The Chinese domestic methanol price has surged 29%, or Yuan 740, since the beginning of this month to be assessed at a 35-month high of Yuan 3,250/mt Friday, according S&P Global Platts data.
This surge was driven mainly by China's soaring futures market, industry sources said.
Market participants have noted increased investment into the commodity sector in recent months, primarily via the futures market.
"[I am] definitely worried that hot money is flowing into the methanol futures market," an end-user said, referring to funding from retail investors and the financial sector.
The actively traded May methanol futures contract on the Zhengzhou Commodity Exchange has surged Yuan 452 since the beginning of December to Yuan 2,960/mt as of market close Friday, ZCE data showed.
Import prices have also risen in response.
Platts CFR China methanol weekly assessment surged $20 week on week Friday to $354/mt, a 26-month high.
While the price surge was seen to be a boon for international producers negotiating annual term contracts, it has severely cut margins for downstream markets.
Even China's methanol-to-olefin plants, which experienced relatively high margins this year, have been hit by rising feedstock prices.
MTO polyethylene margins were minus $97/mt on Friday, down from an average over the first to the third quarters of plus $249/mt. MTO polypropylene margins were significantly lower, at minus $197/mt, down from plus $61/mt in Q1-Q3.
MTO margins are calculated using assessed CFR Far East Asia PP raffia marker and linear low density PE film marker, minus the cost of producing olefins.
The cost of producing olefins equates to about three times the CFR China methanol feedstock cost plus $200/mt for fixed costs.
According to a development plan published by China's Ministry of Industry and Information Technology in October, the long-term outlook for methanol looks bullish with demand growth expected to average 8.8% a year until 2020 due to urbanization.
Industry sources, however, predict a potentially choppy 2017, with weak short-term demand from traditional methanol end-users such as formaldehyde and acetic acid.
If low MTO margins continue into the next year and hit operating rates, they could remove a key support from prices in Q1.
