Methanol, the space below is very limited

At present, due to the weakness of the fundamentals, methanol futures price lacks endogenous upward mobility, but the price gap and price-to-price relationship with related varieties have digested the shortfall, and the space below methanol price is limited. We believe that the methanol market will be extremely prosperous in the next three months. Under the background of macro overall improvement, methanol should be added along the low light warehouse along the oscillation interval, and the risk ratio of long-term holdings is higher.

Weak supply and demand side drags up the period price

In the first quarter, the methanol futures price was weakly consolidated in the range of 2450-2600 yuan/ton, with occasional breakthroughs upward or downward, but the range was small and the duration was short, which indicated that a multi-empty phase equilibrium had been formed in the current price range.

PVA 0599 (PVA BF05)

From the static environment, the supply and demand side of methanol is weak. On the eve of the Qingming Festival, the methanol inventory of East China Port increased by 232,500 tons to 654,000 tons in the year. Although it fell back to 606,500 tons after the Qingming Festival, it is still the highest level in the same period in the past eight years, which is 244,200 tons higher than the average level in the same period in the past seven years. On the supply side, according to statistics from Jin Lianchuang, as of April 11, the start-up rate of domestic methanol plants was 63.62%, which was 8.76% lower than the peak level on March 18, and the spring inspection intensity was similar to that of previous years, but the start-up rate was still the highest level in the same period in the past six years, which was 6.79% higher than the average level in the same period in the past five years. Therefore, high inventory and high start-up are the main reasons for dragging methanol forward price.

Industrial Chain Price Spread Reflects the Disadvantaged Reality

Since the large-scale production of MTP plant in China in 2016, PP, as the leading product of downstream methanol consumption, has a great influence on the trend of methanol futures price. According to the theoretical unit consumption of MTP unit, when we observe the change of the price difference between PP and methanol futures, we use the futures price of PP minus 3 times the futures price of methanol as the calculation formula.

This year, the price gap between PP and methanol futures index has been running at a high level for a long time. As of April 15, the price gap between PP and methanol futures index was 1304, up 472 from the beginning of March, which is in the top range since 2016. From the historical data, the price gap rarely breaks through this high, only in 2016 it breaks through this resistance level significantly and continues to rise, but at that time it was the oscillating consolidation of PP strong rise and methanol superimposed. Therefore, the high price difference will form a strong underpinning effect on methanol futures price.

In addition, the price trends of PTA/methanol, power coal/methanol and WTI/methanol are at the top of the range since 2016, supporting methanol from the overall chemical plate, cost surface and substitution effect.

Therefore, the current futures price of methanol is at a historic low compared with the varieties with high correlation. The high price difference or high specific price fully reflects the weakness of methanol fundamentals at this stage. Unless there is systemic risk, the space below methanol is very limited.

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The domestic economy is showing signs of improvement.

According to data released by the National Bureau of Statistics, PMI data of manufacturing industry rose 1.3% to 50.5% in March, returning to the line of prosperity and decline, the biggest monthly rise since 2012. In March, the production index, the new order index, the purchase price index of raw materials and the ex-factory price index all rose to their highs in the past six months. In addition, in dollar terms, China’s exports in March increased 14.2% year-on-year, while expected to increase by 6.5%. From the capital level analysis, the growth of social finance rebounded to 2.86 trillion yuan in March, about four times the previous value; the new loan of RMB 1.69 trillion yuan also rebounded sharply from the previous value. In March, M2 money supply increased 8.6% year on year, reaching a 13-month high; M1 money supply increased 4.6% year on year, reaching an 8-month high. At present, domestic demand, foreign demand and capital show that the domestic economy is in good shape.

On the contrary, the possible changes in the future, whether the formal commissioning of new olefin plants or the possible instability of supply in domestic and foreign production plants, all present a picture of whether the price of methanol is extremely high or not. From the point of view of the trend of the price difference between the port inventory and the domestic cross-regional price in the past five years, the change of the port inventory leads the trend of the domestic cross-regional price difference for five months. If this rule continues, the port market will be significantly stronger than the mainland market in the coming May-July, thus supporting the futures price.

In short, in the context of macro overall improvement, the performance-price ratio of long-methanol futures in the next three months is much higher than short-selling.

POLYVINYL ALCOHOL