Methanol Report
(An Analysis by Roger Moyers)

The October methanol price appears to be falling as quickly as your 401K. Both global producers announced price decreases for the U.S. with Methanex moving their contract price down by USD 0.08 per gallon, while Southern Chemical Corporation has moved down USD 0.0350 per gallon. This move will place Methanex contract index price for October at USD 1.50 per gallon, and SCC at USD 1.5350 per gallon.

There is no question the global methanol markets have been impacted by the financial crisis occurring within the U.S. While the U.S. legislators mull over the “bail-out” bill that will pump over USD 700 billion into the financial markets, it still remains uncertain as to how the global economy will react in the days ahead to multiple bank failures and tightening credit. The economic slowdown has not only created an adverse affect on the U.S. housing market, which seems to be the root cause of this financial mess, but has filtered down to manufacturing in the results of higher inventories, reduced operating rates, and employment cutbacks.

The methanol spot barge market is the leading indicator of the direction in methanol supply/demand balances, both on a prompt basis and the future months. October has seen prices drifting down into the upper USD 1.20’s, while the outer months of November – January are seeing prices approaching the sub USD 1.20’s. It remains a difficult market to judge, but one would guess that most traders would not take a long position in this market. All the fundamentals point to weaker prices ahead.

The bright spot in the methanol business has to be distribution. Demand is robust with windshield washer fluid and oil & gas demand leading the way for methanol consumption. This is typical demand for the fourth quarter. Distributor prices will follow the contract announcements by the large producers resulting in decreases for the month of October. We would expect to see distribution prices in the mid to upper USD 1.40’s; however there will continue to be the smaller distributors that will attempt to capture market share by pricing product comparable to the spot barge market.

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Benzene Report
(An Analysis by Wilf Kimball)

October contract price U.S. Gulf Coast settled at $4.24 per gallon after a hectic ride through hurricane Ike and the aftermath of Gustav. Spot prices approached $4.50 during the month of September for prompt barrels affected by logistics in the ship channel. The arb from both Asia and Europe opened wide.

Oh what a difference a day makes! Spot prices dropped over $0.25 per gallon the day after the contract price was fixed (probably just a slip of the tongue).

From a supply standpoint all production is back on line with the exception of Dow and Exxon which are reported to be in startup. On the consumer side cumene capacity was affected by shutdowns at Georgia Gulf, Shell and Ineos. GG and Shell are in restart, but Ineos is uncertain and quite possibility they are keeping the unit down to coincide with a planned phenol plant shutdown in October. Styrene capacity is back with the exception of Ineos Texas City and one Lyondell facility. However nothing has changed on the demand side.

With dropping spot prices for benzene, the arb is only slightly positive and future spot pricing will be back to supply/demand.

The ratio of benzene to crude remains too high as it has not followed crude down. At a ratio of 1.5 and $100 crude an energy based price for benzene should be around $3.50 and current trades for December are in that region.

Hence we will continue with our projection of benzene contact continuing to drop for the balance of the year and be below $4.00 by December.

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Acetone Report
(An Analysis by Wilf Kimball )

Again, in September, the acetone market was in uncertainty due to Gustav and Ike. Phenol production was affected as well as cumene. On top of this was the scheduled shutdown at Sabic’s Mt. Vernon plant and the shutdown at Blue Island LLC.

As of today Blue Island is still not running and is forecast to remain down until November, Mt. Vernon is on schedule to come back up on plan, Shell are having difficulty in bringing up their second unit and Ineos are still planning a two week shutdown in October. However when you sum it all up, there has been no increase in phenol demand so increased throughput through selective plants during the hurricane impacts has really only rearranged the deck chairs. Phenol demand is forecasted to remain low and hence the impact on acetone availability domestically produced.

On pricing, the September large buyer price settled at $0.63, October proposed at $0.68, and at least partially settled is the third quarter MMA price at $0.685.

The distribution market has been firm at $0.91 less 10%, but Sasol and Sun have announced price decreases of $0.05 per pound.

The arb from Asia is wide open but great reluctance on the buyer’s part due to long sail time and uncertainty in pricing post the Thanksgiving holiday season. Improved currency exchange has made imports of some iso’s by brokers at low numbers reportably around $0.65 per pound. Again no one appears to want the risk of a full cargo, so although the arb is open, buyer interest is low.

So where is price going, certainly it will be impacted by lower propylene pricing but domestic production will still make it snug. Several cargos on the water were done with August/September economics and should not impact pricing when they are received. Buyer reluctance to risk sail times from Asia will minimize imports. The current banking fiasco will start to impact L/C capabilities of small brokers but could also impact acetone demand.

At this time we don’t believe that a few ISO’S will set the price in the U.S. distribution market and assuming no major demand impact with the banking problems, there will be only a small downward pressure on pricing through the end of November.

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