aztecwildsmegaways| Coal prices are volatile and weak, methanol supply is tight, short-term prevention of deep decline risks: 2,600 - 2,750 yuan/ton estimated range

News summary

The thermal coal market is volatile and weak, and port traders are optimistic about summer demand expectations. The amount of methanol arriving in Hong Kong is small, and the arbitrage window from the mainland to the port has opened. Short-term methanol prices fluctuate between 2,600 and 2,750 yuan/ton, and arbitrage strategies are diverse, so we need to be vigilant against macro and supply risks.

Newsletter text

[Coal pricesaztecwildsmegawaysVolatility of the chemical industry means both opportunities and challenges for the chemical industry and investors]

Despite fluctuations in coal prices, the profit margin of methanol producing areas has decreased, but the overall profitability level is still optimistic. The thermal coal market showed a volatile and weak trend. Coal prices in the main producing areas have stabilized and declined. Affected by the slowdown in procurement demand in the metallurgical and chemical industry, the market wait-and-see attitude has increased. However, there is currently no inventory backlog at the coal mine end, and coal prices are expected to remain stable and weak in the short term.

Port demand was sluggish and inventories accumulated slightly. As late May approaches and the peak summer stocking period approaches, port traders are more optimistic about future market expectations. It is expected that coal prices will continue to move forward in shocks before demand increases significantly.

In May, the arrival of methanol in Hong Kong fell short of expectations, the available supply of goods was tight, and port inventories were rapidly reduced, resulting in a significant increase in the basis and the arbitrage window from the mainland to the port was opened. The operating rate of domestic methanol continues to decline in the context of spring inspections, but it is expected that supply will gradually pick up as the plant is restarted. Methanol imports were insufficient in May, and import increases are expected to be limited in June, which will be affected by centralized maintenance in Africa and Iran.

On the demand side, resistance to high prices has increased, resulting in a significant decline in operating rates in the MTO industry. Demand for olefins has also decreased significantly. Profits in traditional downstream industries continue to decline and have begun to enter the seasonal off-season. Although methanol is unlikely to fall deeply in the short term due to the support of strong basis and low inventories, the driving force for methanol price rise is expected to gradually weaken due to the expected weakening of supply and demand margins.

Operational recommendations show that there is still support in reality, but it is expected to gradually weaken, and the short-term price range is expected to fluctuate between 2,600 - 2,750 yuan/ton. Arbitrage strategies include the possibility of expected high port basis falling back, the reverse hedging of MA9 -1, the short-and medium-term operating strategy across varieties PP-3*MA, and the volatile operating pattern of MA-UR09.

In terms of risk factors, upside risks may include macro positive and overseas supply interference, while downside risks involve a sharp drop in coal prices and negative feedback effects from olefins.