China Methanol Prices Fall as Weak MTO Demand Offsets Supply Risks

China's methanol futures closed at 3,000 yuan per tonne in May, the lowest point since March, reflecting a 2.2% decrease from the previous month. This price drop is influenced by opposing market forces: ongoing supply risks in the Strait of Hormuz, which traditionally affects half of China's methanol imports from Iran, and significantly reduced demand from the methanol-to-olefins (MTO) production sector.

The MTO sector, particularly units in Jiangsu and Zhejiang, has seen reduced operations or complete shutdowns due to unprofitable margins. Despite substantial Middle Eastern supply disruptions that would normally clear into China, domestic demand has not kept pace, leading to a fall in spot prices. CFR China cargoes have eased to the $320-$350 per tonne range, though still above pre-conflict levels.

While traditional consumption sectors like formaldehyde, MTBE, and acetic acid have remained more resilient, rising methanol costs have driven a sharp increase in acetic acid prices. This creates a negative feedback loop where high methanol costs directly reduce MTO demand, further pressuring methanol prices in the near term.

The current price reset presents a potential buying opportunity for purchasers of acetic acid, formaldehyde, and dimethyl ether to secure third-quarter volumes. However, MTO operators and derivative producers should remain cautious, as any escalation of Middle East tensions or a surge in restocking ahead of the summer construction season could quickly tighten supply.