SunSirs: Geopolitical Shifts Reshape the Landscape: A Critical Turning Point for the Coal-Chemical Market

The recent memorandum of understanding between the US and Iran signals the imminent lifting of navigation restrictions in the Strait of Hormuz. As the geopolitical tensions that roiled the Middle East for months begin to subside, the fundamental trading logic governing global energy and coal-chemical markets is undergoing a profound transformation. As a vital artery for global energy and chemical transport, the Strait of Hormuz facilitates the export of vast quantities of raw materials—including crude oil, methanol, and ethylene glycol—essential to the coal-chemical industry. The resumption of traffic through the strait is directly driving a return of overseas supplies and a decline in international oil prices. Coupled with domestic fundamentals characterized by high supply and weak demand, import-dependent coal-chemical products like methanol and ethylene glycol have led the market in a sharp correction, marking the industry's entry into a phase of supply-demand rebalancing. This article provides a comprehensive analysis of the current coal-chemical market, examining the international environment, domestic production capacity, upstream and downstream demand, import-export dynamics, and long-term industry trends.

I. The Core of the Market Shift: Easing Geopolitical Risk and a Fundamental Change in Market Logic

In the preceding months, heightened tensions in the Middle East disrupted shipping through the Strait of Hormuz, extending transport times and drastically reducing arrival volumes for overseas chemical feedstocks such as methanol and ethylene glycol. Concurrently, international oil prices surged due to a geopolitical risk premium. Consequently, coal-chemical products maintained high price levels—driven by tightened overseas supply and rising costs—with both futures and spot prices showing sustained strength.

With the US-Iran agreement in place and the reopening of the strait anticipated, market risk aversion has rapidly dissipated. On one hand, the sharp drop in international oil prices has directly depressed the cost of oil-based chemicals, thereby weakening the cost-substitution advantage coal-chemicals previously held over their oil-based counterparts. On the other hand, the resumption of transit for stranded feedstocks and ocean-going vessels has raised expectations for a surge in overseas supply. Driven by this combination of bearish factors, coal-chemical products with high import dependency have reacted most acutely; futures prices saw an immediate, deep correction, rapidly shedding the premiums previously built up through geopolitical speculation. The industry has thus officially transitioned from a phase dominated by "supply concerns" to a new stage defined by the "tug-of-war between supply and demand." In terms of product performance, there is a clear divergence across categories: products heavily reliant on Middle Eastern imports—such as methanol and ethylene glycol—have seen the sharpest declines; meanwhile, products with high domestic self-sufficiency—such as coal-to-olefins and synthetic ammonia—have experienced relatively moderate volatility, fluctuating primarily in line with overall market sentiment.

II. Current Domestic Supply Status: High-Level Capacity Release and Ample Short-Term Growth Potential

Overall domestic supply in the coal chemical industry is currently relatively loose, with production enthusiasm remaining high. As the core raw material for the industry, coal sees steady domestic capacity release; feedstock supplies for major coal-based production units remain stable, with no shortages reported. Driven by earlier price surges and strong corporate profitability, operating rates for major units—such as those producing coal-based methanol and olefins—have remained high. Most enterprises have postponed routine maintenance, pushing total output close to existing capacity limits, though there remains some room for slight short-term increases.

Looking at specific categories, the domestic methanol sector boasts a massive capacity base with stable regional operations, ensuring a steady outflow of supplies from key production hubs like Northwest and North China. For coal-to-ethylene glycol, the implementation of new construction and technical upgrade projects has steadily boosted domestic self-sufficiency, gradually reducing reliance on imports. Furthermore, domestic coal chemical capacity is concentrated in coal-rich regions with well-developed industrial chains and robust supply capabilities; combined with the arrival of overseas supplies, this has further intensified supply-side pressure on the domestic market.

III. Domestic Demand Landscape: Traditional Downstream Sectors Enter Off-Season; Essential Demand Continues to Weaken

Weak demand is the primary weakness of the current coal chemical market and a key factor suppressing prices. As June begins, the domestic chemical industry has officially entered its traditional off-season; operating rates across the downstream coal chemical value chain have generally declined, and the negative feedback loop regarding demand continues to intensify.

Traditional Downstream Sectors: Enterprises in traditional methanol downstream sectors—such as those producing acetic acid and dimethyl ether (DME)—have successively reduced operating loads and output. Industry operating rates have dropped significantly, and raw material procurement has been slashed to levels covering only minimum essential production needs.

Emerging Downstream Sectors (MTO/MTP): Several coastal methanol-to-olefins (MTO) units have entered maintenance or load-reduction cycles. As a core consumption sector for methanol, this segment has experienced a precipitous, albeit temporary, drop in demand, driving essential methanol demand in coastal regions to its lowest level of the year. Other related sectors: Demand in industries such as chemical fertilizers and fine chemicals remains sluggish. As the agricultural fertilizer season enters a lull, the price correlation between synthetic ammonia and urea has weakened, further dampening raw material procurement for the coal-chemical industry.

Overall, downstream enterprises are generally adopting a "just-in-time" procurement strategy to mitigate price volatility risks; there is a complete absence of concentrated restocking activity. Even when prices for certain products retreat, downstream willingness to chase rising prices or "buy the dip" remains low, making it difficult for the demand side to provide effective support in the short term.

IV. Import-Export Landscape: Overseas supplies to flow back in volume; price spreads between domestic and international markets to be reshaped

The resumption of shipping through the Strait of Hormuz has fundamentally altered the previously tight supply situation for coal-chemical imports. my country relies heavily on Middle Eastern nations—such as Saudi Arabia, Iran, and the UAE—for imports of products like methanol and ethylene glycol; earlier shipping restrictions caused methanol import volumes to drop to 310,000 tons in May. Currently, large volumes of cargo from Iran and the Middle East are being shipped out. With transport routes fully reopened, domestic coal-chemical import volumes are expected to rebound sharply in June; industry estimates suggest monthly methanol imports will rise to 500,000–550,000 tons, significantly boosting the replenishment of overseas supplies.

Regarding exports, the arbitrage margin for certain coal-chemical products had previously narrowed or vanished due to high domestic prices and an inverted price spread (where domestic prices exceeded international ones), leading to a gradual decline in export orders. Now, as international prices also fall and the domestic-international price spread continues to narrow, export advantages are further eroding, rendering the strategy of diverting domestic surplus via exports largely ineffective. This pattern of surging imports and weakening exports will further exacerbate the pressure of oversupply in the domestic market.

V. Inventory Changes: Short-term support remains, but the risk of inventory accumulation is gradually rising

At present, domestic port inventories for coal-chemical products remain at historically low levels; taking methanol as an example, port stocks stand at only 530,000 tons. Previously, low inventory levels and export diversion supported prices, helping to cushion the extent of the recent price decline. However, clear signals of a weakening in fundamentals have emerged: operating rates at overseas plants are recovering, and cargo vessels are arriving at ports. Coupled with the reality of high domestic production and weak demand, the previous trend of continuous inventory depletion has come to an end. As imported supplies arrive in bulk and downstream procurement remains sluggish, inventories at domestic ports and among traders are set to enter a phase of accumulation. As stock levels rebound from lows, the volume of circulating market supply will increase, keeping prices under pressure and steadily eroding the support previously provided by low inventories. Inland plant inventories currently remain stable; enterprises are fulfilling long-term contracts, and while no significant stockpiling has occurred yet, these levels will eventually align with broader market trends.

VI. Overall Situation of the International Coal-Chemical Industry

The global coal-chemical market is undergoing a structural shift. As a major global production and export hub, the Middle East is seeing normal plant operations; large volumes of finished products—previously backlogged due to shipping disruptions—are now being shipped out en masse following the reopening of shipping lanes, significantly increasing the total global supply. In European and American markets, falling international oil prices have reduced production costs for oil-based chemicals, intensifying competition for coal-chemical products in the region and increasing the bargaining power of overseas buyers.

Demand in key consumption regions like Southeast Asia and South Asia remains stable without explosive growth, making it difficult for the overseas consumer market to absorb the sudden influx of Middle Eastern supply. The global coal-chemical landscape is shifting from "regional supply shortages" to "loose supply-demand balance across all regions"; international prices are falling in tandem with oil prices, and the linkage between domestic and international markets is strengthening. Additionally, the normalization of global coal trade and shipping costs has facilitated the circulation of coal-chemical products worldwide.

VII. Changes in Industry Profitability and Costs

During the earlier period of rising international oil prices, the coal-chemical industry benefited from the relative price stability of its raw material—coal—creating a distinct "price gap" (or "scissors spread") against oil-based chemicals. This drove a significant surge in industry profitability and served as the primary catalyst for high operating rates at domestic plants. Now, however, with oil prices falling rapidly and cost pressures on oil-based production routes easing, the competitive advantage of coal-chemical products has diminished, and profit margins are gradually narrowing.

Nevertheless, coal prices remain stable, allowing coal-chemical enterprises to maintain baseline profits without widespread losses; consequently, there is little appetite for voluntary, large-scale production cuts, making it unlikely that the pattern of high domestic supply will reverse in the short term. Regarding value chain transmission: upstream coal prices are stable, midstream product prices are falling, and downstream demand is weak. As a result, industry profits are gradually shifting from the upstream and midstream sectors toward the downstream sector, though the overall pace of this transmission remains slow. VIII. Forecast of Phased Market Trends

Driven by the combined impact of negative geopolitical factors, surging imports, and sluggish domestic demand, the coal-chemical market is expected to maintain a weak trend. While low port inventories may offer brief support, they are unlikely to alter the fundamental supply-demand balance; prices will predominantly fluctuate downward with increased volatility. Meanwhile, the US-Iran situation remains subject to potential minor fluctuations; should progress on negotiations or the resumption of shipping fall short of expectations, the market might experience a temporary rebound, though the overall bearish trend would remain unchanged. Regarding trading activity, the market is driven primarily by essential demand, with speculative trading having largely exited the scene.

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