SunSirs: Despite Persistent Bullish Factors, Downstream Methanol Demand Shows No Significant Improvement.

While the earlier blockade of the Bab el-Mandeb Strait drove crude oil prices higher, methanol prices have struggled to keep pace. On one hand, the gains in chemical products generally lagged behind those of crude oil; on the other, the situation at the Bab el-Mandeb Strait had limited actual impact on methanol. The Strait of Hormuz remains the primary export route for Middle Eastern methanol, and the blockade of the Bab el-Mandeb Strait did not materially alter supply and demand dynamics. Following a pause in hostilities between the US and Iran last weekend, the geopolitical risk premium retreated sharply, causing methanol futures prices to fall in tandem.

Scheduled maintenance phase drawing to a close

In the first half of the year, methanol producers enjoyed robust profit margins—hovering near historical highs—which dampened the incentive for maintenance shutdowns. However, after prolonged periods of high-load operation, equipment and materials became prone to fatigue, leading to an increase in routine maintenance. As shipping traffic through the Strait of Hormuz recovered and import supplies provided alternatives, the high profit margins of producers began to contract. Consequently, more enterprises undertook maintenance, methanol capacity utilization rates dipped, and overall market supply tightened.

Recently, buying interest in the domestic spot market has picked up at lower price points, and upstream auctions have consistently closed at premiums, causing methanol prices in domestic production regions to rise steadily. With pit-mouth coal prices strengthening slightly, the profit margin for coal-based methanol production in Inner Mongolia has expanded to approximately 250 yuan per tonne; profitability has also improved in higher-cost regions such as Shandong, Henan, and Anhui. Expectations for the restart of some plants in late July suggest that the production losses associated with this round of maintenance will soon end, and supply will gradually recover.

Most Iranian methanol plants remain offline

In Iran, new capacity—specifically the Kimiya plant (1.65 million tons/year) and one ZPC unit (1.65 million tons/year)—remains shut down. Currently, only facilities such as Kaveh (2.3 million tons/year) and KPC (0.66 million tons/year) are operational, and even these are running below full capacity. Although some Iranian methanol plants restarted as early as late April, the pace of ramping up production loads has been extremely slow. Even after the outlook for navigation through the Strait of Hormuz cleared up earlier, most Iranian methanol plants continued to operate at low loads, with some even remaining shut down. This indirectly suggests that the natural gas processing plants in the Assaluyeh region sustained significant physical damage following the precision airstrikes by the US and Israel early in the conflict; the resulting instability in natural gas supplies likely makes it difficult to support the restart and rapid recovery of all methanol plants. With the recent re-escalation of geopolitical conflict in the Middle East and a sharp drop in shipping volume through the Strait of Hormuz, Iranian methanol plants have once again faced widespread shutdowns due to safety concerns and risks such as storage tank overcapacity.

Furthermore, the US Department of the Treasury issued a document revoking Iran-related general licenses and phasing out authorizations for the production, delivery, and sale of Iranian crude oil, petrochemicals, and petroleum products. This revocation of exemptions specifically targets Iranian-origin crude oil, petrochemicals (including downstream products such as condensate, ethylene, methanol, and basic chemicals), and refined petroleum products (such as fuel oil, naphtha, and diesel), as well as associated services including shipping, vessel ownership support, insurance, port services, and cross-border US dollar settlements. The shift from a 60-day sanctions exemption back to tighter restrictions reflects the uncertainty of the current geopolitical landscape. Market expectations regarding the supply of Iranian petrochemicals have shifted from "full recovery" to "limited recovery"; future trends will depend on the scale of re-established "shadow shipping" channels and the stance of liner companies. These developments create potential risks for a rapid surge in domestic methanol imports down the line.

In June, Iranian methanol shipments were substantial—totaling around 600,000 tons—though the vast majority consisted of volumes released from floating storage. This has led to a significant drawdown of methanol floating storage in the Persian Gulf; shipment volumes from July onwards will depend on the extent to which actual production keeps pace. If production remains at current levels or declines further, shipment volumes will likely fall short of market expectations. Additionally, Iran lifted its ban on petrochemical exports on July 13, a move that initially led the market to anticipate an acceleration in methanol exports. However, with the US announcing a renewed maritime blockade on Iranian ports and coastal areas, expectations for a recovery in methanol imports must be significantly discounted or even further delayed; the pace of this recovery will likely fall short of market forecasts.

Traditional downstream sectors remain in the seasonal off-peak period

Market prices for acetic acid and MTBE have recently declined, primarily because operating rates at production facilities ramped up following the completion of maintenance, thereby easing supply tightness. Consequently, while the composite processing margins for traditional downstream sectors have retreated slightly, they remain at relatively high levels. Although these sectors are currently in the summer off-peak demand season, the recovery in operating rates for acetic acid and MTBE suggests an improvement in the overall weighted operating rate for traditional downstream industries; attention will now shift to whether demand materializes during the "Golden September, Silver October" peak season.

It is worth noting that "Golden September, Silver October" is a traditional peak consumption period. Historically, the "Double Festival" (Mid-Autumn Festival and National Day) has led to rising freight costs, reduced transport capacity, and highway traffic restrictions, prompting downstream enterprises to concentrate their restocking efforts before the holidays. However, the situation in 2025 differs slightly. Large downstream enterprises—particularly those in the olefin and acetic acid sectors—began procurement and stockpiling as early as August 2025, resulting in medium-to-high raw material inventory levels for most companies by September. Since September, traditional downstream enterprises in regions such as Shandong and the Northwest have largely limited their purchasing to immediate needs. This "quiet," small-batch, high-frequency procurement pattern disrupts traditional seasonal trends, with the front-loading of restocking demand providing price support.

MTO demand retreats again

Although the 1 million ton/year MTO unit at Guangxi Huayi achieved mechanical completion late last year and is essentially ready for production, feedstock has not yet been introduced for trial runs; market reports suggest the trial run window may be postponed until the fourth quarter of 2026. The Nanjing Chengzhi Phase II (600,000 tpa) and Shandong Lianhong (360,000 tpa) MTO units have recently shut down for maintenance, with the latter planning a 7–10 day outage; the Tianjin Bohua (600,000 tpa) MTO unit has reduced its operating rate to 60% and has a maintenance plan scheduled for later; MTO units at Luxi Chemical (300,000 tpa), Zhejiang Xingxing (690,000 tpa), and Jiangsu Sailboat (800,000 tpa) remain shut down; the Ningbo Fude (600,000 tpa) and Nanjing Chengzhi Phase I (300,000 tpa) MTO units are operating normally following restarts, while the Shandong Hengtong (300,000 tpa) unit has raised its operating rate to 70%.

The recent wave of MTO unit shutdowns for maintenance has somewhat dampened demand for methanol. Production margins for MTO units relying on external methanol procurement have rebounded significantly and are currently hovering near the cash-flow breakeven point, a trend that supports a future recovery in MTO operating rates. However, enterprises are currently prioritizing the stability of methanol supplies over price levels alone. Any volatility during the recovery of import supplies—such as reduced transport efficiency or periodic vessel shortages—could disrupt unit operating schedules.

Turning Point in Port Inventories

In terms of actual inventory levels, port stocks have risen by 147,200 tons to reach 548,700 tons. While a turning point in inventory trends has emerged, the outlook remains somewhat positive as stock levels stay low compared to the same period last year. Recent arrivals have been heavy, consisting largely of cargoes delayed by typhoon-related port closures; high arrival volumes are expected to continue in the coming weeks, driven by the release of large quantities of floating storage following the reopening of the Strait of Hormuz after the US-Iran MOU signing on June 7. However, if the Strait of Hormuz blockade were to resume, long-term import forecasts would need to be revised downward; in that scenario, even if port inventories accumulate, the extent of the buildup would be limited, exerting little downward pressure on absolute methanol prices. Conversely, if the blockade ends, the geopolitical risk premium will gradually dissipate, creating greater room for price declines—though this process will take time to materialize. In summary, the earlier rise in methanol prices was primarily driven by a rebound in the risk premium—stemming from escalating geopolitical tensions—and downward revisions to import expectations; given the current navigation status of the Strait of Hormuz, the magnitude of future inventory accumulation at ports is likely to fall short of forecasts. However, downstream demand has shown no significant improvement; multiple units producing acetic acid and MTBE remain under maintenance, and newly commissioned MTO units—specifically Nanjing Chengzhi Phase II and Shandong Lianhong—have shut down. Demand-side pressure persists, and the potential for negative feedback from olefin units warrants caution. Methanol futures prices dropped sharply last weekend following an easing of geopolitical tensions. Nevertheless, the geopolitical risk premium is unlikely to vanish entirely; with port inventories still at historical lows and the majority of Iranian production units offline, immediately reversing to a short position at current price levels offers a poor risk-reward ratio. (Source: Futures Daily)

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