CHAPTER IX

PRICE FORECASTS

Chapter IX - Price Forecasts

METHANOL PRICE FORECAST

METHANOL PRICE HISTORY
Methanol pricing has been highly variable and cyclical, as the chart showing
historical methanol pricing demonstrates below.

HistoricalQuarterlyMethanolPrices,1990toPresent
800
Chile Outage
Eq. Guinea,
Trinidad Plants
Force Majeure;
Global MeOH
Price Spike

700

600
Restructuring and
MTBE "mania"
Dollars Per Ton

300

Slowed US
economic activity
and oversupply
Gulf War

5.85 Mmtons of
new capacity
added (20% of
world demand)

Venezulean
Srikes, NZ Gas
Further Industry
Redetermination
consolidation
Sept 11
Attacks
Asian
Financial
Crisis

200

Global
Financial Crisis

100
Note: Pre '94 US Prices were
the average of producer
postings.

Return of
SEA
Production

Post Crisis
Recovery

500

400

Crude Breaks
$100/bbl

New World Scale

Facility Capacity

2nd Gulf War, High US Natural Gas,

Energy, Strong
Energy Price
China Demand
Climb Begins
Growth,

China
Gasoline,
MTO
Demand;
Global
"Hindered
Capacity"

Restricted
SEA
Production

Crude Oil
Prices Fall

2015
Q3
2014
Q3
2013
Q3
2012
Q3
2011
Q3
2010
Q3
2009
Q3
2008
Q3
2007
Q3
2006
Q3
2005
Q3
2004
Q3
2003
Q3
2002
Q3
2001
Q3
2000
Q3
1999
Q3
1998
Q3
1997
Q3
1996
Q3
1995
Q3
1994
Q3
1993
Q3
1992
Q3
1991
Q3
1990
Contract-Net Transaction FOB USGC

Contract-Market FOB W. Europe T2

Spot CFR Shanghai

The reasons for volatility are severalfold, although generally methanol prices have
been driven by supply and demand dislocations, as well as by cost to manufacture.
Prices are bounded on the low side by the price that marginal suppliers (now firmly
in China) have been willing to offer in times of market length, and on the high side
by the amount that downstream consumers are willing to pay. Methanol supply
increases during periods of profitability, typically at rates exceeding demand
growth, which leads to a correction in pricing. Low pricing and margins dissuade
supply and new projects, until demand forces bid up the price, restarting the cycle.
After record contract prices were established globally in early 2008, a housing
recession in the US, followed by the financial crisis and eventual collapse of global
economies drove methanol prices down a record amount by the end of the year.
Meanwhile, despite the continued outage of Chilean methanol capacity, new
material from China, the Middle East, and Southeast Asia created oversupply. In
early 2009, methanol prices remained depressed, although they recovered

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Chapter IX - Price Forecasts

meaningfully towards the end of the year due to the combination of demand from
China (especially for DME and gasoline blending applications) as well as the end to
free fall in developed markets, and, to a lesser extent, growth in other emerging
economies, with values well above the $300 per metric ton level by year end. In 2010,
methanol prices rebounded strongly after a mid year lull, supported by strong
demand for both traditional derivatives as well as alternative energy applications.
China is in the centre of this phenomenon, with a hefty increase in both imported
amounts as well as domestic production of methanol. In 2011, prices moderated
slightly in the early part of the year, due to market tepidity coupled with expectancy
of increasing supply from a number of plants around the world (including China),
stabilizing as the year progressed. Through 2012, prices remained firm but did not
spike despite the impact of sanctions on Iran, the relatively poor operations at
several deep sea export facilities globally, (including Iran, Malaysia, Egypt, Libya,
Chile, and Brunei) and energy based demand from China which helped create tight
markets later in the year. In 2013 to date, the bifurcation of pricing between West
and East continued, with the heavy weight of lower spot pricing in Asia (in turn
caused by resistance from marginal energy buyers as well as one-way flow of Iranian
molecules to the region) countering the impact of attempted price increases in the
West, which suffered from poor Trinidadian supply. By the end of 2013, as Chinas
economic engine restarted, SEA producers were unable to operate facilities, and
MTO demand beckoned, methanol prices in Asia shot upwards. In 2014, methanol
prices tested affordability into MTO, and supply returned from Southeast Asia and
Trinidad, sending prices down in the middle of the year. At the end of the year,
prices again sank rapidly as crude oil prices plummeted globally, with methanol
prices nearing marginal costs to manufacture in China. In the first portion of 2015,
prices stabilized somewhat as crude prices stopped their slide, allowing a growing
number of MTO consumers in China to step up their purchases, yet only to a level
that ensured competitiveness with naphtha based olefins production.
Methanol Prices and Energy
With increased used of methanol in energy applications, more focus has been placed
on the influence that energy prices have over methanol valuations. A combination of
high energy prices and supply restrictions (particularly the result of loss of
production from Chile) provided a catapult for methanol pricing to spring from
through the middle of 2008, with demand for methanol into energy applications
suspending gravity even further (especially the growth in DME and gasoline
blending in China).
As implied by the chart on the next page, Methanol vs. No. 2 Fuel Oil, Naphtha,
methanol prices are supported by refined crude oil product prices on an energy cost
basis. Yet methanol prices on this basis remain much more volatile than refined
prices, flying up well in excess of refined product values whenever any significant
amount of demand occurs from the large energy market occurs. This was certainly
the case for portions of 2013, 2014, and 2015 in the US, when methanol prices on
equal energy value basis, which had generally remained at or below the refined

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Chapter IX - Price Forecasts

product pricing for several years, crested above refined product values as markets
tightened in the West, as shown in the chart below.

Methanol vs. No. 2 Fuel Oil, Naphtha

$/MMBtu
45
40
35

US$/MMBtu

30
25
20
15
10
5

Jun-86
Feb-87
Oct-87
Jun-88
Feb-89
Oct-89
Jun-90
Feb-91
Oct-91
Jun-92
Feb-93
Oct-93
Jun-94
Feb-95
Oct-95
Jun-96
Feb-97
Oct-97
Jun-98
Feb-99
Oct-99
Jun-00
Feb-01
Oct-01
Jun-02
Feb-03
Oct-03
Jun-04
Feb-05
Oct-05
Jun-06
Feb-07
Oct-07
Jun-08
Feb-09
Oct-09
Jun-10
Feb-11
Oct-11
Jun-12
Feb-13
Oct-13
Jun-14
Feb-15

MeOH - USG Contract

No. 2 Fuel Oil

Naphtha C&F Japan

Therefore, depending on timeframe, it can be partially misleading to say that

methanol and energy prices are correlated. And, given the propensity for methanol
prices to fly up well over the energy values for refined products, there are reasonable
concerns that methanol is not ready for energy primetime (i.e. to succeed as fuel
meOH Prices need to be more sustainably competitive with traditional energy, lower
long term price expectations), especially in the US. Recently, particularly in China,
the increasing gap between supply and demand has helped to buffer any potential
volatility on the demand side of this equation, and has helped provide confidence in
ample supply of methanol as a gasoline blend and DME raw material. However, the
gap is effectively smaller due to operational issues around the world, and rapidly
increasing methanol demand has begun to test methanol price ceilings as of this
writing.
The subsequent portions of this chapter will explain and present the MMSA view of
future methanol prices.

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Chapter IX - Price Forecasts

FORECAST METHODOLOGY
Methanol is a globally traded commodity, and as such its value depends on a
number of fundamental factors. However, these factors each change in importance
over time.
The following basic commodity drivers are considered in developing the forecast:
1) Economics of marginal producer to deliver to key markets.
Over the course of the forecast period, the economics of Chinese producers using
coal feedstock, as well as Persian Gulf producers using low priced natural gas
feedstock, will have the most influence on methanol values globally. This is
despite the increase in production in the United States expected in the forecast
period, which is relatively small in comparison to China production forecasts.
Forecasts of production economics values require that assumptions be made for
the variables listed below.

Feedstock (forecasts of natural gas prices in the Persian Gulf and coal prices in
China are necessary)
Variable costs (including catalysts)
Direct fixed costs labor, maintenance, insurance, interest on working capital
Inflation

For Persian Gulf production, the following variables are also significant:
Financing costs and returns
Freight and handling charges
2) Market supply and demand dynamics
For forecasting 5 years or less into the future, supply and demand dynamics
(including expected additions and shut-ins to capacity; methanol facility
operating rates) are taken into consideration.
Beyond 5 years, a different approach is required because of the lack of clarity in
forecasting new projects and rationalizations of capacity. The approach used for
this analysis is to determine prices which allow for investment in methanol
production capacity from regions that will supply the incremental methanol
volumes to market. This approach which delineates short-term and long-term
price behavior is referred to as a cycle-trend forecast.
3) Value in application (Methanol Affordability)
Methanol prices can at times be influenced by the economics of derivatives
(especially MTBE and occasionally acetic acid). Notably, many applications for

401

Chapter IX - Price Forecasts

methanol use it in such small quantities that very large changes in methanol price
have little impact on the final cost of the item using methanol. Thus, this factor is
usually only dominant in influencing pricing in times when oversupply in the
major consuming sectors (formaldehyde, acetic acid, and even DME) put a large
burden on methanol suppliers attempts to increase pricing. MMSA has provided
more detail on affordability in its Methanol Notes, which clients can access via
the MMSA website, or more regularly in the China Methanol Monthly Analysis.
4) External factors
Trends within the industry at times will influence methanol prices. Examples
include:
Increasing scale of supply by major producers (and sporadic supply from
marginal players, e.g. Iran, Southeast Asia)
Increased contract versus spot purchasing using manufacturer-set prices.
Fewer trade options versus other chemicals (the result of producer control
of the supply chain all the way to the end user) yields limitations on the
ability of smaller sources to significantly influence the market balance.
At a minimum, all of these factors/drivers must be addressed in developing a
coherent global price forecast for methanol. A flowchart depicting the MMSA
methodology for price forecasting which incorporates the drivers presented above is
shown on the next page.

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Chapter IX - Price Forecasts

METHODOLOGY FLOWCHART
The flowchart below graphically displays the methodology and inputs that are used for MMSAs calculations of forecasted
methanol prices.
Delivered cost parity
of imports into China
China Forecasted
Methanol Price
Differential between
spot and parity
prices

Cost of duty,
throughput, and tax

China methanol
production cost from
coal

Cost of anthracite
coal

Energy Index

Variable production
costs (electricity,
utilities, catalyst)

Inflation

Fixed production
costs (labor,
maintenance)

Inflation

Average natural gas

acquisition price

Inflation

Variable production
costs (electricity,
utilities, catalyst)

Inflation

Fixed production
costs (labor,
maintenance)

Inflation

Freight cost from PG

to Rotterdam
Rotterdam
Forecasted Methanol
Price

PG netback margin
to Rotterdam

PG netback margin
to China
US Gulf Coast
Forecasted Methanol
Price

PG methanol
production cost from
natural gas

PG netback margin
to US Gulf Coast
Freight cost from PG
to US Gulf Coast

403

Chapter IX - Price Forecasts

ASSUMPTIONS (ENERGY, FEEDSTOCK, PRODUCTION COST, FREIGHT,

INFLATION, CURRENCY)
Energy
Global energy markets recovered swiftly from their lows of 2009, only to fall again
by the end of 2014. Nevertheless, these markets, will eventually be stimulated by
some of the factors driving price increases ahead of the 2014 crisis, including
increased Asian energy demand, geopolitical instability, fears of peak oil, and
natural disasters. In addition, it is clear that non-OPEC efforts to control supply of
oil, especially in North America, bring some stabilization to markets. Continued
strong economic performance in China and other developing countries, combined
with healthy United States and Europe economic condition, have allowed crude oil
prices to recover to the USD 60 per barrel range as of early 2015.
Because market values of crude have rebounded well above the levels of marginal
supply costs (these costs are estimated to range up to USD 75 per barrel for crude oil,
depending on convention), there could be further suppression of marginal supply
around the world, especially in North America. Longer term in the study period, it is
assumed that peak oil considerations will not produce catastrophic consequences,
but will help restore crude oil prices to levels that induce investment in alternative
energy sources.
The WTI crude price outlook used as a basis for the price forecast is shown in the
tables in the Appendices. A recent phenomenon has highlighted a widening
discount of WTI crude, the U.S. benchmark, to North Sea Brent crude. Through early
2015, Brent crude values surged to a multiple-year high due a combination of
concerns that include potential disruption of supply from the Middle East due to
geopolitical and social tension in that region. WTI values, meanwhile, have been
under pressure due to relatively high inventories in Cushing, Oklahoma the US
storage hub on the back of low gasoline demand, reduced crude runs, and ample
supply from shale based hydrocarbon production. This difference is likely to persist
in the near future. Nevertheless, over the medium to longer term period, it is still
believed that values of non-WTI crudes can be expected to generally return to their
historical differences with WTI, with minor adjustments owing to the increasing
spread in value between lighter and heavier crude (this spread is increasing with the
world desiring more of the light end of the crude barrel).
Feedstock
Coal is the main feedstock for methanol production in China. Although the actual
price paid by coal based methanol producers in China can vary substantially
depending upon location, coal grade used, and quantity consumed, an average
China premium mix coal price is assumed for this forecast. [Further discussion of
the coal market in China is included in Chapter VI, Methanol Supply Feedstock
Dynamics.] While Chinas economic growth has been a factor in driving the price of

405

Chapter IX - Price Forecasts

coal upwards in the past, it is assumed that forecasted coal prices will be primarily
driven by the energy value of coal relative to international crude oil. Long term, the
price of Chinese coal is seen growing at a slightly swifter pace than global crude oil
for two main reasons: 1) cleaner technologies will increase the relative value of
coal to crude as these will serve to increase efficiency and decrease deselection, and
2) consolidation of the coal industry into fewer and larger state-backed corporations
leverage their supply positions against power producers (wherein the bulk of the
contract negotiations for coal in China are settled) will limit supply, increasing value.
Natural gas is the primary feedstock for methanol production in the Middle East.
Due to the abundant reserves in the region and the consistent use of long-term
contracts, it is assumed that natural gas prices will remain at inexpensive levels
relative to international prices. During this forecast period, it is further assumed that
the Middle East natural gas prices will remain uncoupled from international crude
oil prices and will be set by the ruling entities in the Middle Eastern states. In the
forecast, an average acquisition price of Middle East natural gas is calculated based
on current average acquisition prices and this value is adjusted upward over time.
Production Cost
The production cost model developed for this forecast is based on the sum of three
costs: feedstock acquisition, fixed costs (labor, maintenance, etc.), and non-feed
variable costs (electricity, utilities, catalyst). Feedstock costs are calculated using the
forecasted feedstock price and required amount of each feedstock to make methanol
on a per ton basis. It is assumed that the fixed and variable costs only increase due to
inflation over the forecast period and that no new disruptive advances in technology
will develop in the methanol production process.
Freight
Freight costs from the Persian Gulf also display commodity behavior. For the
forecast, values are assumed for the following costs based on current industry
figures and calculations: ship speed, fuel cost, port charges, discharge rates, and time
charter rates. For the forecast, the assumption is that these rates will be influenced by
energy prices (affecting fuel costs) and inflation (affecting charter, port, and
discharge rates). An index weighted by these two factors is used to calculate the
forecasted freight costs. For the Arab Gulf to USGC and Arab Gulf to Rotterdam
routes, a single 47,000 dwt shipment with two stops are assumed. For the Arab Gulf
to Coastal China route, a 47,000 dwt shipment which makes three stops in Northeast
Asia (Korea, Taiwan, and Shanghai large port) is assumed.
Inflation
It is assumed that the inflation rate throughout the forecast period will be 2.2%. This
value is aligned with average values for recent annual US inflation. The conversion
from current dollars to constant dollars in the forecast utilizes this index.

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Chapter IX - Price Forecasts

Currency
For the purposes of this forecast, it is assumed that the exchange rates between the
Euro, US dollar, and Chinese yuan will remain near their current values throughout
the forecasted period. A small strengthening in the yuan has been observed through
2014, with an occasional correction, and the firming trend is expected to continue in
a gradual but small way over the forecast.

407

Chapter IX - Price Forecasts

PRICE FORECAST
The chart below displays the forecasted methanol price in three major markets along
with the delivered cost parity for imports into China.

GlobalMethanolPricing
500
Forecast

USDollarspermetricton

400

300

200

100

2010

2011

2012

2013

2014

2015E

2016E

2017E

2018E

2019E

2020E

MethanolChinaSpot,Avg.CFRChinaMainPortsUSD/metricton
MethanolUSPostedContractIndex,AvgRealizedPriceFOBUSGCUSD/metricton
MethanolWestEuropeContract(T2),AvgRealizedPriceFOBRotterdamUSD/metricton

The table on the next page tracks the annual historical and forecasted values of crude
oil price, China coal price, Persian Gulf natural gas acquisition price, and methanol
prices in the three considered regions in current and constant dollars.

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Chapter IX - Price Forecasts

Current Dollars
Crude Oil, WTI
Spot, Avg. 1st
FOB US
USD/ Barrel

Coal - Anthracite
5800-6000Kcal/kg
Posted Transaction
FOB QHD Port
USD/metric ton

2010

79.4

2011
2012

PG Natural Gas
Avg. Acquisition
CFR MeOH Plant
USD/MMBtu

Methanol
US
Posted Transaction
FOB USGC
USD/metric ton

Methanol
West Europe
Contract (T2)
FOB Rotterdam
USD/metric ton

Methanol
China
Spot, Avg.
CFR China Main Ports
USD/metric ton

116.54

1.14

365

337

303

95.0

134.48

1.19

436

428

366

94.2

120.26

1.23

450

431

374

2013

97.9

103.32

1.26

535

519

400

2014

93.0

91.42

1.29

538

511

377

2015E

57.7

76.86

1.32

415

392

294

2016E

72.6

74.00

1.35

372

348

291

2017E

86.1

86.12

1.38

385

366

309

2018E

90.6

91.80

1.41

403

377

318

2019E

95.1

97.59

1.44

421

388

328

2020E

99.6

103.51

1.47

439

405

337

Crude Oil, WTI

Spot, Avg. 1st

Coal - Anthracite
5800-6000Kcal/kg
Posted Transaction
FOB QHD Port
USD/metric ton

PG Natural Gas
Avg. Acquisition

Methanol
West Europe
Contract (T2)
FOB Rotterdam
USD/metric ton

Methanol
China
Spot, Avg.
CFR China Main Ports
USD/metric ton

Constant 2015 Dollars

FOB US
USD/ Barrel

CFR MeOH Plant

USD/MMBtu

Methanol
US
Posted Transaction
FOB USGC
USD/metric ton

2010

92.2

135.4

1.33

424

392

352

2011

106.0

150.0

1.33

486

478

408

2012

101.8

130.0

1.33

486

466

405

2013

103.0

108.7

1.33

562

546

420

2014

95.3

93.6

1.32

551

524

386

2015E

57.7

76.86

1.32

415

392

294

2016E

71.1

72.41

1.32

364

340

285

2017E

82.5

82.45

1.32

369

351

296

2018E

84.9

86.00

1.32

377

353

298

2019E

87.2

89.46

1.32

386

355

300

2020E

89.3

92.83

1.32

394

363

302

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Chapter IX - Price Forecasts

ANALYSIS
The global methanol forecast, in the short term, calls relatively flat and volatile
prices. By 2020, the forecast predicts prices will have risen to between USD 345 - 449
per metric ton, depending upon region and price basis (i.e. contract versus spot please refer to tables for details by region). The main points to highlight from the
forecast results are the following:
Short-Term Analysis

In the near-term, prices will decline from current levels in the US and Europe,
while remaining stable in China, with the following contributing factors:
o Slowed capacity addition had in the past conspired with operational issues
and restricted Iran supply to tighten the balance in the Atlantic basin.
However, the weight of Chinese supply remains strong, with Chinese prices
resisting the urge to increase due essentially to high bargaining power
(improved with the inability of Iran to supply elsewhere). As forecast
correctly last year Chinese recalcitrance will limits the ability of Western
methanol prices to increase. As new capacity starts appear in the US in 2015
and 2016, adding over 2.4 million metric tons of new production capacity by
the end of that period, Atlantic Basin prices will fall relative to their historical
premium versus Asian prices.
o Demand from traditional as well as alternative energy segments, particularly
in China and other emerging countries, will cut into the gap between supply
and demand, keeping margins in China positive and slightly increasing.
o Production economics of marginal China methanol facilities (small, coalbased) remain important; the forecast requires that these facilities operate in
the near term because they are currently the marginal supply source feeding
the growing demand in China. These producers will require market pricing
that enables their profitable operation. As such the floor price can be
expected to remain relatively flat due to expectancy of higher domestic coal
pricing in the near future.
o Margins to Middle East producers from Northeast Asia will continue to
recover gradually and cascade to other global regions.

Long-Term Analysis

By the end of the forecast, prices will slowly rise from current levels (especially in
Europe and the US), and will remain above long term historical average levels,
due mainly to the increased cost of the marginal production (coal based methanol
in China), and anticipated high capital costs for new production. This price
scenario will be predominantly shaped by the following factors:
o Methanol values on an energy equivalent basis are expected to be competitive
with refined products like gasoline and MTO, providing economic incentive
for the development of these applications, despite the hurdles that remain.

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Chapter IX - Price Forecasts

The recent trend of low crude oil pricing certainly is a challenge to this trend.
o Production economics of a Persian Gulf producer sending methanol via deep
sea cargoes to the important markets in Asia will balance regional price levels.
Note that a margin is maintained in the long term forecast for the Persian Gulf
producers, since they will serve as the global source of swing supply. A
positive margin will be necessary to support reinvestment in methanol
capacity. The chart below displays this concept by tracking the forecast
Persian Gulf netback margin for delivery to the three markets. The higher
values for Asian trade reflect the need for additional product in that market,
as well as the influence of lower cost natural gas in North America.

Margins for Middle East Producers

350

US Dollars per metric ton

300
250
200
150
100
50
0
2010

2011

2012

2013

2014

2015E

2016E

2017E

2018E

2019E

2020E

ME Gulf Netback Margin (Net Transaction) USGC USD/metric ton

ME Gulf Netback Margin (Net Transaction) Rotterdam USD/metric ton
PG Netback Margin Northeast Asia USD/metric ton

o Notably, the forecast does not call for a rapid flyup in pricing. Once again,
cautious markets and pricing power in the largest methanol consuming uses
(especially DME in China) will increase effectiveness of the fightback
methanol buyers put over the course of the period, unless unpredictable
production upsets occur.
Methanol Price Volatility
Although the annual forecast may suggest smooth changes in methanol pricing,
volatility does exist and is likely to continue. One lesson that history provides is that
methanol prices can oscillate rapidly in a short period of time. There is a high
probability that swings in methanol pricing will take markets well above and below
the yearly averages shown in the forecast.

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Chapter IX - Price Forecasts

This volatility must be factored into any discussion of methanol pricing. A review of
historical pricing over different periods is a useful indicator for the potential
magnitude and length of pricing swings in the forecast. MMSA characterized the
volatility of methanol prices by calculating the rolling 1-year standard deviations of
monthly historical China methanol prices as shown in the chart below.

StandardDeviationforYearPrior(Rolling)
ChinaMethanolSpotPrices,CFRbasis
140
120

US$permetricton

100
80
60
40
20
0

Until 2013, methanol prices had recovered from their most volatile period on record.
The 1-year standard deviation has ranged widely, from US$5 per metric ton to USD
126 per metric ton, and this variability has increased over time. These standard
deviation values show that not only are methanol prices volatile (standard deviation
as high as 63% of methanol price), but the amount of variability over time is also
volatile. Another way of describing this phenomenon is that very little certainty can
be ascribed to how stable methanol prices will remain in a one year period.
Nevertheless, as demand for methanol continues to increase with the massive
development of methanol capacity in the last few years, wild swings like those
observed in the last few years should minimize. However, longer term, the threat
that production of methanol will be unable to keep pace with surging energy
demand is real, and could return prices to their volatile state.
Thus, a high risk is associated with predicting methanol prices. Any calculations of
future investment returns for methanol projects must factor in this risk.

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Chapter IX - Price Forecasts

ACETIC ACID PRICE FORECAST

ACETIC ACID PRICE HISTORY
Like methanol and other petrochemical commodities, acetic acid has demonstrated
significant price swings in Asian spot markets, from $285 per metric ton to highs
over $780 per metric ton since 1996. In general, prices for acetic acid have moved
with supply and demand fundamentals. Demand for terephthalic acid to make
polyester, especially in Asian textile markets, had been a major factor driving
tightness in the industry. In recent years, the global financial crisis exposed a market
that was significantly overbuilt despite relatively strong demand growth. Since then,
prices and margins have remained at low levels as the world tries to shake off the
effects of too much capacity. Only operational issues have conspired to increase
pricing.
The chart below, which shows historic methanol pricing in the three major world
regions, captures this volatility:

HistoricalAsianAceticAcidPrices,1996toPresent
900
800
700

USDpermetricton

600
500

UK Mothball
Unplanned Shutdowns
Asia, Europe

Force Majeure US

Asian Financial

Polyester Industry
Financial
Restructuring Sept 11
Attacks
High US Natural
Gas, Energy
Methanol
Prices
Price Rise

400
300
200

Outages in
China and
Europe

China WTO Entry

2nd Gulf War,
Energy Price
Climb Begins

Asian Oversupply
Weak Demand

Global Financial
Crisis

100

Crude Oil
Prices Fall

SpotCFRNortheastAsia

2009 was a year of volatility but mostly weak margins, thanks to major additions to
global capacity and poor demand from almost all sectors of acetic acid demand.
Prices are still reflective of costs to produce methanol in non-carbonylation facilities,
with low margins, as continued oversupply in the construction, automotive, and
textile markets limits pricing increases for acid derivatives, especially VAM and
PTA. After 2010, acid pricing has been weak due to massive overcapacity, despite
rebounding demand. The situation is more pronounced in China due to the large
number of new, large facilities competing there. In 2011, the compeititve nature of

415

Chapter IX - Price Forecasts

the Indian market saw virtually all non-carbonylation facilities shut down, with
material imports (most of them originated from Singapore and Malaysia) becoming
the preferred source, offering some relief, with prices increasing on spot outages,
only to return to levels yielding very low, but somewhat improving margins through
2015 year to date, due to many supply options.

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Chapter IX - Price Forecasts

FORECAST METHODOLOGY & ASSUMPTIONS

Acetic acid is a globally traded commodity, and as such its value depends on a
number of fundamental factors. The following drivers, typical of basic commodities,
have been used to develop this forecast:
1) Economics of the marginal producer to deliver to key markets
Over the course of the forecast period, Southeast Asian methanol carbonylation
producers supplying to China are deemed to have the most significance to the
market. MMSA considered the following factors of a hypothetical SE Asian
producer to develop values for the process economics:

Feedstock (methanol and carbon monoxide)

Variable costs (including catalysts)
Direct fixed costs labor, maintenance, insurance, interest on working capital
Freight to market

2) Market supply and demand dynamics

The global and regional operating rates of acetic acid facilities, as described in
Chapter IV, Regional Analysis, are considered, with operating rates assumed
to have influence on the margins for producers (i.e. very low operating rates will
yield low, or no margins for marginal producers).
3) Reinvestment economics
The forecast is developed with the assumption that high margins generate
investment in capacity, whereas low margins tend to discourage investment. In
markets with growing demand, a minimum level for margins must be ensured to
support needed reinvestment.
Historic acetic acid margins are shown in the chart on the following page.

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Chapter IX - Price Forecasts

HistoricalAsiaAceticAcidPrices,Margins
1,000

USD/metricton

800

600

400

200

Nov96
Mar97
Jul97
Nov97
Mar98
Jul98
Nov98
Mar99
Jul99
Nov99
Mar00
Jul00
Nov00
Mar01
Jul01
Nov01
Mar02
Jul02
Nov02
Mar03
Jul03
Nov03
Mar04
Jul04
Nov04
Mar05
Jul05
Nov05
Mar06
Jul06
Nov06
Mar07
Jul07
Nov07
Mar08
Jul08
Nov08
Mar09
Jul09
Nov09
Mar10
Jul10
Nov10
Mar11
Jul11
Nov11
Mar12
Jul12
Nov12
Mar13
Jul13
Nov13
Mar14
Jul14
Nov14
Mar15

200

AceticAcid,SpotCFRNEA

AceticAcidCashCost,Asia

CashMargin

4) External factors
The following factors are also considered in determining appropriate margin
levels for the forecast:
Increasing scale of supply and percent market share of major producers.
Improved trade options as more independent Chinese acetic acid
manufacturers (using in house technology) have started up large scale
operations, disrupting the control of the two major global acetic acid
suppliers.
The price forecast for acetic acid is described in more detail in the following section
of this chapter. Please refer to the MMSA website for updates to acetic acid price
forecasts.

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Chapter IX - Price Forecasts

PRICE FORECAST & ANALYSIS

The chart below shows the historical and forecasted acetic acid prices (CFR
Northeast Asia), acetic acid cash costs, and cash margins for the study period.

NortheastAsiaAceticAcidPrices,Margins
700

Forecast
600

500

USD/metricton

400

300

200

100

0
2010

2011

2012

2013

2014

2015E

2016E

2017E

2018E

2019E

2020E

100

AceticAcid,SpotCFRNEA

AceticAcidCashCost,Asia

CashMargin

After a long period of overbuilding in Northeast Asia, acetic acid margins hit a first
bottom in 2010, experienced some improvement in 2011 on the back of high demand
from India, then margins suffered through 2013 as new supply contined to
overwhelm new demand. In 2014, thanks in good part to slowed capacity additions
as well as the drop in crude (which effectively lowered the cost of CO to
carbonylation operations), margins recovered, as expected. In the forecast, margins
are expected to maintain their recent positive levels, eventually reaching
reinvestment levels by the end of the study period. The supply and demand balances
suggest that demand growth for acetic acid continues to outpace supply growth.
Additionally, many non-methanol based producers have begun rationalization, and
this offered some support to margins through 2014. Continuing downstream
demand combined with rationalization of non-carbonylation facilities will bring
operating rates back up.
Thus, the acid market will regain tightness and the margins for acetic acid producers
will accordingly reach healthier levels for carbonylation producers by the end of the
study period. Note that the successful scale of of technology to consume acetic acid
in the production of ethanol, once a great hope for the industry, remains elusive and
increasingly non-competitive, and acetic acid prices will only increase on the
strength of conventional demand, ultimately.

419