SunSirs: Weighed Down by Costs and Sluggish Demand, Formaldehyde Prices Are Fluctuating with a Weak Tone

According to SunSirs, the formaldehyde market experienced a fluctuating downward trend during the first half of July. Market movements were driven by the interplay between costs and supply-demand dynamics, characterized by raw material prices that initially fell before rebounding, sluggish downstream demand typical of the off-season, and a slight contraction in market supply. As of July 15, the average price of formaldehyde in the Shandong region stood at 1,243 RMB/ton, down 6.84% from the beginning of the month.

Analysis of Driving Factors

Cost side: Weak initially, then strengthening; the level of support shifted from loose to tight.

Variables in the international market have driven a recovery in methanol prices; following news on July 14 regarding shipping routes involving the U.S. and Iran, heightened geopolitical risks in the Middle East have fueled expectations of tighter methanol supplies, leading to a rebound in domestic spot prices and directly bolstering cost support for formaldehyde. 

However, the upside potential for methanol prices is limited, meaning the positive support for formaldehyde is unlikely to intensify significantly. With a concentration of methanol imports expected to arrive at domestic ports in the latter half of July, port inventories are projected to rise; combined with generally weak end-market demand across the entire industry chain, methanol lacks the momentum to drive a substantial price surge, serving only to provide a floor for the formaldehyde market.

Demand side: Persistently weak; driven by essential needs, with cautious purchasing.

July marks the traditional off-season for formaldehyde consumption, with multiple factors suppressing the recovery of end-market demand. First, scorching summer heat and periodic flooding in the south have directly hampered the operating rates of panel and adhesive manufacturers in key production hubs like Guangxi (South China); consequently, production activity remains subdued, and market enthusiasm for procurement has cooled significantly. Second, as the panel industry continues to implement new national standards, the sector is undergoing a transitional period of capacity adjustment and process adaptation; downstream enterprises are generally maintaining low inventory levels, purchasing strictly on an as-needed basis rather than stockpiling in bulk. Third, downstream sectors—such as adhesives and urea-formaldehyde resins—face thin profit margins and a limited ability to pass on costs, further dampening the release of essential demand for formaldehyde. Overall, formaldehyde demand in the first half of the month lagged behind the same period last year; market activity was dominated by sporadic, essential-need transactions, lacking the support of any concentrated restocking trends.

Supply side: Operating rates saw minor adjustments but remained generally stable, providing a floor for the market.

Due to earlier price declines and shrinking industry profit margins, numerous domestic formaldehyde producers voluntarily reduced operating rates and output, while some small- and medium-sized facilities underwent temporary maintenance shutdowns; consequently, the industry's overall operating rate dipped slightly, leading to a moderate contraction in effective market supply. This measured reduction in supply effectively offset bearish pressure from the demand side and averted the risk of a sharp price drop, serving as a key factor in stabilizing the market in mid-July. Meanwhile, industry-wide inventory levels remained low, placing minimal pressure on manufacturers and reinforcing their determination to maintain price levels.

Market Outlook: Predominantly weak, stable, and fluctuating; limited room for gains or losses.

In the short term, the market is expected to exhibit a fluctuating pattern characterized by a cost-driven floor and demand-side pressure. On the cost side, methanol prices are showing short-term strength supported by geopolitical risks in the Middle East; however, rising import volumes, accumulating port inventories, and weak downstream demand will continue to limit upside potential, while formaldehyde costs remain generally stable yet under pressure, lacking upward momentum. On the demand side, the effects of the summer off-season persist; factors such as high temperatures, low operating rates among downstream enterprises, and cautious market purchasing are unlikely to reverse in the near term, with sluggish demand remaining the primary factor suppressing market performance. Supply remains generally controllable, as manufacturers continue to operate with low utilization rates and low inventory levels, providing a degree of price support and limiting the overall scope for significant price fluctuations.

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