A cocktail of factors including methanol spot prices at multi-year highs in Europe, indications from Asia, and tight logistics has led to expectations the second-quarter contract price will be at least 10% higher than the first quarter.
Estimates by traders of the second-quarter contract price ranged from Eur390-440/mt ($411/$464/mt) FOB Rotterdam. The first-quarter contract settled at Eur355/mt FOB Rotterdam.
Those forecasts were based on a higher average spot price in the first quarter, though there were mixed views on what has driven methanol higher.
"Europe is a net importer of methanol and prices need to be attractive enough to lure product in. Since it is much cheaper for Middle Eastern producers to ship product to Asia, European prices need to come at a premium to Asia that would reflect the extra freight costs," A producer source said.
A second consumer source said: "China is the largest buyer and importer, so European and US prices should price at a discount to Asian prices. Europe should be China minus freight".
Either way, Asian prices continued to be seen as the main indicator for the direction of European spot prices, and Chinese methanol-to-olefins demand strength has been closely watched to determine how much of the global supply will be consumed in Asia.
"March contract offtake is at maximum nomination ahead of the Q2 price settlement. Everyone knows it will be higher," a trader said.
European spot methanol was last assessed at Eur387.50/mt FOB Rotterdam while the US priced at 125 cents/gal ($416.25/mt) FOB USG. Asian prices were assessed at $375/mt CFR China Thursday.
The current European spot methanol price is at a 9% premium to the contract price excluding contractual discounts, strengthening the case for a price rise in the second quarter.
S&P Global Platts estimated the 2016 contractual discounts at 15%-17%, with sources saying this year's discounts were either on a par or slightly higher. Most of the methanol in Europe changes hands through contracts.
"I am not looking at the spot market. It does not make any sense for me at all. I get all the material I need on contract plus the discount", a consumer source said.
"A rise [in the contract price] close to Eur100/mt would be quite a disaster. We cannot keep passing on price rises to our customers especially when it is that steep, they have their own limits beyond which it is no longer affordable. Hopefully China will be quiet over the next several weeks and that will calm things down in Europe and the US," the source said.
SPOT PRICES
Methanol spot prices in the first quarter received support from low Rhine water levels. At Kaub, Germany, a key choke point, the level was around the 60 centimeters mark for a time.
Barges either loaded less than a quarter of normal capacity or refused business for fear of getting grounded. Barges in Europe prefer a Rhine level of at least 150 cm.
The problem became compounded by production issues including seasonal gas curtailments in the Mediterranean and Middle East.
While Rhine water levels have improved, markets have remained tight with limited supply of spot product.
