Price trend (January 17th - February 2nd)

The formaldehyde industry in Shandong was operating at a low level, facing downward pressure from both declining costs and weak demand. The industry continued to suffer losses, and the market lacked a clear direction.

According to monitoring data from SunSirs' commodity price analysis system, as of February 2nd, the average price of formaldehyde in Shandong province was 1,023 RMB/ton, a decrease of 0.24% during the period and a year-on-year decrease of 11.07%.

Costs and Profits: Inefficient cost pass-through led to widespread losses in the industry

The price of methanol, the main raw material, was trending upwards. As of February 2nd, the benchmark price of methanol according to SunSirs was 2,265 RMB/ton, a 0.63% increase during the period. However, this did not effectively boost the formaldehyde market. The two showed a divergent trend of rising raw material prices and falling product prices. While costs increased, weak demand dragged down prices, leading to continuous pressure on profit margins.

Supply and demand situation: Both supply and demand were decreasing simultaneously, with demand being the main drag.

Supply side: The industry's willingness to operate was insufficient, and the capacity utilization rate had fallen to 33.32%. As the Lunar New Year approaching, companies were primarily focused on reducing production and managing inventory, with some facilities planning to shut down for maintenance from the end of January to the beginning of February. Despite the supply contraction, the market still had ample spot supply due to even weaker demand.

Demand side: Weak demand was the core factor suppressing the market.

According to the eight industry indices monitored by SunSirs, the building materials industry was the only sector to experience a month-on-month decline, with its index falling by 1.13% at the end of January. Before the traditional Chinese New Year holiday, demand from downstream construction sites and home decoration projects entered a slack season. This, coupled with the impact of cold weather on construction progress, led to a significant decrease in purchasing volume. The continued downturn in the real estate industry also dragged down overall demand for building materials. The formaldehyde industry, primarily serving the downstream artificial board industry, continued to experience shrinking demand due to the impact of the real estate sector, maintaining only essential purchases. Other downstream industries, such as methylal production, mainly focused on utilizing their own internally produced formaldehyde. Before the Spring Festival, downstream buyers showed little willingness to stock up, and sellers actively shipped goods to control inventory levels.

Market outlook

Recently, the formaldehyde market in Shandong was struggling during the traditional off-season. The industry was passively reducing production due to losses, and the continued weakness in end-user demand was preventing any market rebound. In the short term, due to the Spring Festival holiday, demand will remain at a low point, and prices are likely to continue to fluctuate weakly. Whether the market can break this stalemate depends on whether there is an unexpected improvement in the operating rate and inventory levels of the downstream panel industry.

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