Market and product

European methanol spot prices slumped to fresh multi-year lows Thursday as buyers stayed away amid a volatile oil environment and overcapacity in the US.

Northwest European methanol for loading 5-30 days forward was assessed at Eur174.50/mt FOB Rotterdam Thursday, down Eur3.50 from Wednesday and Eur14.50 from last week as prompt January offers came down to Eur175/mt FOB Rotterdam.

Thursday's European assessment was the lowest since August 3, 2009. The US market followed, falling to a fresh 82-month low. US methanol was assessed at 40.25-40.75 cents/gal FOB USG for January and February, down 1.50 cents day on day, the lowest level since March 25, 2009, according to Platts data.

So far in Friday trade, January and February offers were seen at Eur175/mt FOB Rotterdam, stable from Thursday.

Since the start of the year, the European methanol market has shed almost Eur30/mt, or 14.5%, as capacity additions in the US over the past 12 months have brought the changing export flows from Latin American and Caribbean producer more sharply into focus and as a result Europe was looking to US prices for direction, sources said.

Domestic US methanol production capacity has more than doubled since the start of 2015 to 5.75 million mt/year.

These traditional Latin American and Caribbean suppliers, whose products have been displaced, are having to to find alternative markets in China, and since China is now consuming less, Europe has become a more likely destination for additional tonnes, some sources said.

"No-one is really buying when the US is where it is," a trader said.. "Consumers at this level would think to buy a bit when you think where the price is."

The plunge in spot prices since the start of the year has meant that the discount of spot versus the first-quarter contract price has dropped to 34%, which three weeks into the quarter has led to concerns among some traders that it will set a marker for the Q2 contract price negotiations, one industry source said.

But consumers are still not interested in buying the cheaper spot volumes, given the volatility in play, the trader said.

Most European consumers don't tend to want to keep product in storage, preferring instead to take regular contract volumes, the trader said.

"Normally when you are at floor, it could represent a pull," the trader said. However, buying behavior suggests the market has not hit a floor and could continue to fall further, he said.

The industry source predicted the spot price would soon reach a discount of Eur100/mt, or 37%, to the Q1 contract price.

"Can you imagine what's going to happen with the CP next quarter?" he said. "Everybody thinks that there is room for the market to go down," and nobody is taking a position, he said.