Chemical Conversations: Methanol Market Puts-and-Takes

Cassidy: Thanks for joining another episode of the Methanol Puts-and-Takes podcast. This is Cassidy Staggers, and I'm here with Dave McCaskill. We did solicit for some constant questions from listeners. So, thank you everybody for contributing. We want to be talking about what the market wants to hear. So, keep those questions and comments coming.

Dave, let's dive right in. Last month, when we spoke, we talked about U.S. contract prices rolling in January. Tell us what happened since then and kind of what we're looking at in February. 

Dave: Good question. And hello, everyone, as well. From our perspective, the good news is that we did anticipate a roll from January to February in posted prices in North America. And that's indeed what we saw. Now, some may say that's not a big victory, but if I think back across most of 2024, when prices just kept going up and up and up, winning one is a good thing. And so, I'll at least say for now where we've won one for February. Outlook-wise, I'm cautious. So, I'd rather kind of move back. I'll toss it back to Cassidy and say, what's one of the questions that we can attack and try to answer for our listeners? 

Cassidy: So, one of the questions was, do you see prices softening currently in the next quarter? Or when do you see them softening? 

Dave: Great softball lob question. Perfect timing. For me, and it kind of goes back to just what I said about the roll into February, posted prices staying unchanged. When do I think, prices are going to go down? Firstly, I absolutely think prices are headed down, spot prices as well as posted prices. Now, when we talk about Europe, they're mostly on a quarterly mechanism. So, there's always going to be a delay. But when are prices going to come down? 

I would say that's exactly what's happening in the last two weeks. And I expect that to continue. And again, all my comments right now are around Atlantic Basin. Asia is a different beast and tends to always be. So, we've seen production return. We've seen the Equinor unit return in Europe. We've seen capacity return in the U.S. Gulf. That's not to say everyone's running perfectly. But we've seen returns. The new year and winter start off slow. That's typical of our industry. 

We have an environment of stagnant, if not slight technical decline in demand against supply that's improving. And so, in the U.S., I'll talk about it. We've seen spot prices probably down now 10 cents a gallon from the highs at the first of the year. In Europe, it seemed almost instantaneous as news of the Equinor restart circulated. Spot prices in Europe dropped as much as 100 euro per ton. Marketer producers are not particularly visible in the market buying spot. 

So, traders, customers, the producers have gone away for the most part. The next logical step is prices go down. I think the weakness from a full 2024 year of month after month after month, seemingly rises prices, is poised to come to an end. Now, March is approaching for the U.S., well for everyone. But if we look at the U.S., are posted prices going to come down? I'm going to tell you I'm on the fence. I can argue that a 10-cent reduction in spot prices ought to see a similar move, not necessarily in absolute numbers, but a downward move in posted prices. 

But I can appreciate sellers could be leery. Particularly, they know lots of things we don't know. They know of their own turnarounds; they know of other issues coming. I think directionally, the good or bad, the last thing they want is to lower the price in one month and must turn back around and raise it the next month. So officially, I have forecast a slight decline in posted prices in the U.S. for March. But am I 100% comfortable with it? Absolutely not. Like I said, at best, I'm 50/50. 

I do believe, if no other significant or no combination of significant outages occurs, I think April is absolutely a month that we'll see price decline. Again, that's the U.S. And then I'll close with this comment. For Europe, April will be Q2, obviously. I think and look for posted prices to come down there. Are we one step away from falling posted prices? Are we two steps away or are we three steps away? It's something like that. It's going to happen. 

Cassidy: We're seeing a different pattern as we enter late Q1, Q2 than what we saw in 2024. You did mention there's a 10-cent reduction in spot prices. Can you talk about kind of like the relationship that we tend to see with where spot prices tend to go and where contract prices follow? 

Dave: I'm just going to base this somewhat on observation, although the level of contract discounting comes into play as well. But I think probably from August or September of last year on, I finally just succumbed to what the market was doing and what we were experiencing. And if the spot prices rose 10 cents, you could almost count on a posted price increase of 20 cents, a doubling, if you will. 

If that logic was to hold true on the way down and posted prices do not come down seemingly anywhere near as fast as they tend to go up. We're down 10 cents on spot prices. Do I expect a 20 cent drop in posted prices? I absolutely do not. Now, as I've said often, I've got no chips in this game. Producers should certainly, their goal is clear to maximize profits, shareholder return. Any producer out there wants to be able to sell at higher prices. I tend to not see the same upward relationship practiced in the downward direction. 

Cassidy: That makes sense. We'll see what March and April brings, but having a decline would be the first time and I think well over a year. 

We'll be anticipating potentially a first decline in a while. Shifting gears a little bit, some of the other questions we received were based on new capacity. One of our questions was what are some of the insights that we can see for new Iranian methanol capacity? 

Dave: Great question. I think most everyone appreciates that it's hard for the rest of the world to communicate with Iran. Sanctions make that difficult if you're a country that honours sanctions. Most do. So, we don't have firsthand information. We don't have boots on the ground in Iran. But obviously we've seen new unit after new unit now thinking across the last five or six years. 

But I think with the new capacity additions that came on last year, one or two, and I apologize for not knowing better, you know, their production capability is upwards of 10 million tons. Now, what do I think for 2025? I'm not going to be surprised if there are as many as three new methanol units commissioned in 2025. Could it be two? Absolutely. Could it be one? Absolutely. In my internals, it's not like I feel like I'm a failure if it's one, two, or three. 

We do avidly believe, if that's the right way to say it, there are three units that are probably 80% plus completed in construction. So, they're within eyesight to commission. Timing is everything. I look at this winter. Typically, in winter, when Iran gets cold and people need heat, the natural gas feed to supply methanol and other PET camp facilities is diverted to residential needs. This year was no exception. In fact, maybe it was a little bit more severe because even now, we're nearing the end of February. 

I think all but two of the 10-ish Iranian units are not running. Two had restarted for a week or two, but they've shut back down. So even though I look for new capacity, I must have an observational concern that their gas infrastructure is trailing PET camp methanol expansion. At the end of the year, if there's been no new capacity and directly or indirectly, we understand it's because of lack of natural gas infrastructure. Again, I'm not going to be surprised. 

Impact to the world, I think most people know, Iranian production is pretty much limited to either China. Well, mostly China, and then a small amount to India. If there's new capacity, they'll export the bulk of it to China. China domestic production will go down and the world is balanced or as balanced as it can be. If new capacity does not arrive, exports to China are nil, incremental new exports are nil. China production, domestic production just steps up to cover the gap. The real impact there is China pricing, and that's just about it. 

Cassidy: Speaking of China, MTO production, are there any new units on the horizon there? 

Dave: Yes. We originally thought we would see one, maybe two new units in '25, but at a minimum, two new units across '25, '26. Now, our most recent data, and this is not good news for 2025, is that these two units are now expected one to commission in Q1 of '26, and the second to commission in Q, well, basically mid-year of '26. So that's good news for '26. Obviously, it leaves a lack of new capacity additions in 2025. 

You can quickly surmise that if there's no new capacity, then methanol demand into MTO in '25 probably changes little from 2024, and that would be the correct assumption. In fact, when looking at numbers right now, and it's obviously only six or seven weeks into the year, but right now, I could just as easily speculate methanol consumption into MTO will be slightly down in '25 versus '24. So that's either side of 12 million tons. 

Still very significant, but not the 17, 18 and 19-million-ton appetite we saw pre-COVID. That's not good news for 2025. Some of our growth looking at the industry in '25 was going to be attributed to MTO, so that kind of needs to be stripped out. Let me beat this to death just a little bit longer. The other problem with MTO I see is that ethylene, propylene, polyethylene, polypropylene, that olefin and derivatives chain remain with a pretty abysmal outlook. 

Prices for China specifically are quite flat. They've been in a valley for almost a year, and in fact, our olefins experts say that valley doesn't end for maybe two more years. So right now, if we think about MTO affordability, what an MTO producer can afford to pay for methanol, that number is almost flat for the year, and it's hovering, let's just say, on either side of $300 a ton CFR China basis. That means that price just isn't going to move for the rest of the year, and there's just not a lot that's going to change. 

Now, clearly there's a huge disconnect between China or Asia pricing and Atlantic Basin, so that China flat price isn't going to necessarily pull-down U.S. prices any, but it's certainly not going to offer any boost as well. So, China, 50% of the industry, everybody knows that. Hopefully, everybody knows that if they listen to me. It's not going to provide significant impact up or down in '25. 

Cassidy: So maybe a little bit of a steady holding pattern for China in '25, but the expectation that these new units in '26 will kind of bring up the growth and the demand a little bit, and hopefully, that is also relates into the olefin sector. 

Dave: Yes. I mean, you've got to get out of the valley sometime. That's inevitable. It's, again, is it one step away? Is it two steps away? That's the magic question. Olefins have just as much difficulty forecasting prices. No, I don't want to say that they have just as much difficulty, but we all struggle with price forecasting, and that's why we do it so often to a degree. But again, the China dilemma I see is that we likely have a cap of around $300 a ton, a ceiling on China prices through the rest of this year, but the floor price is not that far away and really kind of dictated by Iran. 

I go back to that first question. If Iran's going to export more, they're going to have to buy their way in. If they drive the price down to, let's say, $280 a ton, for example, it's below their cash cost. It's below their delivered cash cost. There's a real squeeze going on, potentially, around the China fundamentals. 

Cassidy: Shifting back to the Atlantic Basin, obviously a hot topic since the fall has been the Methanex acquisition of OCI, and their methanol assets. So how do you see... I think, last I heard, they're expecting that deal to close by the end of June. So how do you see dynamics of the market changing after that, both in the Atlantic Basin and globally, if you can anticipate any changes? 

Dave: That's probably the most difficult one so far. So, thanks for maybe saving that towards the end. And here's a case that I suspect my views might not agree with many. And again, that might not be that unusual to our listeners. I mean, on one hand, I can say it's going to be business as usual. I don't anticipate a big mechanism change in the way posted prices are handled. I don't anticipate spot prices would see any sort of particular gyration. 

The kinds of things that are in my mind, and I'm going to say concern me, but I'm also going to say I'm not smart enough to know that I should be concerned or what to do about it. But obviously, that's going to give Methanex, assuming everything is successful, on paper, a much larger share of the North American market. Now, you know, government bodies may not like that. buyers may not like that in that it obviously would increase the Methanex leverage. In years past and decades past. 

In years past and decades past, Methanex has said things like, and don't hold me to this absolutely, you know, they're comfortable with a 30%, 35% share of the North American market. That kind of keeps them under the cloud cover of FTC concerns and things. If this OC, as this OC ID deal is completed, on paper, those numbers go up a lot. So, I don't know. I just don't know what their thinking is. I can see them looking to export more to manage their market share at a level they're comfortable with. 

And that is certainly well within their control. Maybe this is that proverbial flock of ducks sitting on the water, they're just floating peacefully. But underwater, those legs are going a mile an hour, 10 miles an hour. And I think there's a lot of that. I still and again, this is absolutely the Dave McCaskill projection only, I'm curious to see if the net gasoline portion of this acquisition plays out. By that, I mean, Methanex acquiring the OCI half of net gasoline. Proman is the other half of that current joint venture. 

I've always understood, I think it's out there in print, Proman has first right of refusal on that half should OCI choose to sell. I could comfortably argue it would be in Proman's best interest to acquire that other half. That's again, that is 100% me. I will take 100% responsibility for being wrong if that doesn't pan out. If I'm right, the world's going to hear about it. 

Cassidy: What's the capacity on the net gasoline unit? 

Dave: 1 million plus, 1.5. You got me on a question that I just don't remember the numbers, but it's a world scale facility. 

Cassidy: We're talking a considerable, percentages of the total volume in North America that could potentially shift or not shift from OCI to Methanex, depending on how the rest of the deal plays out. 

Dave: If the OCI Beaumont plant has a capacity of around 900,000 tons, and forgive me if I'm wrong somewhat on that, and half of net gas, call it 700. So that's 1.6 million tons of new production, new capacity, that Methanex would get. That full 1.6 million tons is not marketed in North America. But you would think two-thirds could be. So maybe a million tons of that is marketed. I don't think Methanex isn't going to just want to give it all up. But I think they're going to have a great opportunity to re-optimize their selling portfolio. 

Cassidy: You talked about they might want to export more. There's been a shift in recent years from the U.S. being an importer to now being a net exporter. Do you potentially see with the increase in capacity and volume, those exports going to Europe? And part two of that would be how does this affect Trinidad and Tobago? 

Dave: Yes. Clearly, even with or without this acquisition, however it plays out, with G3 starting up basically in Q4 of last year, the U.S. was going to have another million and a half tons of capacity. Now, U.S. demand, and I'll say look at the last five plus years, U.S. methanol demand is between 6.7 million tons and 7 million tons. It doesn't change a lot and it's not going to change a lot. If you're adding a million and a half tons of new Geismar 3 capacity, you pretty much had to say that was going offshore. 

I don't think Methanex would deny that it is targeted for offshore. G2 was labelled an export facility, an export, a built to export facility. Now, where are their targets? Any seller is going to look to maximize their net backs. Where in all of '24 and likely '25 and going forward, where are net backs highest as an exporter? Europe, Europe, Europe. And Europe's demand for imports is slowly increasing, and not so much because their demand is improving because it's sadly very flat. 

There's lots of things going on in the world, and the recent German elections that may or may not stimulate increased demand. But we know German refinery-based capacity has been well reduced. We know one producer is shutting down for infinity this year, if not already down. So Europe's import needs are only going up. And the U.S. has to be salivating at that idea because it's by far the most attractive net back from the U.S. Gulf Coast. 

They'll work to optimize, maximize exports to Europe, but that's not going to take it all the export volumes at all. So, I mean, they'll go to South America, of course, very, very logical for that to continue. They'll go to, and then Asia is going to kind of get the leftover. But the U.S. cost of production position is very low, maybe a little higher in the winter when gas prices go up. But generally, shale gas low natural gas prices have been a boom to the U.S. methanol business. They'll move the rest to Asia as they can. 

For Trinidad, this is another one that I tend to go out on a limb with. I think if Methanex, assuming they are successful with OCI acquisition, they only have one unit, the smaller Titan unit, running in Trinidad. I think it's understood, maybe not absolutely known, but it's understood gas prices are relatively high down there and probably not getting any less expensive. There's plentiful gas out there in those oceans, but it just costs a lot of money to get it. 

Do I think there are scenarios with either Methanex acquiring all OCI or Methanex and Proman dividing up that capacity booty? Trinidad production for both Proman and Methanex must be on their radar screen. It's going to be some of their highest cost production in a world that doesn't necessarily need incremental high-cost production. It would be a good way to remove excess capacity from the market, a little bit higher cost capacity. 

For the sell side, for the producer marketer side, that tightens that supply demand balance and that, generally, will suggest you could obtain higher pricing. I think there are questions with Trinidad, but again, I take full responsibility, 100% ownership in that answer and that projection. 

Cassidy: I did look up capacity for net gasoline, 1.65 million tons, is what Argus says officially, or Dave has indicated Argus says officially. So, just wanted to clarify that point there.

There's been a lot of great information, a lot of things to kind of watch, look forward to for '25 and into '26. We've talked about prices. We've talked about capacity. What do you feel is the sentiment continuing into '25? Obviously, we've talked a lot about this, but it's trending very differently than '24 and maybe even parts of '23. What do you think were the sentiment, and what do you think the feelings of the market are going to be going forward? 

Dave: I'm going to break it down into several sections maybe, I think overall, if the methanol space, the methanol sector, concerns not the word. Trepidation, maybe that's the word. Uncertainty. I mean, three months into '24, the sentiment was incredibly bullish, almost totally due to the lack of supply or the supply issues. That emotion and that sentiment continued through '25 and obviously into January when we saw some of the biggest month over month posted price increases in North America. 

From my perspective, I would say they were the biggest in history. I couldn't find anything bigger. And I went back into the 1980s and '90s looking. So, maybe it's that you got this balloon full of air all because of 2024 bullish, and now you're finally starting to let a little of that air out. I think people are just exhausted of the bullish environment. It just was never-ending. So, now we see an inkling that we're bearish. 

For the buy side, I think there's a little relief. For the sell side, probably not so much. They obviously can appreciate and enjoy high prices and, again, take nothing from them for that. So, I think right now we're just exhaling cautiously and looking. But Q1 is a pretty unspectacular quarter. It's winter for most. Demand's down for most. Again, we're starting to see prices erode a little bit. How they continue is that $50 million question, of course. Each month, we'll take a stab at that. But we're certainly not bullish. Have we swung all the way over to incredibly bearish? No. We're middle of the road there. I'm going to use that as my escape clause. 

Cassidy: That sounds good. We won't hold your feet to the fire on any of this. But I just want to ask, because a lot of market participants are wondering, what can we see in the '25 horizon? Thanks, as always for your time today, Dave. I think those are all the questions. Again, if listeners want to continue to submit those to us, we love to talk about and answer any questions that they're particularly interested in. Any final closing thoughts from you, Dave? 

Dave: Not really. Like I said, I think we're very relaxed right now, waiting for some kind of indication. Is it an upward inflection point? Is it a downward inflection point? I'm going to stick to my guns now and say we're poised for market softness. Are prices going to be cut in half across the year? I don't see that at all. But I think we are poised to see a decline. In fact, if I remember the outlook that just came out, the 2024 average prices in the U.S. and we'll also stick with the U.S., 2024 and 2025 average prices for the full year are almost the same. 

The difference is '24 was a total upward slope, and '25 is going to be more of a downward slope. So, while I talk about softer pricing, even that statement gets deflated when you say, yeah, but the average price is unchanged. But it's the direction. So, the good news is, for me anyway, the market changes almost daily. It ensures that I've got a job to do and give opinions, which I love to do. So, yes, like you said in wrapping up, we're just going to see. But we're on the other side of that mountain now. 

Cassidy: I think just kind of some just relief from the market is what you were alluding to, we'll be interesting to see it play out in the next couple of months. 

Well, we'll be back next month for another episode of the Methanol Puts-and-Takes podcast. We hope to see you all at AFPM.