Making sense of Methanol prices - a PRA view Yu Guo and Fahima Khail June 2014 IRIB International Conference Center, Iran

Asia Methanol India Methanol Agenda Trade flow & market review 2013-Q1 2014 Asia methanol market brief & price drivers Market outlooks Asia Methanol Market brief Key price drivers India Methanol

Source: market, KITA, IE Singapore Methanol Net exporters: Iran, Saudi Arabia, Oman, SEA producers, Net importers: China, Taiwan, Korea, Singapore, India, EU and US *Figures for the year of 2013 US Net Import: 6,651kt Import: 1,695kt Export: 423kt EU South Korea ME China Import: 4,858kt Export: 772kt India Taiwan Indonesia Import: 1,273kt Malaysia Singapore Import: 120kt Re-Export: 12kt NZ Source: market, KITA, IE Singapore

Supply situation in the key end-user market

Intra-region trade opportunities China – SEA arbitrage opportunities often appear

Factors affecting Methanol prices Local material availability Key prices drivers for spot methanol (CFR China) prices Factors affecting Methanol prices Domestic prices Futures prices Inventory level Local material availability Crude & Global Factors

Domestic prices v.s. Import prices Key Chinese players often use local prices as benchmark Correlation coefficient = 0.93

Factors affecting Methanol prices Local material availability Key prices drivers for spot methanol (CFR China) prices Factors affecting Methanol prices Domestic prices Futures prices Inventory level Local material availability Crude & Global Factors

Futures prices v.s. import prices Futures prices sometimes influence China market sentiment Correlation coefficient = 0.69

Factors affecting Methanol prices Local material availability Key prices drivers for spot methanol (CFR China) prices Factors affecting Methanol prices Domestic prices Futures prices Inventory level Local material availability Crude & Global Factors

Inventory level v.s. import prices Inventory level in China drives/caps buying activities Correlation coefficient = 0.61

Factors affecting Methanol prices Local material availability Key prices drivers for spot methanol (CFR China) prices Factors affecting Methanol prices Domestic prices Futures prices Inventory level Local material availability Crude & Global Factors

Overall supply in China v.s. import prices Actual supply/expected supply often affects sentiment Correlation coefficient = 0.34

Supply situation in the key end-user market

Domestic supply v.s. import prices How important is operating rates among local producers? Correlation coefficient = 0.54

Import supply v.s. import prices Import volumes and its prices Correlation coefficient = 0.60

Factors affecting Methanol prices Local material availability Key prices drivers for spot methanol (CFR China) prices Factors affecting Methanol prices Domestic prices Futures prices Inventory level Local material availability Crude & Global Factors

Crude v.s. import prices Crude prices provide a price direction for the broader market Correlation coefficient = 0.39

Factors affecting Methanol prices Local material availability Key factors in monitoring spot methanol (CFR China) prices Key drivers for day-to-day spot prices: Methanol futures China domestic prices Factors affecting Methanol prices Domestic prices Futures prices Inventory level Local material availability Crude & Global factors 0.93 0.39 0.69 Key drivers for long-term price trend Supply Demand 0.61 0.54-0.59

Going forward formaldehyde, acetic acid, 1-4 butanediol, mono methacrylate (MMA), methylamines, and chloromethanes China GDP growth estimated at 7% in 2014 and 6% in 2015 Demand from the traditional sectors is expected to grow in line with GDP End-users Led by formaldehyde at 23% of the total downstream application in year 2010 but is estimated to decrease to 14.3% in 2015

Demand from the non-traditional sectors is expected to gather pace Going forward MTO, fuel cells, DME, gasoline derived from methanol, as well as the blending of methanol into gasoline 9m tonne demand in China, year 2013 Expected growth rate in 2014-2015 at 30-35% Demand from the non-traditional sectors is expected to gather pace End-users Led by MTO/MTP, the percentage of downstream application is estimated to jump to 31.4% in 2015 from the 2.2% in year 2010. Source: ICIS News

Demand Structure by Products (%) Demand structure in China Demand Structure by Products (%) 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2005 2007 2009 2010 2015E MTO/MTP Methanol gasoline DME Other Conventional MTBE AA Formaldehyde Traditional Average Growth Rate GDP Non-Traditional 2009-2013 57.5% Traditional Average Growth Rate GDP Non-Traditional 2014-2015Est 30-35% End-users Source: ICIS China

Going forward Company name MTO/CTO capacity Methanol capacity PP/PE capacity Estimated startup Ningxia Coal Industry Group 500 0/500 Q3 2014 Yulin Energy, Shaanxi Yanchang Petroleum 600 1800 300/300 Baofeng Energy 1500 Q4 2014 Qinghai Yanhu 300 1000 170/160 Shaanxi Coal and Chemical Industry Group 700 300/400 Shenda Chem 400 200/200 Hengtong Chemical N.A. Fund Energy 165/165 Source: ICIS China

Going forward Over 2.6m tonnes/year MTO/P capacity has been launched Around 10m tonnes/year of coal-methanol-olefins projects approved Heilongjiang Inner Mongolia Xinjiang Inner Mongolia Hebei Ningxia Shanxi Ningxia Shaanxi Henan Jiangsu Anhui Zhejiang Guizhou Projects approved/awaiting approval 2013 2015 With existing projects Source: ICIS China 24

Methanol in India – a closer look! Fahima Khail Markets Editor –June 2014 Tehran, Iran, 7th or 8th June

Agenda Market Brief Key Price Drivers Market Outlook India Methanol

Market Brief ICIS assesses prices in West Cost India Methanol consumption in India ~ 2 million tonnes/year Imports to West Cost India 1.4-1.5 million tonnes/year - Small part of demand met by 5 local producers - India largely depends on imports from Iran FY 2013-2014: imported so far until Dec 2013: 1.1m tonnes  0.77m tonnes from Iran = ~70% from Iran 248,845 tonnes from Saudi Arabia = ~20% from Saudi Arabia The rest from UAE, SE Asia, China etc. Source: India Ministry of Commerce & Industry

Application Two major end-use segments : chemical and energy Chemical: production of formaldehyde, acetic acid, di-methyl terephthalate (DMT) and a range of solvents Energy: blending component for tertiary butyl ether (MTBE), tertiary amyl methyl ether (petrol and methyl TAME) and di-methyl ether (DME) formaldehyde sector bulk (more than 60%) of the consumption, used in laminate, plywood, carpeting etc.

Key Price Drivers External Drivers Internal Drivers Market in China Market in SE Asia Plant and Supply conditions in Iran and Asia Internal Drivers Demand in India (end-use market, seasonality, India economy) Domestic market in India (currency fluctuations) Domestic production Vessel delivery

Market Overview + 54% - 56% Source: ICIS Pricing CFR W.C. India 315/tonne CFR W.C. India 560/tonne - 56% Source: ICIS Pricing

Near-Term Market Trend Likely to remain bearish along with China and SE Asia Monsoon season in starting in June  lower demand for end-use product formaldehyde Continuous supply from Iran. Stable-to-soft end-user demand along with slower GDP growth in the country

Long-Term Market Trend continue to rely on Imports from Iran Methanol producers’ fight for gas with fertilizer, energy generation and gas exports The two fastest growing regions are SE Asia and India, driven by chemical demand. Increase in end-user demand

Contributors: Ken Yin (China methanol) kenyin@chemease.com Sam Liang (China methanol) samliang@chemease.com Singapore editorial team editorial.ap@icis.com

Yu Guo, guo.yu@icis.com Fahima Khail, fahima.khail@icis.com