Methanol Prices Will Come Under Pressure

Business Standard: What is the demand-supply situation of methanol in the domestic market?

K F Jagdish: The present installed capacity of pure methanol in the country is at 3,89,000 tpa. Add to that around 60,000 tpa of by-product generated by the polyester industry, and the total availability of methanol comes to around 4.50 lakh tpa. However, the demand is around 4 lakh tpa, and the annual growth is between 4 and 6 per cent.

I feel there will be a significant drop in capacity utilisation of the industry in the near future as imports are set to zoom on account of the substantial cut in import duty from 50 per cent to 30 per cent.

 

BS: What is the current price trend of methanol in the domestic and international markets? Why ?

KFJ: In the past few months, the domestic prices of methanol have remained fairly stable, hovering in the range of Rs 9,000 to 9,500 per tonne (exclusive of excise duty and taxes).

But, they are going to come under pressure in the coming months if large imports, as expected, due to substantial cut in import duty, take place.

In contrast, the international market operates purely in the context of demand-supply situation prevailing from time to time.

In 1992-93, the global prices of methanol fell to as low as $100 per tonne C&F. This was because large methanol capacities were planned in expectation of good demand from the new methyl tertiary buthyl ether (MTBE) facilities, which were coming up. But the same got delayed. The huge surplus resulted in fall in the prices. Subsequently, when the MTBE plants went on stream, the surplus gradually dried up and led to a more or less balanced situation between demand and supply.

This resulted in the prices firming up to $275 per tonne C&F in 1993-94. However, the supplies were following the closing down of large Dutch plants in 1994, resulting in the prices going up to $500.

On account of sharp rise in methanol prices, MTBE producers found it difficult to operate their plants, forcing them to curtail methanol output.

At the same time, the producers built up large inventories in the hope of further rise in prices.

The combined effect of sharp curtailment in demand and the simultaneous release of large stocks caused a dramatic fall in the prices which, in due course of time, slipped to around $135 per tonne C&F.

But during the current year, the prices have firmed up to around $180 per tonne C&F.

BS: What is the country's export position of methanol?

KFJ: Traditionally, the country has never been able to export methanol because of the high cost of production and hence higher prices, compared with substantially lower prices prevailing in the international market.

It was only the during the period between end-1994 and early 1995 that the Indian producers got the opportunity to realise higher profits by exporting the product, as the global prices then were ruling very high.

Thereafter, exports dried up following a sharp drop in the international prices.

BS: What is the global production scenario of methanol?

KFJ: At present, the world capacity is around 30.7 million tpa, which translates into a surplus of over 5 million tonnes. The capacity utilisation now is approximately 82 per cent. On account of sharp increase in methanol prices in 1994-95, several new capacities were announced.

If all these capacities materialise, the total world capacity will touch 37.4 million tpa by 1999. By that time, the world demand is likely to be a little over 27 million tpa. This will result in a surplus of over 10 million tpa.