Quiet Changes in the Methanol Supply Mode

The coal chemicals sector, the new coal chemicals sector in
particular, has been emerging fast in China in recent years. The
production scale of methanol as an important coal chemical
product has expanded constantly. The methanol supply mode in
China is therefore also undergoing quiet changes.
   Both the production capacity and the actual output of
methanol have increased constantly during the past few years.
Output increased rapidly from only 2.065 million tons in 2001
to 5.356 million tons in 2005 but still cannot meet the brisk
domestic demand. The imported amount of methanol has been
relatively stable in the past five years at more than 1.30
million tons a year. The exported amount of methanol is very
small. In spite of the increase in the product self-sufficiency
rate, methanol importers still hold a considerable share of the
domestic market.
   The methanol market in China will however change
fundamentally after 2007. Data from customs show that China
imported only 105.9 thousand tons in the first four months of
2007. The amount in the same period of 2006 was 394.1 thousand
tons. In contrast, the export amount increased sharply from 29.1
thousand tons in the first four months of 2006 to 317.4 thousand
tons in the same period of 2007.
   As a matter of fact the import of methanol in China started
declining from August 2006 whereas the export increased. In
December 2006 the long-time situation of the import amount being
higher than the export amount was reversed. Perhaps because data
for a particular month were not enough to change the overall
picture of the year, the transition failed to arouse due
attention. Regardless of this lack of attention, the
import-export balance has been completely different in 2007. If
the new preponderance of exports lasts a long time, China will
have turned into a net exporter of methanol. The main reasons
are as follows:
    (1) The output of methanol in China is increasing rapidly.
The high economic performance of methanol production and the
sustained growth of demand for methanol derivatives have driven
the expansion of methanol capacity. Methanol projects starting
production in 2006 mainly included the 300 thousand t/a unit in
Qinghai Oilfield Germu Refinery (CCR 2006, No. 30), the 200
thousand t/a methanol project in Karamay Petrochemical Industry
Zone. (CCR2006, No. 35), the 600 thousand t/a methanol unit of
China BlueChemical Ltd (CCR2006, No. 27), 600 thousand t/a
methanol unit jointly constructed by CNOOC and Hong Kong
Kingboard Chemical Holding Ltd, and 200 thousand t/a methanol
project in Shandong Yankuang International Coking Co., Ltd.
(CCR2007, No. 1) The output of methanol in China reached 3.886
million tons in the first five months of 2007, an increase of
40.6% and the output growth is much higher than the consumption
growth. Because of the new output, the market share of imported
products has been greatly squeezed, the amount reducing rapidly.
    (2) Methanol production around the world mostly uses natural
gas as the raw material. Due to the impact of factors such as
raw material price rises, the price of methanol in the
international market started to go up from August and September
2006 and the domestic price of methanol therefore increased
rapidly. However, since 2007, due to the rapid output increase
of methanol, the price of methanol has been dropping
dramatically. Methanol production in China mostly uses coal as
raw material and therefore has a cost advantage. In terms of
economic performance, the margin of methanol projects is
relatively high, and methanol producers in China prefer to
export their products and the export amount has increased
gradually.
   Statistical data provided by the China Petroleum and Chemical
Industry Association in 2006 show that China has 88 methanol
projects planned for construction, pushing national production
capacity up to 48.5 million t/a. Only fewer than 20% of these
projects have started construction and the capacity of those is
around 9.0 million t/a. These projects will reach the design
capacity in the next few years and there will be a serious
oversupply at that time. Of course, these projects usually have
their own downstream units. In theory methanol they produce is
not an end product. Nevertheless, these large integrated coal
chemical projects are to be constructed in phases. At first only
the methanol units start production. Due to the long
construction cycle, medium and long-term downstream units are
not yet completed and some of them are still under preparation.
The newly added methanol capacity will therefore impact the
methanol market and change the present methanol supply mode in
China.  According to experts, China has become a net exporter
of methanol and this situation will last a few years. Domestic
products will not only further squeeze the market share of
imported products but also hold a dominant position in the
domestic market. The impact on the international methanol market
will also become greater.

Production and Consumption of Methanol
   in China in Recent Years    (thousand tons)
Year        Output       Import        Export    Consumption
2001       2 064.8    1 521.3            9.6      3 576.5
2002       2 109.5    1 799.6            0.9      3 908.2
2003       2 988.7    1 401.6           50.8      4 339.5
2004       4 406.4    1 358.5           32.9      5 732.0
2005       5 356.4    1 360.3           54.5      6 662.2
2006       7 622.5    1 127.3          190.0      8 559.8
Source: CNCIC