The European spot methanol market surged to a 16-month high Wednesday, tracking the soaring Asian market, setting a bullish stage for the negotiations of the first quarter contract price.
The spot price gained 5.5% on the day rising to Eur286/mt ($309/mt) FOB Rotterdam. Last time spot prices were higher was in August 2015, when spot methanol was assessed at Eur286.50/mt.
The spike was fueled by Asian methanol prices, which leaped 13.5% in two days to close at $335/mt CFR China Wednesday against the backdrop of a strong olefins markets in the region.
Following last week's rise in crude oil prices the economics of methanol-to-olefins production has improved compared to production from traditional feedstocks, such as naphtha. Furthermore, methanol buying is supported in Asia by the anticipated start-up of new MTO plants in China in December and Q1.
The arbitrage from Europe to other regions was currently closed, even though Europe remains the lowest priced region globally. The discount to China was $26/mt and to the US $27/mt. Freight rate from Europe to the US was around $20-25/mt, suggesting the arb was open on paper, but would hardly entice anyone to work it due to a lack of margin.
The increase in European spot prices coincides with the start of negotiations for the European contract price for the first quarter of next year. If the new CP was settled at the level suggested by the current spot price and with a typical discount for this year of 18%, the gross ECP would equate to Eur349/mt, or a Eur101/mt increase from Q4.
