Dip in demand: US to push methanol cargoes towards Asia and Europe
The coronavirus (COVID-19) pandemic has hit the global economy harder than expected with countries applying various degrees of lockdowns to prevent its spread. The US is no exception with weak industrial activity hurting domestic methanol demand. The country is a net importer of methanol and in the 1Q20 imported 690,000 tonnes of methanol, a rise of 18% on 4Q19. However, weak domestic demand in the 2Q20 coupled with mounting inventories is now forcing US producers to export methanol to Asia and Europe. Consequently, freight rates for coated MR2 tankers are expected to pick up on these routes as this trend will continue in the remainder of 2020.
Methanol is primarily used in the production of formaldehyde, methyl tertiary butyl ether (MTBE) and acetic acid. In turn formaldehyde is used in making resins and glue for wood products, with end applications in the automotive and housing sectors. Formaldehyde production in the US is running between 10% and 30% lower than the usual because of muted economic activity in the automotive and housing sectors.
Methanol is also used as feedstock in the production of MTBE which is a gasoline additive. US MTBE production has plummeted by more than 50% due to weak demand for blended gasoline amid movement restrictions to curb the spread of the virus. US MTBE exports also slid 26% in 1Q20 compared with the 4Q19 to 535,030 tonnes, with 11% and 50% falls in the volume of exports to Japan and Mexico respectively.
The acetic acid industry has also been dented by reduced demand in the US where production is down by 50% due to weak polymer demand. Celanese, a Texas-based chemical maker, has deferred the construction of a new acetic acid production unit by 18 months.
Amid these conditions the US is exporting increased quantities of methanol to South Korea, the Netherlands, and Taiwan. For example the US exported 558,000 tonnes of methanol in 1Q20, 38% higher than in 1Q19 and 56% higher than 4Q19. Of this, the lion’s share – 300,300 tonnes – was exported in March, a massive 167% increase on exports in February. We expect this uptick to prevail in the remaining months of 2020, with methanol exports from the US reaching approximately 630,000 tonnes in 2Q20. Just over 50% of these exports went to Europe and a further 20% to Asia. This rise in exports to these destinations can be attributed to the fact that economic recovery in Europe and Asia is running at a faster pace than in the US.
As a result of these developments we expect freight rates for coated MR tankers to improve on US-Northeast Asia and US-Northwest Europe routes in the remaining months of 2020 as they are the preferred tankers for methanol shipment. Meanwhile, tight supply of MRs will continue in the long-haul chemical shipping market amid a buoyant CPP market.