Polyethylene-methanol margins in Asia are hovering at a three-year low due to a combination of weak PE demand and supply-driven strong feedstock methanol market, S&P Global Platts data showed.
The margin stood at minus $264/mt at 0830 GMT, close of Asian trade Tuesday, with high density polyethylene assessed at $1,150/mt CFR Far East Asia and methanol at $373/mt CFR China. The margin was last lower on February 20, 2014, when it stood at minus $280/mt.
The calculations are based on market sources' estimates of methanol feedstock consumption of 3:1 methanol:olefins plus an estimated total utility and ethylene conversion cost of $290-$300/mt to polyethylene.
PE-methanol margins have turned negative since November 2016 as methanol prices have been rising predominantly due to curtailed supply from Iran, market sources said. At the same time, margins were undermined by weak PE demand in Asia, sources added.
PE demand from the downstream plastics sector has taken a hit so far in 2017, due to a slowdown in China's GDP growth. PE stocks at Chinese ports are currently at a record high of around 500,000 mt, they added.
Methanol-to-olefin units were said to be currently running at low rates, although exact operating rates could not be confirmed.
The percentage composition of spot methanol-based PE is expected to rise to 1.33% of global PE production in 2017, from 0.96% in 2016, which would amount to a year-on-year increase of 38%-39% in PE manufactured from methanol purchased from the spot market, according to Platts calculations.
PE-methanol margins in Asia are likely to remain in the negative in the short term, perhaps for most of 2017, given the economic outlook in Asia, according to market sources.
The International Monetary Fund estimates Asian GDP growth rate at 2%-3% in 2017, one to two percentage points lower than in 2016.
