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FEATURE: China's outlook on tank space availability in July mixed

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Higher tank fees could incentivize short-term storage

But weak downstream demand sees slow discharge rate at tanks

Heavy Middle East imports will likely extend storage tightness

China's tank terminal operators' announcement to increase storage fees has seen some immediate results in the domestic methanol market, but whether higher tank fees will translate to improved availability of storage space at China's eastern ports from July remains unclear.

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High operating rates at methanol plants across the Middle East, Europe and Asia, coupled with weak downstream demand in China due to the coronavirus pandemic, has lead to high inventory levels of around 1 million mt a week at China's eastern ports since April, data from Chinese market research firms showed.

As a result, tank storage space in east China has been extremely tight for the past eight weeks, and ships have waited 15-20 days at anchorage to discharge cargoes, trade sources said.

Rather than incur exorbitant demurrage costs, sellers without tank space had to sell seaborne methanol cargoes at discounted prices.

Non-sanctioned Middle Eastern cargoes have been sold at $165-$175/mt CFR China in recent weeks, compared with $250-$255/mt CFR China in January.

To address the shortage of tank space for methanol, Nantong Qianhong Petrochemical Port Reserve in mid-May announced it will charge traders Yuan 1.50/mt a day if they do not clear their volumes within five days after squaring off hedges, then Yuan 3/mt a day from the sixth to the 10th day, before rising in stages to Yuan 15/mt a day.

Zhangjiagang Changjiang International on May 18 announced it will increase its storage fees to Yuan 2/mt a day from June 1, and Yangtze Petroleum also raised its fees to a similar level.

Taicang Powershell hiked its charges to Yuan 1.5/mt a day for the first seven days, rising to Yuan 3/mt for the next seven days, and a further Yuan 5/mt a day thereafter, from June 10.

Trade sources, however, were divided whether higher storage fees would free up tank storage space in July.

Some end-users told Southeast Asian methanol producers that the tight storage situation would ease next month.

However, other Chinese market sources were doubtful as heavy imports from Saudi Arabia and Iran are expected to continue unabated, they said.

Iran's Middle East Kimiaye Pars Company's 1.65 million mt/year plant commenced operations in May and Bushehr Petrochemical Company's 1.65 million mt/year plant in February, and are expected to ship methanol to China by the end of June or July, sources close to the matter said.

"No matter how much the [storage] cost is, it's hard to find any additional tank space," said a distributor.

Even though Chinese CFR methanol prices are at an 11-year low ,the Chinese market is still seen as the best option for seaborne cargoes, simply because of its size and the ability of its end-users to take large parcels of 20,000-40,000 mt at one go.

China's methanol imports rose 47% on year to 10.89 million mt in 2019, according to Chinese customs data, making it the world's biggest methanol importer.

CFR China methanol prices in the week ended June 5 was around $152/mt, well below the previous record low of $161.50/mt CFR China set on December 18, 2008, S&P Global Platts data showed.

Meanwhile, China's downstream industries such as methylene diphenyl diisocyanate, formaldehyde and superplasticizer reported slow sales for May and June as export orders had yet to pick up to pre-COVID 19 levels, and the rate of methanol discharged from tanks has been slow as a result, trade sources said.

Tank terminal operators' move to increase storage fees has seen the spread between paper and cash goods for east China, narrow to around Yuan 30-50/mt the week ended June 5, compared to Yuan 100-120/mt a month ago.

Market sources welcomed the narrower spread as two sets of domestic prices made the market messy, they said. Before April, ex-tank cargoes sold to end-users were the same price as paper goods, which is methanol stored in the tanks for position-taking in the futures markets.

Methanol inventory remains high in Taicang because cargoes there are typically used for position-taking and only occasionally delivered, sources said.

To alleviate storage tightness in east and south China, traders in April starting selling ex-tank cargoes to end-users at Yuan 100-120/mt lower than their paper equivalent, which has led to a two-tiered domestic methanol market since. But higher tank storage fees has narrowed prices between paper and cash goods, and led to a slight improvement in the tank situation, some trade sources said.

Taicang prompt spot cargoes sold to end-users were heard around Yuan 1,470-1,500/mt in the week ending June 5, while paper goods for prompt spot discussions were heard at Yuan 1,525-1,535/mt in the same period.

However, trade sources concede the jury is still out whether higher tank fees would free up storage capacity. A lack of space would only extend selling pressure on producers and traders, they said.

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