, MTBE and such. We did have some upside offsets in other sectors, but overall demand was lowered. Now again, what's this mean? Going forward, China's growth volumetrically is also going to be less and that is weighing down the industry a bit.
Please remember as much as 50% of total demand in the industry, methanol demand, comes out of China. So, China's base gets reset, it still sees 2% to 3% growth, which is positive, but overall, that's contributing fewer absolute tons to market demand.
On the supply side, we're seeing overall slowed demand, but again I'm going to emphasize we're seeing growth, something we haven't seen for years. But this slowed growth also really means that capacity addition timelines are also slowed. We still look for expansion in Southeast Asia, North America, and the Middle East and clearly there will be others, but when we're talking the Middle East, we're mostly talking Iran. So, we'll follow that. Obviously, their supply shortages during the winter months remains an issue. They've got many new units forecast to come online, but we do think this will be much slower, but because of combining supply and demand together, we still see overall capacity slightly outpacing supply growth in the coming years.
Cassidy, what can you tell us about the low-carbon methanol market and what you're working on right now?
Cassidy: Thanks Dave. The low-carbon methanol team has been working on a low-carbon methanol project tracker. Given our close relationships with market participants like the established producers and the newcomers, we have insight into projects across the globe. Right now, we're currently tracking over 230 total projects for the low-carbon methanol space.
Dave: That seems like a large number of projects. How are you evaluating them? What are you thinking about this?
Cassidy: Firstly, tracking potential capacity and project timelines is important as this will give us an idea of will there be enough capacity to meet potential demand, especially demand coming from the marine fuel space. So, while there's over 230 projects we're watching, the market is consistently asking how much of this will become available. Based on our market knowledge, we're forecasting what the actual capacity may be into the future years.
Additionally, we're looking at capacity and project status regionally. So, for ship owners, this is important because how they strategize their fleet for alternative fuels may be dependent on available volume in their operating regions.
Another item we're exploring for e-methanol is CO2 source, whether it's biogenic, industrial, or potentially unknown. If it's biogenic CO2, it'll be refundable compliant, which has some major implications for ship owners wanting to take advantage of the refundable multiplier in Europe starting in 2029.
Dave: Again, that's quite a number of new facilities that you're tracking. When I think about the existing methanol market, there are maybe 300 fossil-based methanol units around the world now. So where can our listeners find out and see detail about these facilities?
Cassidy: It is quite a bit. We're excited to announce that it'll be in our fall update of Methanol Analytics, as you mentioned, publishing on Friday, December 6th. We look forward to sharing that with our clients and then also with some market participants and then also seeking feedback.
This concludes another edition of the Methanol Puts-and-Takes podcast. For more information on the markets, make sure to visit the methanol page of argusmedia.com.
