INDIAN METHANOL MARKET

Presented to:

2016 IMPCA MMSA Conference

SINGAPORE

November 1-3,2016

SANJAY GUPTA

B.K.SALES CORPORATION

DELHI,INDIA

DOMESTIC SUPPLY

There are SIX Methanol manufacturers in India.

• GNFC LTD.

• DEEPAK FERTILISERS LTD.

• RASHTRIYA CHEMICALS

• ASSAM PETROCHEMICALS LTD.

• NATIONAL FERTILISERS LTD.

• GSFC LTD

• Only Two plants are currently running namely GNFC LTD and ASSAM PETRO

• Domestic production has been going down steadily

on account of high feedstock costs.

• Domestic production for 201516 was about 163000

MT per annum, however after meeting captive

requirements, the quantities available for sale were

quite less, at about, 55000 MT per annum.

• GNFC consumes about 88000 MT for acetic acid.

• RCF consumes about 21000 MT for DMF,DMA.

• APL consumes about 20500 MT for formaldehyde.

DOMESTIC SUPPLY

DOMESTIC PRODUCTION &

CAPTIVE DEMAND

DOMESTIC PRODUCTION-

Market Share

REGION WISE DEMAND

• South India experienced the highest rate of growth during the last 2-3

years due to aggressive formaldehyde expansion in the region ( also due to

small base effect)

• North , South East and West are growing at about 10% p.a. on the back of

formaldehyde and pharmaceutical expansions.

• Eastern India has not seen any major expansion

DEMAND GROWTH RATE-

Region wise

METHANOL DEMAND

DERIVATIVE BREAKDOWN

DERIVATIVE DEMAND- History

and Forecast

•Formaldehyde, Methylamines, Chloromethanes and Pharma have been the

highest growing derivatives during the last four years.

•Some derivatives like Biodiesel , Petrol blending etc have huge growth potential

but are entirely dependent on the government policies.

METHANOL DEMAND GROWTH

RATE – Derivative wise

• Demand is growing at 7- 8% per annum.

• No significant increase in domestic production is expected.

• In tandem with demand , Imports are growing at 8% p.a.Total demand

is likely to touch about 2.85 million ton by 2020.

• Total import requirement should be more than 2.7 million MT by 2020.

DEMAND/SUPPLY/IMPORT-

Likely Scenario

DOMESTIC SUPPLY-IMPORTS-

Changing equation

PRICE TRENDS

• With little domestic production, the global price trends have profound impact

on the Indian markets

• Indian Market closely follows the Chinese price trends

• These are publication CFR prices and suitable premium needs to be added.

After normalising the CFR prices with the premium differential and the freight

differential, India has given BETTER netbacks to ME manufacturers over last 5 years.

KEY assumptions:

1. Average china premium @1.5%

2. Average India premium @ 4.25%

3. Average Freight difference between ME-China and ME –India being USD 18 PMT

Netbacks from India viz China

• About 10 years back most transactions in INDIA were done at a spot negotiated price.

• Today most transactions are being done on published reports . Unlike other regions there are very few spot deals in India. all major consumers and distributors have tied up most of their requirement under contract pricing formula.

• Contract purchases is an ideal tool where each participant pays for the efficiency or inefficiency of each player in the market.

• While on one hand this has greatly brought down the volatility in the market ,liquidity in terms of CFR pricing has suffered.

• Hence the price discovery in terms of CFR number has become a big challenge.

• Formula pricing has made both Suppliers and buyers complacent and both are unwilling to spell out a fixed CFR number. This has set the stage for suppliers asking for high premiums instead of a fixed number.

• At times the suppliers are asking for premiums as high as 10% on publication prices , making the entire pricing process a wee bit bizarre.

• Obviously, price stability and assured supplies have come at a huge premium.

NO SPOT DEALS

• Over last three years, Iran have increased their market share very aggressively. Their market share today stands at near 76%

• Saudi Arabia has nearly maintained their market share thanks to their logistics strength.

• With sanctions on Iran gradually diluting, going forward there should be considerable changes in the trade flows.

IMPORTS-Changing Supplier

matrix

• All major Methanol plants are based on natural gas while one small GNFC plant is based on LSHS.

• The cheaper domestic gas is strictly rationed by GOI and allocated to CGD, Urea , Power and other priority areas.

• There is a major natural gas constraint in India.

• RLNG is the only alternative fuel available for producing Methanol

• However the RLNG at about usd 9-10 mmbtu does not allow any viable Methanol production.

FEEDSTOCK TO INDIAN

PRODUCER

Even for domestic NG ,Prices equivalent to RLNG are being charged, where APM gas has been found diverted for manufacturing NON urea nutrients.

.This has forced fertilizer cum methanol manufacturers as RCF Ltd to shut their Methanol plant and procure imported Methanol even for their captive use.

. GSFC Ltd. has been unable to run their brand new Methanol plant as it is not viable to run on RLNG.

• Government of India intends to curtail subsidy wherever possible and is working to make sure that wherever the subsidy is deemed expedient such as UREA / Power sectors ,it should be passed for the designated purpose only.

• GOI does not intend to subsidize Methanol manufacturing and cheap domestic gas is reserved for priority sectors only.

• Under such a scenario LNG is the only feedstock available for manufacturing methanol ,save for the North EAST India, where domestic gas is available.

• As per GOI new gas pricing policy, the gas prices are notified every 6 months based on henry hub/ alberta and NBP. The present landed cost for NG in North East is about USD 3.15 mmbtu resulting into a comfortable cost zone at least for next 6 months.

• The gas pricing in India is today based on gas surplus countries rather than prices prevailing in gas deficit countries.

• The present gas pricing policy is not conducive to future investments in the domestic gas sector, hence gas policy is likely to be tweaked.

• Assam Petro is putting up a 500 TPD methanol plant assuming a highly subsidized environment, which may or may not materialize.

• Hence performance of Assam Petro NEW METHANOL plant is a big question mark.

NEW DOMESTIC SUPPLY

There are TEN major ports where Methanol is being imported.

• MUMBAI

• KANDLA

• MUNDRA

• VIZAG

• COCHIN

• MANGALORE

• CALCUTTA

• DAHEJ

• HAZIRA

• SIKKA

PORTS

• Over the years the port wise matrix of methanol

imports has changed.

•There is an endeavor to import material at ports closest

to the consumption centre.

•Hence new ports as Mangalore, Cochin, Vizag and

Hazira have been gaining Market share over traditional

ports as Bombay.

PORTS-Changing Mix

IMPORTS-PORT WISE

IMPORTS PORT WISE

FORMALDEHYDE

• FORMALDEHDE accounts for nearly 39% of methanol demand in India.

• As the industry feeds laminates / MDF/ particle board / plywood industry, it

intimately linked with the housing sector , a big constituent of the GDP

• Formaldehyde industry has good growth prospects in India ,Particularly as per

capita consumption of MDF / laminates etc in India is quite low compared to global

average.

FORMALDEHYDE …

• There are a number of Formaldehyde manufacturers spread all over India, with capacity ranging from as small as 12000 MT per annum to as large as 120000 MT per annum.

• There is keen competition amongst the numerous manufacturers. Each manufacturer typically supplies to his natural market within 50-80 km radius of his plant.

• The demand has been growing at about 8-9% p.a.

• Over last 18 months there has been huge capacity addition in the sector .

• At present the industry is going through crisis with poor operating rates and poor cash flows.

• Primarily on account of high capital investment as also low installed capacity per unit, silver catalyst technology has much larger market share.

• Further silver technology is easily available in India at very competitive prices.

FORMALDEHYDE PRODUCTION-

TECHNOLOGY WISE

FORMALDEHYDE PRODUCTION –

REGION WISE

HUGE FORMALDEHYDE

EXPANSION 2015-16

1. West India has witnessed most aggressive Formaldehyde capacity expansion.

With two more plants expected in next 6 months , the new capacity shall be

about 70% of the previously operating capacity .

2. Similarly South and South East India witnessed new capacity equivalent to 45% of

previously operating capacity.

3. In North India new installed capacity is about 20% of the previous capacity.

LOW ABSORPTION OF NEW

FORMA CAPACITY

PHARMACEUTICALS

• Pharmaceutical exports from India clocked a CAGR of 12.3% to

USD 17 billion during 2016 from USD 5 billion during 2006 with

the US being the largest importer of Indian products.

• Indian pharma facilities registered with US FDA as on March 2014

was the highest at 523 for any country outside the US.

• In a study of the top 20 countries that have filed Drug Master

Files, India stands first with 3,264 DMFs that are currently active.

• FDI flows into pharma stand at near USD 15 billion from year 2000

to 2015

• Cost of production in India is approximately 35% to 40% lower

than in the developed countries.

• India's pharmaceuticals industry is likely to grow at a

conservative annual pace of at least 12%, aided by a rapidly

growing domestic market and emerging export opportunities as

patents of at least a dozen blockbuster drugs in the US expire in

the next three years

BIOFUEL

• For energy security ,GOI is promoting

• a) ethanol derived from molasses for 10% blending with gasoline,

• b) biodiesel derived from inedible oils and oil waste for blending with diesel,

and

• c) bio-methanol and biosynthetic fuels.

• At present 5% ethanol blending is mandated . About 700 million litres of ethanol

was procured by OMC for gasoline blending in 2015 representing about 2%

blend ratio.

• In 2014 GOI deregulated the diesel prices and mandated market price for diesel.

This has provided a level playing field for Bio-Diesel.

• Late 2015 GOI has allowed the sale of Bio-diesel (B100) by private

manufacturers to bulk consumers like Railways, State Transport Corporations

and other bulk consumers.

• Retailing of bio-diesel blended diesel by Oil Marketing Companies has started.

• If there is adequate political willingness, use of Methanol in fuel can lead to extra

ordinary rise in Methanol demand in India.

Distributors provide value added services on: -

• Logistics facilities from manufacturer’s works till final consumer’s works ensuring quality and prompt delivery.

• Taking care of storage, customs, clearance etc. at the ports in case of import shipments.

• Maintain inventory to mitigate customer stock out as also toensure optimum inventory at consumer end.

• Financial support to consumers.

• Provide product mix supply package to consumercomprising domestic as well as imports to ensurecompetitive pricing regularity of supply.

DISTRIBUTOR’S ROLE

CONCLUSION

• By 2020 India should be a 2.85 million metric ton methanol market, with imports

accounting for nearly 95% of the total demand.

• GOI is working on making India more energy self reliant and hence there is lot of focus

on renewable energy , coal gasification and bio fuels. This sector can contribute

significantly to Methanol demand in India.

• Over last few years the Indian market has moved from purchasing Methanol on spot

basis to formula based contract purchases.

• This has reduced the price volatility.

• But this has come at the cost of liquidity ,making the task of CFR price discovery

difficult.

• CFR Prices can be derived based on prevailing Rupee Port prices .

• The above scenario puts lot of responsibility on the international price reporting

agencies .The publications need to have a large respondent basket so that the published

prices are as representative as possible.

• India continues to give better net backs to ME producers compared to other Asian

regions . Hence India looks for greater supplier participation in the India growth story.

• With LNG being the only available feedstock for most existing plants, the viability of the

existing plants shall continue to be dictated by “opportune” market conditions.