[Preface] Under the impact of domestic supply, destocking has fallen short of expectations. Combined with the national crackdown on circular invoicing and other issues, the willingness to hold methanol paper cargo has been severely affected. This week, the Taicang methanol spot basis weakened sharply again, dropping from +295 yuan/ton against the 09 contract to a low of +205 yuan/ton against 09 by Friday.

With the basis declining, the absolute price on the exchange also fell simultaneously. For the first time since the US-Iran negotiations began, their positions are closest to reaching a consensus. The market has priced in the expectation that the Strait (Hormuz) will return to smooth passage, causing crude oil to fall sharply again, and methanol futures have also retreated by over 200 yuan from their highs.

Methanol production region inventories still have room to decline; downstream combined operating rates have likely bottomed out

The combination of high domestic supply driven by excessive profit margins and demand destroyed by high feedstock costs has led to a substantial volume of domestic supply supplementing the coastal ports. Although inventories in production regions built up significantly during the May Day holiday due to a lack of restocking demand and logistics issues, future inventories in production regions will inevitably decline again due to maintenance and execution of arbitrage-related port orders. Currently, many factory inventories are already at low levels, and downstream combined operating rates have largely bottomed out. Therefore, chempricehub believes that with the continued decline in production region inventories, the volume of domestic arbitrage supply to the coast will drop substantially in June. Combined with the anticipated restart of some traditional downstream units and restocking demand from new downstream plants, coastal inventories will finally bottom out in June (if imports do not return to some extent, supply and demand will then rebalance through adjustments in operating rates).

Significant destocking potential remains, supporting the return of spot-futures traders' willingness to hold cargo

Currently, total methanol imports via foreign vessels this month are expected to be only around 327,200 tons (with some cargoes that departed in early May temporarily counted for June discharge). Therefore, in May, which is the month with the lowest import supply, the rapid decline in import prices and the relatively strong domestic production region prices have caused the domestic arbitrage window to narrow quickly. Coupled with a noticeable improvement in olefin margins, the market saw some strengthening in monthly spreads on Friday night. The willingness of spot-futures traders to hold cargo has improved significantly, with the view that the price drop has been overdone, given the substantial destocking potential for the entire month.

Exports may still see small new orders; closely track progress of domestic export deals

On the export side, although volumes are lower than in previous periods, new deals can still be concluded this month. As coastal inventory levels decline, a reduction in export volumes of imported cargo is inevitable. The Strait remains Iran's most important diplomatic bargaining chip, and the new normal is "conditional passage." Therefore, the efficiency of Middle Eastern cargo flows remains uncertain, making it particularly important to track export deals of China's domestic coal-based and natural gas-based methanol.

Conclusion

Looking ahead, aside from macro factors, the direct performance of the coastal methanol market continues to hinge on when domestic arbitrage supply begins to decline. chempricehub believes that with the methanol downstream combined operating rate having largely fallen to low levels, the import supply issue remains difficult to resolve in the short term. Tight supply will limit the downside for prices and the basis, and does not rule out periodic rebounds. The rapid price decline this week has already supported a recovery in some downstream margins. Going forward, continued attention should be paid to vessel passage through the Strait.