Rising Methanol Costs and Southern Plant Resumptions Drive MDC Market Uncertainty

Chemical Price

• A sharp surge in the Asian benchmark, marked by CFR China methanol prices, has been attributed to the ongoing tensions between Iran and Israel, which are projecting higher methanol costs. Consequently, the market anticipates a rebound in the MDC market.
• Domestic manufacturers in the western region are currently offering higher prices, at ₹36++ ex-plant for bulk deals and ₹38++ ex-plant for spot deals to traders and small to medium consumers for October shipments. Bulk contracts are available in the range of ₹35++ ex-plant, valid until November 2024. The ongoing war situation is altering production dynamics, contributing to higher replacement costs of methanol.
• In the southern region, Sreyas Industries Ltd has resumed its operations and is expected to produce approximately 3,000 tonnes in October. Additionally, there is speculation that TGV SRAAC plans to launch a new MDC plant with an additional capacity of 80 metric tonnes per day following the Diwali festival.
• Week-on-week, MDC prices have increased by ₹2.5/kg due to rising feedstock costs.

Chemical Demand and Supply

• Supply remains robust, bolstered by the resumption of operations at Sreyas Industries Ltd, which is expected to cater to the east coast with its first commercial batch of 3,000 tonnes this month, according to market participants.
• This new plant has introduced uncertainty regarding 30% of the South Indian demand for MDC; however, this is unlikely to impact the overall MDC market for three key reasons, as noted by a market participants.
• First, producers in the west and south have reduced their production output in light of Sreyas's entry. Second, the export arbitrage window is benefiting domestic manufacturers by facilitating exports. Third, the escalating feedstock methanol prices, driven by the ongoing war tensions, are further complicating the market dynamics.
• However, demand from primary consumers in the bulk drug sector remains weak in October 2024 due to reduced production rates, which could potentially lead to a bearish trend. Traders are anticipating a price correction.
• India’s downstream consumption of MDC, which spans sectors such as bulk drug manufacturing, paint stripping, metalworking, and polyurethane foam production, is estimated at approximately 30,000 tonnes per month. The Compound Annual Growth Rate (CAGR) for MDC in FY 2024-25, initially projected to be moderate, is now expected to experience a robust recovery, according to a leading MDC producer.
  
• Grasim: 100 mt/day production capacity
• GACL: 250 mt/day production capacity
• GFL: 150 mt/day production capacity
• TGV SRAAC: 200 mt/day production capacity
• Sunmar: 50 mt/day production capacity
• Meghmani: 80 mt/day production capacity
• SRF: 350 mt/day production capacity
• Sreyas: 160 mt/day production capacity

Chemical News

• LG Chem is planning to shut its Vinyl Chloride Monomer (VCM) Unit in October, 2024 for maintenance work of around 10-12 days. The Unit is located in Yeosu, South Korea with a production capacity of 360,000 Tons/Year.
• In the international market, upstream crude oil benchmark WTI prices have risen by 0.91% to $74.38 per barrel, while natural gas prices have decreased by 3.91% to $2.85 per MMBtu.
• Taiwan VCM has shut its Ethylene Dichloride (EDC) Unit on 4th October, 2024 due to typhoon. The Unit is located in Lin Yuan, Taiwan with a production capacity of 470,000 Tons/Year.
• Mitsui Chemicals has restarted its Cracker. The Cracker is located in Osaka, Japan with Propylene production capacity of 280,000 Tons/Year and Ethylene capacity of 500,000 Tons/Year.

Expert Opinion

It is anticipated that MDC prices are likely to remain volatile in the short term due to supply adjustments and higher feedstock prices. However, the addition of new plants may create uncertainty in the long term and could potentially lead to price wars among domestic manufacturers. Hence, buyers are advised to exercise caution before entering into bulk contracts.