Explosion at gas factory in central China likely to increase the price of methanol 07-24-2019

According to Chinese authorities, an explosion at a gas factory in Yima City, Sanmenxia City, Henan Province killed 2 people and seriously injured 18 victims. Twelve people were still missing. The gas factory exploded on a Friday evening and set off a fire right after the blast. It was so intensive that windows from buildings located 3 kilometres away were even shattered down.

It is reported that the gas factory involved in the explosion is confirmed as Yima Qihua factory, which belongs to Henan Gas (Group) Co., Ltd. Founded in 1997, the factory went into production in 2006. With fixed assets of more than RMB 5 billion, it is the largest coal gas production enterprise in Asia. In general, 3 million Nm³ clean coal gas can be produced per day at the factory, with an annual capacity of 233 million Nm³ natural gas, 300 thousand tonnes methanol, 200 thousand tonnes dimethyl ether, 300 thousand tonnes acetic acid, 120 thousand tonnes liquefied ammonia, and 200 thousand tonnes ammonium nitrate. What's more, Yima Qihua is an enterprise under special supervision of the country.


Increase of price in methanol with tight supply predicted by some market insiders

2019 witnessed many chemical accidents in Jiangsu Province and Shandong Province, which have aroused great concerns of the Chinese government. Therefore, large-scale inspections have been strictly executed in different chemical enterprises. Some market insiders analysed that the security check of hazardous chemicals has been upgraded since the Xiangshui explosion. The Security Committee of the State Council also took immediate measures regarding the inspection of places with potential safety hazards and the risk assessments of chemical plants.

The explosion of Yima Qihua factory is likely to bring the security supervision into a severer situation. Enterprises with incomplete formalities may face a risk of shutdown. Hence, it is predicted that around 3 million tonnes methanol might be produced totally in the whole Henan Province. However, due to the fact that East China is the main consumer area of methanol, another safety inspection may have a great impact on the supply of this chemical.

Besides, the explosion is able to affect the supply of methanol directly, which may also lead to an increase of price in this chemical, according to the insiders. Furthermore, under the strike of the surrounding environment, the price of methanol will also make a difference. For example, the intensified nuclear issue of Iran may cause the price of oil to ascend, which may have an effect on methanol.  In addition, the inspection of safety and environment in China would spark concerns in the markets, which may also affect the price of methanol.


China’s chemical industry faces a problem of overcapacity

As a matter of fact, there are a large quantity of small enterprises in Chinese chemical industry, some of which are confronted with serious pollution. Especially under the circumstances where frequent accidents have occurred at chemical plants this year, a lot of chemical enterprises stand on the list of special supervision.

According to official statistics in China, 49 of chemical products among 100 have the operating rate of less than 60%. Only 11 of those products have the operating rate of over 80%. From the data above, a conclusion can be drawn that China’s chemical industry is facing a serious situation of overcapacity. Hence, only when the highly polluting enterprises with low capacities are eliminated under the safety inspection, can the operating rates be effectively increased.

For more information about China’s Petrochemicals market, please have a look at our resources at Petrochemicals.

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