Geopolitical Tensions Escalate: Cumulative Price Increase of Dichloromethane Approaches 50%

Lead: Since early September, the Chinese dichloromethane (DCM) market has remained firm and continued to rise after initial volatility, showing an overall upward trend with a price increase amplitude of nearly 50%. The core driver behind this price fluctuation is the severe volatility in raw material costs influenced by the international environment. Under high cost pressure, operating rates in the chloromethanes industry have continued to decline, while downstream demand remains passive, driven primarily by order-taking. Resonance between news factors and fundamentals has pushed the DCM market higher. As of October 10, the DCM price in Shandong closed at 3,150 yuan/ton, an increase of 1,045 yuan/ton from the low point in early September, representing a rise of 49.64%.

I. Multiple Factors Support Firm DCM Performance

Affected by the ongoing escalation of geopolitical conflicts in the Middle East, methanol prices have continued to surge. Meanwhile, the monthly average price of liquid chlorine in Shandong also rose compared to August. With both major raw materials for chloromethanes rising simultaneously, many producers are operating at a loss. Under high cost pressure, production enthusiasm in the domestic chloromethanes industry has been limited, leading to a sustained drop in operating loads and a gradual tightening of spot market supply. Chloromethane producers have drawn down inventories, resulting in strong reluctance to sell and bullish sentiment. The resonance between cost increases and supply constraints has driven DCM prices higher. On the demand side, downstream enterprises mostly maintain essential purchasing levels, passively following orders, with cautious behavior regarding large-scale stockpiling.

II. Geopolitical Conflicts Drive Significant Cost Volatility

Cost and Profit Comparison Table for Domestic Chloromethanes (Unit: Yuan/ton)

Data Source: Chempricehub Information

As the core variable, methanol is most significantly affected by geopolitical situations. Port inventories have continued to deplete, hitting historic lows; replenishment from domestic sources and foreign vessels cannot keep pace with consumption. Prior to publication, reference offers for Jiangsu Taicang stood at 4,840 yuan/ton, while spot cash delivery negotiations for methanol in Dongying, Shandong were around 4,180 yuan/ton. Another key raw material, liquid chlorine, saw some chlor-alkali enterprises enter maintenance periods in early October, leading to a contraction in overall supply. This supports the liquid chlorine market, keeping prices running at high levels. From early September to present, the average cost for chloromethanes was 2,523 yuan/ton, an increase of 405 yuan/ton compared to August, a rise of 19.12%. However, supported by price increases in dichloromethane and trichloromethane, profits for chloromethanes improved slightly to -315 yuan/ton, an increase of 75 yuan/ton month-over-month from August, a recovery rate of 19.23%. Based on calculations using externally purchased liquid chlorine, chloromethane producers still face significant losses.

III. High Cost Pressure Leads to Obvious Supply Contraction

In September, both the capacity utilization rate and production volume of chloromethanes declined. The domestic capacity utilization rate for chloromethanes was 72.30%, a decrease of 5.03 percentage points from the previous period and 13.80 percentage points lower than the same period last year. During the month, nine enterprises involved in new shutdowns or load reductions accounted for a total annual capacity of 2.66 million tons. In early October, only one enterprise in Shandong experienced a short-term outage due to equipment failure, and one increased its operating load; other units that had previously shut down or reduced loads showed no obvious changes. Looking ahead, Jinling Dawang’s 240,000-ton/year unit plans to shut down, although Dongying’s 200,000-ton/year unit intends to restart. Attention should be paid to subsequent changes in supply-side facilities. Currently, most enterprises do not face significant inventory pressure, providing positive support for DCM prices from the supply side.

IV. Demand Side Remains Stable, Driven Primarily by Rigid Demand

The overall market trading atmosphere shows phased characteristics. At present, terminal operating conditions have not changed significantly compared to earlier periods. For the main downstream product, refrigerant R32, seasonal factors have led to a slowdown in industry demand. Original Equipment Manufacturers (OEMs) are shipping according to orders. Negotiations for Q4 contracts have recently taken place, with limited price increases. Additionally, adjustments in production quotas are mainly focused on reducing volumes to control the base of spot output. Within the "window period" for export markets, suppliers are actively exporting to ensure quota completion rates. The operating rate of the fluorocarbon R32 industry is 48% (an increase of 4 percentage points from the previous period). Currently, balancing limited demand space is considered a better option than high operating rates leading to inventory accumulation. However, as DCM prices continue to rise, downstream acceptance capabilities may slow down, potentially weakening support from the demand side.

V. Short-term Support Exists; DCM Expected to Continue Strong Performance

In summary, with the Middle East conflict unresolved, upstream raw material methanol continues to be disturbed by macroeconomic situations. Coastal methanol inventories have sequentially hit new lows. Furthermore, since some inland methanol enterprises still have maintenance plans, the tight situation in the domestic methanol spot market is difficult to alleviate, passively supporting price increases and maintaining high levels. Losses on the cost side for chloromethane enterprises persist. Regarding supply, industry operating levels are expected to remain at medium-low levels, with supply showing regional characteristics. In the short term, most enterprises do not face significant inventory pressure. Supported by cost factors and the supply side, the domestic DCM market is expected to retain room for further price increases. However, once prices reach high levels, downstream caution will prevail, dominated by rigid demand, making it difficult to expect substantial volume releases.