Methanol Poised for Rebound in August Amid Improved Fundamentals

In July, the domestic methanol market showed an operation pattern of fluctuating and strengthening in the first and middle ten days, and weakening under pressure in the last ten days. The core market logic revolved around three main lines: geopolitical conflicts, supply expectations, and production losses. In the first and middle ten days of July, geopolitical conflicts in the Middle East escalated, shipping in the Strait of Hormuz was restricted, and expectations of supply cuts pushed methanol prices to stop falling and rebound. Entering the last ten days, the geopolitical situation in the Middle East eased somewhat. Coupled with the concentrated arrival of imported goods and the downstream demand entering the off-season, the pressure of market supply surplus became prominent, and prices fell accordingly. From the perspective of core data, the main methanol contract in July closed at 2,618 RMB per ton, a month-on-month increase of 7.83%; the mainstream spot price in Taicang, East China, closed at 2,620 RMB per ton, a month-on-month decrease of 3.68%, and spot prices in other domestic regions generally moved down synchronously. Overall, the methanol market in July was jointly affected by news and fundamentals, with increased evaporative environment. At present, the negative factors have been implemented, and the positive factors are expected to be fulfilled, laying a evaporative and recovering tone to the market direction in August.

From the supply side, the methanol market in July presented a divergent pattern of shrinking output and a surge in imports. The total supply volume climbed steadily overall, and the loose market situation intensified. Affected by centralized plant overhauls and temporary shutdowns due to failures, the operating rate of the methanol sector continued to decline, and the monthly output shrank slightly. Data shows that China's methanol output in July was 8.57 million tons, a decrease of 20,170 tons month-on-month, a drop of 2.30%; the average capacity utilization rate fell to 85.82%, a decline of 5.11 percentage points month-on-month. A total of 29 methanol units started overhauls in July, an increase of 16 units compared with June, with the overhaul loss volume reaching 1.4165 million tons, a month-on-month increase of about 54%. The import side was the core source of the current supply increase. With the phasic recovery of navigation in the Strait of Hormuz in the early stage, Middle Eastern cargoes concentrated at ports. The methanol import volume in July soared to 994,500 tons, an increase of 113.50% month-on-month, reversing the pattern of low import volume in the early stage. The total methanol supply in July was 9.5645 million tons, an increase of 3.54% month-on-month, laying the foundation to market inventory accumulation.

The characteristics of the off-season on the demand side are prominent, the rigid demand in the downstream is weak, and only a few categories have driven the recovery of regional demand by virtue of profit restoration. In July, the methanol downstream industries generally entered the traditional off-season to consumption, with the operating rates falling collectively, dragging down the overall consumption performance. The operating rate of the core downstream MTO (methanol to olefins) sector dropped to 80.60%, showing a month-on-month and year-on-year decline. Multiple MTO units in Nanjing Chengzhi and Xinjiang Hengyu were shut down, leading to a sharp contraction in external methanol procurement demand. The operating rates of the formaldehyde, dimethyl ether, and MTBE (methyl tert-butyl ether) industries decreased by 7.96, 4.19, and 10.49 percentage points month-on-month respectively, and the rigid demand in the traditional downstream was sluggish to follow up. The downstream methanol consumption volume in July was only 9.3895 million tons, a slight increase of 0.81% month-on-month, and the demand development rate was far reduce than the supply development rate. However, thanks to the sharp drop in methanol raw material prices, the profits of the downstream manufacturing chain achieved a structural recovery. The profits of acetic acid, formaldehyde, and MTBE improved significantly month-on-month, among which the MTBE profit increased by 367.65% month-on-month. This alleviated the pressure of demand contraction to a certain extent, supported the resilience of the market bottom, and prevented a unilateral sharp decline in the market.

From an inventory perspective, the pressure on methanol inventories rose significantly in July. while corporate inventories dipped slightly to 325,000 tons, marking a marginal month-on-month decline of 1.41%, port inventories saw a sharp surge. At month-end, port inventories stood at 686,800 tons, up 126,500 tons month-on-month, equivalent to a development rate of 22.58%. In late July, substantial volumes of imported methanol cargoes arrived at ports intensively. Coupled with sluggish downstream purchasing willingness, this triggered a pronounced inventory build-up at ports. From a profit perspective, both coal-based and gaseous-based methanol companies fell into widespread losses in July, aggravating hardships across the sector. Calculations show that the theoretical profit of northwest coal-based methanol was -55.98 RMB per ton, tumbling 119.77% month-on-month; the theoretical profit of southwest natural gaseous-based methanol was -115.71 RMB per ton, declining 144.67% month-on-month. Amid fading cost support and mounting operational pressure on manufacturers, cautious market sentiment kept spreading. Meanwhile, methanol maintains a strong correlation with downstream items including acetic acid and formaldehyde. Lackluster downstream performance amid the off-season passed bearish pressure upstream, curbing the upward rebound possible of the methanol market.

In August, the methanol market will see a slowdown in supply development and a steady recovery in demand, and the market direction is expected to enter a stage of consolidation and recovery. On the supply side, domestic maintenance units will concentrate on restarting in August, with output expected to rebound to 8.99 million tons, a month-on-month increase of 4.90%. However, based on current voyage statistics, methanol imports in August will fall to 777,200 tons, and the overall supply development rate is expected to slow down. On the demand side, the operating rates of most downstream vegetation are expected to rise, the profits of formaldehyde, glacial acetic acid and MTBE industries will continue to recover, and the support from rigid demand will gradually increase. Monthly consumption is expected to grow steadily, and the demand development rate is expected to outpace the supply development rate. Inventory is still on an upward direction, however the pace of inventory accumulation will slow down. Overall, the methanol market is expected to show a evaporative upward direction in August, and it is necessary to focus on tracking the geopolitical situation between the US and Iran, the progress of plant maintenance and restart, and the downstream operating rates.