SunSirs: Multiple Factors at Play: Methanol Expected to Remain Within a Narrow Range in the Short Term

According to China Energy Net, since March, domestic methanol prices have embarked on an upward trend: in addition to the commodity premium driven by geopolitical risks, a significant year-on-year decline in domestic methanol imports and the continued drawdown of port inventories, coupled with the gradual recovery of operating rates in traditional downstream sectors and the olefins industry, have converged to drive a substantial rise in domestic methanol prices. By around 7 April, methanol prices in the mainland and at ports had surged simultaneously, reaching their highest levels in nearly two years. Subsequently, the market trend reversed. Faced with common pressures such as easing geopolitical tensions and weak demand in certain downstream sectors, domestic methanol prices turned from gains to losses, whilst exhibiting a marked regional divergence—the inland market, benefiting from a tight supply-demand balance, low inventory levels and strong cost-side support, saw a significantly smaller price correction than the port market, as shown in the figure below. Between 7 and 21 April, the price of imported methanol in Jiangsu fell by as much as RMB 340 per ton, whereas during the same period, price declines in Shandong, Northern Shaanxi and the Northern Inner Mongolia route were only around RMB 50 per ton.

The strong resilience of the inland methanol market stems primarily from tightening supply and the continued drawdown of inventories. As methanol producers’ profit margins have improved, their willingness to voluntarily cut production is low. Although the overall operating rate of the domestic methanol industry remained at a relatively high level in April, the scope of plant maintenance in the mainland has expanded. Some enterprises in major production areas such as Inner Mongolia, Shanxi and Henan have successively entered maintenance cycles. As of 21 April, the domestic methanol operating rate stood at 85.38%, down 3 percentage points from late March, leading to a marginal contraction in methanol output.

Ongoing inventory drawdowns are another key factor underpinning the strong resilience of mainland methanol prices. With rising temperatures, traditional downstream sectors such as formaldehyde, dimethyl ether and MTBE have entered their peak demand season since March, with operating rates steadily recovering and procurement demand remaining robust. In particular, the restart of major olefin plants in Jiangsu at the end of March has led to a significant increase in methanol consumption by the olefin sector. Coupled with a reduction in imports, this has prompted bulk arbitrage flows of mainland supplies into ports, whilst spot shipments from production regions such as Northwest China have been smooth. As can be clearly seen from the chart below, mainland methanol producers have been continuously reducing inventories since March.

In stark contrast to the mainland market, methanol prices at ports have corrected more significantly. Affected by the US-Iran conflict, Iran—China’s primary source of methanol imports—has seen the majority of its methanol plants shut down. Coupled with shipping disruptions in the Strait of Hormuz, this has led to a virtual halt in Iranian methanol exports. Consequently, Chinese imports have remained at low levels, making it difficult to effectively replenish port inventories. The limited supply of port methanol led to earlier price increases that far exceeded those in the mainland. However, as local downstream users, such as olefin producers, predominantly source supplies from the mainland due to lower costs, demand has weakened significantly, thereby reducing the resilience of port methanol prices against declines.

Crucially, the decline in methanol futures since 7 April has been driven primarily by a combination of diminishing geopolitical impacts and pressure from fundamental factors. On the geopolitical front, the US and Iran have reached a preliminary framework for a ceasefire, easing market fears of energy supply disruptions. The geopolitical premium that had previously supported the surge in futures prices has gradually faded. Although the Strait of Hormuz has not been fully reopened, the flow of shipping traffic has increased as US-Iran peace talks progress, further driving the correction in futures prices. Fundamentally, the sharp decline in crude oil prices has put pressure on the energy and chemicals sector as a whole, creating a knock-on effect; Downstream sectors provided insufficient support for purchasing high-priced local raw materials. Concurrently, market expectations of a gradual resumption of overseas production facilities and increased prospects for future imports further suppressed futures prices. The convergence of these multiple factors led to a sharp decline in futures prices from their highs, further exacerbating the downward trend in spot prices.

In the short term, supported by generally tight inventories at methanol plants, domestic methanol prices still possess a certain degree of resilience. At the same time, whilst economic pressures are becoming increasingly apparent in methanol’s primary downstream sector—olefins—profits in certain traditional downstream sectors, such as formaldehyde, have also been squeezed and eroded, leading to a decline in industry operating rates. With methanol prices currently remaining at elevated levels, and in the absence of further positive drivers from macroeconomic or fundamental factors, downstream users are cautious about purchasing high-priced raw materials; it is understood that most downstream sectors showed only moderate enthusiasm for stockpiling ahead of the May Day holiday. With a lack of support from the demand side, the upside potential is expected to be limited, and methanol is likely to remain within a narrow trading range in the short term. Moving forward, close attention should be paid to whether port-based olefin producers initiate external procurement, whilst also closely monitoring the indirect knock-on effects of crude oil price fluctuations and shifting geopolitical tensions, as such unforeseen factors could disrupt the short-term trajectory of the methanol market.

As an integrated internet platform providing benchmark prices, on April 23, the SunSirs benchmark price for methanol stood at 3,256.67 RMB/ton, representing a decrease of 2.98% compared to the beginning of the month (3,356.67 RMB/ton).

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