SunSirs: Shifting Drivers of China’s Methanol Market in 2026

It is expected that the central price of methanol futures will move down compared with the first half of the year, but under the protection of a high basis, there will be short-term phismatic rebound momentum.

In the first half of 2026, the main methanol futures contracts showed an overall operating characteristic of weakening first then strengthening, dominated by geopolitical factors, and fluctuating sharply at high levels. The main trend of the market shifted from traditional supply and demand and costs to being driven by geopolitical events, with the influence of macroeconomics and events significantly outweighing the industrial fundamentals. In the second half of the year, the market logic will return to fundamentals. Although domestic production capacity continues to expand, most of the expansion comes from integrated facilities supporting downstream industries, leading to a limited increase in actually tradable supply. The scale of autumn inspections may exceed expectations due to the reduced volume of quarterly inspections. Focus should be paid to the pace of import recovery and the resilience of downstream demand; the profit recovery of the MTO industry and the peak season of "Golden September and Silver October" are expected to drive marginal improvement in demand. It is expected that the central level of methanol futures prices will move down compared with the first half of the year, but under the protection of a high basis spread, there will be short-term phismatic rebound momentum.

Capacity expansion slows down, and supply shows a tightening trend

The commissioning logic of domestic methanol production capacity is shifting from extensive expansion to integration and refinement. While the growth rate of production capacity has slowed down, the proportion of externally sold capacity has been decreasing year by year. In the first half of 2026, China commissioned new plants with a total capacity of 900,000 tons per year, of which only 200,000 tons per year had the capacity for external sales. In the second half of 2026, although the planned commissioned plant capacity reaches 6.2 million tons per year, most of the capacity will be put into operation at the end of the year and all are equipped with downstream consumption facilities. The capacity of externally sold plants is less than 500,000 tons per year, leading to a limited actual incremental supply available for circulation. Moreover, approximately 2 million tons per year of capacity faces elimination. Under the requirements of the "dual carbon" policy, the evolutionary path of the industry has become clear: large-scale, integrated and green development is the future trend. Although the expansion cycle of methanol production capacity has not yet ended, the growth rate of capacity will slow down significantly, external sales resources will tend to be tight, and the overall market supply will show a tightening trend.

At present, the methanol industry has shifted from the stage of "capacity expansion driven by demand growth" to a new stage dominated by stock capacity game and structural restructuring, and the traditional growth logic has been significantly weakened. For a long time in the past, the methanol industry absorbed new production capacity relying on the expansion of downstream demand (such as MTO, acetic acid, MTBE, etc.), and the output of newly built methanol plants could be digested through the growth of demand. However, in recent years, with the slowdown of the growth rate of downstream demand, the supporting effect on new production capacity has dropped significantly. The traditional transmission path of "capacity expansion → surge in demand → profit improvement" has gradually failed, and the operation logic of the industry has turned to stock competition and structural adjustment.

Spring Maintenance Scale Shrinks, Autumn Maintenance Warrants Attention

Reviewing historical data reveals that the scale of methanol spring overhauls has been shrinking year by year, and their impact on the supply side has continued to weaken. From 2021 to 2022, the annual production capacity shut down for spring overhauls was 23 to 24 million tons; in 2023, this figure rose to 32 million tons per year, but it dropped to 20 million tons per year in 2024, and further to only 17 million tons per year in 2025. For 2026, the production capacity involved in spring overhauls is less than 10 million tons per year. Moreover, the overhauls mainly focus on routine equipment maintenance and core component upkeep, with no large-scale concentrated shutdowns or overhauls. The impact on the industry's operating rate and market supply is far lower than in previous years.

First, since 2024, the production profit of coal-to-methanol has been gradually recovering, and the industry profit remained in the positive range in 2025. Driven by substantial profits, enterprises that have suffered long-term losses tend to maintain a high operating rate, abandon large-scale centralized overhauls, and instead focus on routine minor overhauls and sporadic maintenance to maximize output and revenue.

Second, with the upgrading of equipment, stability has been continuously improved and management has become more refined. Production enterprises can maintain operation through daily minor overhauls, reducing the necessity of centralized major overhauls. Most enterprises choose to conduct overhauls in a staggered manner to extend the operation cycle.

Third, the uncertainty of foreign import supplies, especially those from Iran, has weakened the market impact of spring overhauls. In 2026, geopolitical conflicts in the Middle East led to a sharp reduction in imported sources. To stabilize market supply, domestic methanol enterprises took the initiative to adjust their maintenance plans, comprehensively reduced the scale of maintenance, made every effort to ensure the operating rate of units, and held the bottom line of supply.

The autumn maintenance of methanol plants is generally carried out from August to October, which is complementary to the spring maintenance. On the one hand, after experiencing high temperatures in summer, equipment needs to be inspected for corrosion and catalysts need to be replaced; on the other hand, it avoids the peak demand season of "September and October being the golden months" to reduce the impact of maintenance on profits. However, the scale of spring maintenance this year has been significantly reduced. If equipment fails to be maintained in a timely manner after continuous operation, equipment aging may trigger an unplanned shutdown. It is expected that the scale of autumn maintenance by enterprises will increase. In both 2024 and 2025, there were cases where the scale of autumn maintenance expanded due to the postponement of spring maintenance, and this trend may continue in the second half of 2026. Against the backdrop of limited new production capacity and insufficient actual available circulation volume, the impact of autumn maintenance of methanol plants will be more prominent.

Industry Profits Return to a Reasonable Range, and Profits in the Industrial Chain May Shift Downstream

In the first half of 2026, the profit of the coal-to-methanol industry improved significantly year-on-year, with periodic fluctuations month-on-month. Driven by rising methanol prices and relatively stable costs, the gross profit per ton of coal-to-methanol surged compared with the same period last year, and the industry's profitability was significantly higher than that in the same period of 2025. On the one hand, stable costs supported the improvement of the industry's profitability. From January to March 2026, domestic coal prices fluctuated in a narrow range, making the production cost of coal-to-methanol controllable. On the other hand, the Middle East geocontlict led to sudden overhauls of foreign gas-based methanol plants, and the sharp drop in imported supplies tightened the supply and demand in the domestic market, supporting the upward trend of methanol prices. The demand side was underpinned by rigid demand, with stable operating rates of downstream MTO plants and on-demand replenishment by traditional downstream sectors. In addition, coal prices strengthened from April to June, and the cost support became significantly stronger.

In the second half of 2026, the profit center of the coal-to-methanol industry is expected to remain stable or decline slightly. The overall profit will be positive, but the high-profit status is difficult to sustain. On the supply side, foreign plants will resume production, import volume is expected to grow, and domestic enterprises have high enthusiasm for operation, so the market supply pressure will gradually increase. On the demand side, terminal products have weak follow-up gains in price increases, and the downward transmission of high costs is hindered. Under the background of compressed profit space and increased sales pressure, most downstream enterprises have weakened willingness to replenish stocks at high methanol prices. Some MTO plants have chosen to shut down for maintenance, and negative feedback continues to transmit to the raw material end, suppressing methanol prices. On the cost side, the summer peak electricity consumption may drive coal prices to rise, further squeezing the processing profits of upstream enterprises. The author believes that the profits of coal-to-methanol will gradually return to a reasonable range in the second half of the year. Integrated enterprises have strong profit resilience, while the profit elasticity of coal-purchasing enterprises will decline, and the industrial chain profits may gradually shift to the downstream.

Whether import volume can continue to grow becomes a key influencing factor

In the first half of 2026, methanol plants in the Middle East (mainly Iran, Qatar and Saudi Arabia) shut down on a large scale, and the volume of imported methanol arriving at domestic ports plummeted. From January to May, China's cumulative methanol imports stood at about 3.31 million tons, a year-on-year decrease of 850,000 tons.

With the signing of the memorandum of understanding between the US and Iran, the geopolitical situation in the Middle East has eased. Multiple methanol plants in Iran, Qatar, Saudi Arabia and other regions have resumed production, yet their operating rates remain generally low. Moving forward, methanol export volumes from the Middle East, particularly Iran, are projected to see a notable surge. A large volume of floating inventories and undelivered cargo built up in the earlier period, resulting in elevated stock levels within methanol storage tanks. Once logistics conditions improve, Iran’s methanol export volumes are set to climb quickly. That said, it is worth noting that several Iranian methanol plants came back online as early as late April, but their operating rates have risen at a sluggish pace. Even after shipping outlooks for the Strait of Hormuz became clearer, the majority of Iranian methanol plants are still running at low capacity utilisation, with a handful of facilities remaining fully shut down. The author believes that following the airstrike targeting the South Pars Gas Field, natural gas processing facilities in the Asaluyeh region likely sustained substantial physical damage that cannot be overlooked. Unreliable natural gas supplies may hinder the full resumption of Iranian methanol plants and prevent a rapid uptick in their operating rates. Furthermore, the US Department of the Treasury’s Office of Foreign Assets Control has granted Iran authorisation to produce, ship and sell oil, petroleum products and petrochemical goods until 21 August 2026. This will enable broader distribution of Iranian petrochemical products. Previously, over 90 percent of Iran’s methanol supply was shipped to China, and this share of supply destined for China is likely to decline in the coming period.

Further analysis shows that due to fiscal deficits and excessive currency issuance, Iran's finances have been under long-term pressure. Coupled with the economic damage caused by wars, Iran's currency has depreciated significantly, leading to a stronger demand for foreign exchange earnings. Therefore, Iran's industrial enterprises will strive to increase production and exports. The methanol industry, with its huge production capacity and export potential, has become an important pillar for the Iranian government to ensure economic development. In the future, Iran will most likely exchange methanol export volume growth for foreign exchange to ease fiscal pressure.

In addition, according to historical data, the overall path of cold air activities in El Niño years is biased northward. The frequency and intensity of extreme low temperatures experienced by Iran are both below average. The southern Persian Gulf coast, where Iran's main methanol production areas are located, sees mild winter temperatures and relatively little pressure on natural gas supply security. Therefore, the proportion and duration of winter load reductions and shutdowns at its methanol plants will most likely be lower than those observed in severe winter years.

Cost Advantages Stand Out, and Integrated Units Become the Main Production Force

In the first half of 2026, no new MTO units were put into operation. The 1 million tons/year capacity plant of Guangxi Huayi, originally scheduled to start production in early the second quarter, has been repeatedly postponed (affected by high raw material prices). Only the 360,000 tons/year capacity plant put into operation by Lihong Gerun at the end of 2025 has fully released the incremental demand for methanol. This plant completely procures methanol externally, with an average monthly demand of about 100,000 tons.

In the second half of the year, Guangxi Huayi's (1 million tons/year), China Coal Yulin Phase II's (1 million tons/year) and Inner Mongolia Rongxin's (800,000 tons/year) MTO units are scheduled to be put into production. The three units are each equipped with methanol units of 1.8 million tons/year, 2.2 million tons/year and 1.8 million tons/year respectively, and all need to purchase methanol externally for supplementation.

With the promotion of "reducing oil and increasing chemical products" and the lightweighting of olefin feedstocks during the 14th Five-Year Plan period, competition in the downstream olefin sector has become increasingly fierce. The growth rate of China's coal/methanol-to-olefin production capacity has slowed down, and especially, enterprises that externally purchase methanol for olefin production are facing more intense competition. Thanks to the abundant local coal resources, the CTO/MTO production capacity in the northwest region has been continuously expanding. By the end of 2025, the olefin production capacity in the northwest region had reached 15.06 million tons per year, accounting for 70% of the national total. The commissioning of coal/methanol-to-olefin plants in the northwest region has effectively improved the problem of the single regional consumption structure and enhanced the local digestion capacity of coal and methanol.

After coal prices hit rock bottom in 2025, the profits of coal-to-olefin enterprises have improved significantly. In the first half of 2026, driven by the surge in oil prices and the relatively low coal prices, coal-to-olefins boasted a very considerable profit margin compared with oil-to-olefins. Relying on the advantages of full industrial chain layout and refined cost control, coal-to-olefin production is the main driver boosting the consumption growth of China's methanol market. Some newly built coal-to-olefin plants still have the possibility of purchasing methanol from outside in phases, which will effectively improve the regional supply and demand structure and promote the transformation of methanol-related chemical products into high value-added products.

MTO enterprises procuring methanol externally are still in a loss-making state

In the first half of 2026, rising methanol prices were fully passed on to the downstream olefin industrial chain, triggering a pronounced negative profit feedback loop that landed the olefin industry in a predicament featuring high raw material costs and sluggish end-user demand. On one hand, coastal non-integrated olefin facilities rely entirely on externally sourced high-priced methanol for production. When combined with processing costs, equipment depreciation, financial charges and other overheads, enterprises incurred substantial losses while operational pressures mounted steadily. At the same time, low import volumes further aggravated raw material supply shortages. On the other hand, terminal demand stayed chronically weak, and polyolefin product prices failed to track the upward movement of raw material costs, creating a breakdown in cost transmission across the industrial chain. Sustained profit margins in reverse forced non-integrated facilities to voluntarily slash operating rates, bringing about a sustained decline in the industry’s overall operating rate.

With the opening of the Strait of Hormuz, the tight supply situation of imported methanol is expected to be alleviated, and plants such as Ningbo Fude (600,000 tons/year) and Nanjing Chengzhi Phase I (300,000 tons/year) that were shut down earlier due to insufficient raw materials have restarted successively. However, considering that China's polyolefin export volume will decrease and import volume will increase after the relaxation of the geopolitical situation in the Middle East, and new production capacity will be put into operation in the second half of the year, the fundamental situation of polyolefins will weaken as supply pressure gradually emerges, which will suppress the procurement demand for methanol by MTO plants through the transmission of the industrial chain. In addition, if the recovery of methanol imports is less than expected, the problem of raw material shortage will restrict the improvement of the operating rate of the MTO industry.

The traditional downstream demand has strong resilience, and the "Golden September and Silver October" peak season is still expected

The growth rate of traditional downstream demand is slow but resilient. Industries such as formaldehyde, acetic acid and MTBE are in a mature development stage, and are highly correlated with the prosperity of the macro economy, especially the real estate and basic chemical industries. The overall growth rate of these industries has slowed down, and coupled with technical substitution or environmental constraints in some fields, the driving force for the growth of methanol demand has weakened. However, it should be noted that in recent years, while the operating rates of these industries have generally declined, the production capacity base has still shown a growth trend. Therefore, the downstream industries are facing pressure of capacity clearance, and the short-term demand for methanol remains strong.

In the first half of 2026, the high price pressure of methanol spread to the entire industrial chain. Traditional downstream industries such as acetic acid, formaldehyde, and MTBE were also under pressure. The negative load and shutdown of production equipment increased, and the overall operating rate of downstream industries remained low. However, since mid-June, with the continuous decline in methanol prices, the comprehensive profit margin of traditional downstream industries has bottomed out and rebounded, and the industry operating rate is expected to rebound. Attention should be paid to the fulfillment of peak demand in the "Golden September and Silver October" period. It is worth noting that although "Golden September and Silver October" is a traditional consumption peak season, affected by the "double festivals", there are likely to be situations such as rising freight rates, declining transportation capacity and expressway restrictions. Downstream enterprises mostly choose to restock before the festival. Nevertheless, in August 2025, some large-scale olefin and acetic acid enterprises had already started to arrange procurement plans. By September, most downstream enterprises' raw material inventories were at a medium to high level. After September, traditional downstream enterprises in regions such as Shandong and the Northwest mainly purchased on demand. The author believes that in the next few years, the procurement model of multiple small purchases may replace the traditional seasonal law and become the new procurement model of the methanol industry.

The narrowing price gap between domestic and international methanol plus the export tax rebate cancellation mark the peak of annual methanol exports

In the first half of 2026, geopolitical conflicts in the Middle East led to a shortage of methanol supply in Southeast Asia, Europe, East Asia and other regions, and the external methanol prices rose sharply. The price difference between domestic and external methanol remained above 200 US dollars per ton (exceeding 300 US dollars per ton at the peak), which significantly enhanced the export competitiveness of methanol in China. Driven by the large price difference, the export volume of domestic methanol surged. The total export volume from January to May reached 527,000 tons, a year-on-year increase of 322%, which was 1.8 times the annual export volume in 2025. However, with the de-escalation of the geopolitical situation and the gradual recovery of shipping in the Strait of Hormuz, the price difference between domestic and external methanol narrowed rapidly. Coupled with the cancellation of methanol export tax rebates, the export cost per ton increased by 200 to 300 yuan, and methanol exports will gradually return to normal.

In summary, in the second half of 2026, after the rapid retracement of the geopolitical premium, the operational logic of the methanol market will return to fundamentals, with the recovery of import expectations and the fulfillment of demand growth driving the trend of disk prices. Considering that the instability of natural gas supply may make it difficult for all Iranian methanol production plants to restart, and that upstream enterprises transferring profits to the downstream will help boost demand recovery, the sharp drop of the methanol futures 2609 contract has basically reflected the expectation of imports returning to normal levels. Under the background of a high basis, the futures price may rebound to a certain extent. However, in the medium to long term, the continuous increase in imports will lead to a significant accumulation of port inventories, the duration of gas supply restrictions and plant shutdowns in Iran may be extended, and the overall methanol price range will move down. (Author's unit: Soochow Futures)

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