Methanol demand is sinking with no quick recovery in sight

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Petrotahlil - India's methanol demand is taking a hit from the nationwide closures to stem the coronavirus pandemic, with little prospect of a quick recovery as the country faces severe ullage issues and demand erosion from the downstream sectors, according to sources.

The formaldehyde sector, which generates 40% of India's methanol demand, manufactures paints, laminates and plywood -- all of which have grown in sales and demand over the last decade as India's middle class expanded.

But the recent containment measures across India's major cities are hindering transportation and distribution of chemicals such as methanol, acetic acid and polymers.

Mirroring the worries, methanol prices plunged to an 11-year low of $156/mt CFR India while crude oil futures plummeted to $24.88/b last Wednesday.

The last time CFR India methanol prices were lower was during the Christmas of 2008 till the end of January 2009, when prices languished at $147.50-$152.50/mt CFR India, and front-month Brent crude oil futures traded around $44-$45/b, S&P Global Platts data showed.

Operations at plywood and formaldehyde sectors rely heavily on migrant laborers, but most of them returned home to their villages after the countrywide lockdown began on March 25.

The government is considering easing restrictions in low-risk states once the lockdown period ends on April 14, while high-risk states could see quarantine measures continue for 28 days more, according to a media report this week.

But there's little to cheer.

Even if restrictions on people's movements were partially lifted, methanol demand in India is not expected to recuperate so soon, as the coronavirus pandemic has not only dented buying sentiment, but created economic uncertainty, trade sources said.

India's home ministry has proposed that a state reporting more than or equal to 50 active coronavirus cases be classified as stage 4, where all education and transport services would remain suspended under a lockdown.

Railway, bus and air transport services could resume in stage 3 states, where there are more than or equal to 20 active cases but less than 50, however, inter-state travel will remain suspended and, entry and exit into such states will not be allowed, said trade sources.

No immediate recovery?

Operations at Kandla and Mumbai -- India's main ports for methanol cargoes -- have been hindered by a lack of manpower and tanker trucks, resulting in rising methanol inventory levels in tanks.

Mumbai's AEGIS Terminal is said to have only 10-20% ullage for storing chemical products, and the arrival of fresh methanol and acetic acid cargoes in the next few days, will compound ullage issues, shipping sources said.

At Kandla, cargo movements from the terminal to factories have been held up due to the non-availability of sufficient tanker trucks and truck drivers.

Additionally, Kandla's port authorities last Thursday decided to operate only on two shifts instead of three, from 7am to 7pm and 7pm to 7am until the lockdown is no longer in force, thereby slowing operations at the port.

"We face severe ullage issues and weak downstream demand even if the lockdown is lifted," said a trader. "Methanol prices will recover, but it won't be immediate," he added.

Ample supply from the Middle East and Iran to west coast India is expected to resume once border restrictions ease, albeit with strict quarantine conditions. However, for balance to be restored, Indian consumer demand for plywood, paints, insulation and textiles needs to re-emerge.

Platts

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