【Introduction】 This week, cargo flows from the Middle East's main production region departing via the Strait have slowed compared to last week. The July import arrival volume is essentially finalized, with a preliminary estimate around 1.05 million tons. Due to concentrated arrivals in the middle and latter part of the month, port distribution and queuing for unloading may lead to tight storage capacity at some social tank farms, potentially impacting the final unloading pace. In July, arrivals from both the Middle East and non-Iranian sources are expected to increase simultaneously. While the opening of the Strait is indeed the core factor, it is also accompanied by generally weak overseas demand, which may squeeze regional cargoes toward China.
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As prices decline further, the cost logic has come to the surface. The drop in methanol prices, coupled with high gas prices, has significantly compressed profit margins for gas-based methanol production. Combined with subsequent changes in contract terms for some coastal end-users, news emerged this week that gas-based plants are planning to shut down. At the same time, during the summer season, coal procurement costs for coal-based methanol plants have already rebounded from low levels. The recent price decline has also led to a rapid contraction in plant production profits. Although buy-to-cover transactions on Friday morning caused a rebound in plant auction prices, the bearish sentiment among inland traders remained strong this week. They believe coal-based plants have enjoyed ample profits year-to-date and are currently in a seasonal slack period, and the lack of significant external procurement by CTO plants will weaken producers' willingness to support prices. However, it is worth noting that the sharp drop in methanol prices has improved profit margins for many downstream products. Current downstream inventories are not high. Once the market develops a restocking appetite, it will inevitably lead to a rapid price rebound.
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Since the concentrated arrival of coastal cargoes in mid-July has already been widely anticipated, the import cargo basis in East China continued to weaken this week, and the near-far month spread kept narrowing. The slack demand season and the contango structure in the near end make it difficult to stimulate buying interest. Apart from demand-driven transactions, overall buying sentiment was subdued. Currently, in Taicang, the July and August paper contracts are nearly flat. With future concentrated cargo arrivals, if tank capacity becomes tight at the end of the month, a structural reversal cannot be ruled out.
At present, the Middle East's main production region faces simultaneous production and logistics issues. Power supply and pre-existing infrastructure problems have indeed led to low operating rates. When (or whether) units will resume operations this month will be one of the core factors affecting August methanol import supply. Additionally, the US-Iran issue, spanning more than three months, has caused many vessels to drift at sea for extended periods, and both vessel conditions and crew require rest and maintenance. Therefore, whether these floating storage cargoes can quickly return to Middle East loading operations after their concentrated arrival is another key factor. In summary, ChemPriceHub believes that with the significant decline in both basis and absolute prices, the market may have exhausted its bearish factors. Going forward, attention should be paid to developments at Iranian units, floating storage sales of non-Iranian cargoes, and the impact of industrial profit margins on midstream and downstream restocking intentions.
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