The Middle East conflict's ripple effect causes another surge in the price of a key raw material

The impact of conflicts in the Middle East on global supply chains is spreading further from the energy sector into the chemical industry chain. As an important raw material linking energy and manufacturing, international methanol prices have recently risen noticeably.

Middle East conflicts push up international methanol prices

Global chemical supply chains under pressure

Methanol is an important basic chemical feedstock. It is used to produce core chemicals such as methyl tert-butyl ether, acetic acid, and formaldehyde, and it is also widely used in the production of fuel additives and everyday consumer goods such as plastics and building materials.

S&P Global Energy’s latest report shows that since the outbreak of the Middle East conflict, spot methanol prices in Southeast Asia, India, Europe, and the United States have all risen to varying degrees. In particular, from the outbreak of the conflict to March 20 local time, the CFR Southeast Asia methanol import price, which includes freight, has surged by 72%. On March 20, it reached $555 per ton, the highest level since March 26, 2021.

The Middle East conflict has led to methanol price increases for several main reasons. First, from the supply side, global methanol production mainly follows two pathways: one uses natural gas as the feedstock, and the other uses coal as the feedstock. Methanol production from natural gas, which has lower costs, is mainly concentrated in the Middle East.

Second, in terms of transportation, methanol exports from the Middle East are highly dependent on shipping, especially through the Strait of Hormuz. Against the backdrop of heightened tensions, disruptions to shipping increase freight and insurance costs, thereby driving up the landed price. In addition, with supply uncertainty, the market also shows a pattern of early procurement and stockpiling, further amplifying price volatility.

Overall, currently, about 18 million to 20 million tons of methanol supply per year in the Middle East region has been constrained.

Methanol prices trade at high levels with volatility

China’s downstream companies take multiple measures

Affected by the situation in the Middle East, domestic methanol prices in China have also been rising steadily in recent days. Spot methanol prices once exceeded 3,300 yuan per ton. This week, prices have continued to trade with high-level volatility. With raw material prices fluctuating, how should downstream production companies respond?

Reporters learned that China’s methanol self-sufficiency rate is above 80%, but there is still a gap of less than 20% that depends on imports, most of which come from Middle Eastern countries. Recently, with tensions in the Middle East, maritime transport has been less smooth, the volume of imported methanol arriving at ports has dropped sharply, and prices have risen accordingly. The increase from the year-to-date low has exceeded 50%. On March 25, the domestic spot methanol price was 3,140 yuan/ton. The week-on-week increase was 1.45%, and the month-on-month increase reached 46.2%.

Because methanol is a flammable liquid, transporting it requires dedicated tank trucks, and there are many cases where transport vehicles flow in one direction and return empty. This results in higher costs for long-distance transportation, which account for 15%-30% of the methanol price. As a result, methanol downstream companies along the coast at ports tend to purchase imported feedstock that depends on sea freight. Affected by this, their feedstock costs have increased noticeably in recent days.

With a reduction in imported feedstock, many downstream companies are actively shifting to the domestic market to seek alternative supplies. In a chemical company in Lianyungang, Jiangsu, reporters saw many methanol tanker trucks lining up to unload cargo.

A relevant person in charge of the company told reporters that previously about 60% of their methanol feedstock came from imports. Now they are increasing the proportion of domestic methanol purchases, while also storing large amounts of feedstock in their warehouses.

At the same time, domestic coal resources have advantages, and coal-based methanol production capacity can basically cover demand from domestic downstream enterprises.

Source: People’s Daily, CCTV Finance

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