Core perspective: bullish. Methanol prices remain dominated by the US-Iran geopolitical situation. Until tensions ease and the Strait of Hormuz reopens to shipping, methanol prices are expected to remain broadly strong. Investors could consider rolling near-month calendar spreads. If the strait resumes navigation, the market is likely to revert to fundamentals, with methanol prices peaking and retreating, while the inter-month focus should shift to 1-5 reverse spreads. While geopolitical risks are inherently uncertain, the one-month transit time for Iranian cargoes suggests that the more prudent approach before the strait reopens is to focus on near-month positive carry spreads. Key factors to monitor include geopolitical developments, Strait of Hormuz shipping status, and Iranian plant operating rates and logistics.

New capacity: neutral-to-bearish. Baofeng's 2.8 million tonne methanol unit is scheduled to commence operations at the end of October.

Domestic operating rates: neutral-to-bearish. Following the concentrated maintenance period in July-August and the subsequent restart of overhauled units, operating rates are expected to recover from the fourth quarter onwards.

Imports: bullish. Imports are expected to remain at low levels until the strait reopens to navigation.

Port inventory: neutral-to-bullish. Given that imports are likely to contract sharply in September-October, and most port-based MTO units are currently either shut down or running at low loads, the pace of inventory drawdown is expected to be moderate. If the Strait of Hormuz resumes navigation, port inventories are expected to shift into an accumulation phase.

MTO demand: neutral. Apart from Chengzhi and Ningbo Fude, all other MTO units are either shut down or operating at low loads.

Traditional downstream: bullish. The traditional peak demand season of "Golden September and Silver October" should support a gradual recovery in overall operating rates.

Costs: neutral. A continued sharp upside in coal prices is considered unlikely in the near term. The key variable is when halted coal mines resume production.

1. Cost side: monitoring production resumption

Coal prices: watching for resumption of operations. Coal prices have extended their rebound in recent days, reaching multi-year highs. On the supply side, mine safety inspections have intensified following mining accidents, with some major production areas suspending operations. However, the National Development and Reform Commission has recently introduced policies to secure supply and stabilise prices, which should support a gradual recovery in supply. On the demand side, temperatures are expected to cool from September, but some traders are already building winter reserves. A sharp further upside in coal prices is therefore considered unlikely in the near term; the key focus remains when suspended mines can resume production.

2. Supply: domestic operating rates recovering, with import decline expectations

Methanol supply: profitability has improved substantially. Methanol prices have rebounded by more than coal prices, significantly lifting profit margins. On the domestic side, the strong improvement in margins has meant a smaller spring maintenance scope this year, with maintenance schedules deferred. Following the concentrated July-August maintenance wave, operating rates are expected to recover from the fourth quarter as overhauled units restart.

New capacity: limited additions in Q4. There is 5.45 million tonnes of planned new capacity for 2026, mostly green methanol, which—due to high costs—can currently only be exported or used as methanol marine fuel, meaning limited impact on actual supply-demand balances. ChinaCoal Yulin Phase II is an integrated complex (2.2 million tonnes methanol and 1 million tonnes olefins), but whether it will procure externally depends on the startup of its polyolefin operations. The polyolefin sector is also facing intense competition, and there are indications the project may well be deferred. Yuanlian Energy's project is planned for end-2026, so actual supply increases in 2026 are expected to be quite limited.

Imports: expectations of a sharp decline. Most Iranian units have now restarted; only 6.6 million tonnes of methanol capacity remains shut for maintenance. August imports are estimated at around 700,000 tonnes, with September expected to fall to roughly 400,000 tonnes. So far in September, Iranian port loadings stand at 154,000 tonnes, and with the Strait of Hormuz still closed, October imports are also expected to remain at low levels. Several Iranian units have recently resumed production; once US-Iran tensions ease and the Strait reopens, imports are expected to increase markedly. That said, given that Iran's largest South Pars gas field was attacked earlier this year and has not fully recovered, and newly developed fields cannot yet produce for export in the short term, close attention is needed on whether Q4 gas curtailments will be wider than in previous years.

Monitoring overseas new capacity start-ups. In the first half of the year, geopolitical conflict forced most Iranian units offline, keeping overseas operating rates low and imports sharply lower. Meanwhile, overseas price spreads widened, significantly boosting exports from March to May. Since June, spreads have fallen sharply and export volumes have declined. For 2026, Iran's Dena and Sabalan projects—totalling 3.3 million tonnes—are planned for commissioning. Due to US-Iran conflict, the Dena unit's start-up has been deferred and is unlikely in Q4, while another 1.65 million tonne unit is slated for 2028.

Monitoring the Strait of Hormuz shipping situation. Vessel transits through the Strait of Hormuz remain at relatively low levels, and US-Iran hostilities continue in a substantive state of conflict. A meeting originally scheduled for Monday between Iran and Gulf states was postponed, while Trump reiterated that the war with Iran would conclude after the midterm elections. In our view, Iran's control over the Strait of Hormuz represents a critical bargaining chip in its strategic confrontation with the US. We believe Iran is unlikely to relax navigation restrictions until there is substantial improvement in the Middle East geopolitical situation. However, we note that with the US midterm elections approaching, there is a possibility Trump could concede, potentially leading to a relaxation of strait shipping restrictions.

3. Demand: MTO steady, traditional downstream expected strong

MTO: focus on restart timing. MTO margins have continued to deteriorate sharply and are now near historic lows. In coastal regions, apart from Chengzhi and Ningbo Fude, all other MTO units are shut down or running at low loads. Should US-Iran tensions ease, shutdown MTO units are expected to restart, and this restart timeline warrants close attention.

New MTO capacity: limited Q4 additions. Guangxi Huayi has completed mechanical completion and entered the commissioning phase. Its original plan was for Q2 2026 start-up, but the olefin unit's commissioning timeline is currently uncertain. Baofeng's 2.8 million tonne methanol plant is scheduled for end-October start-up, with its olefin unit planned for year-end commissioning.

Traditional downstream: limited further upside for operating rates. Formaldehyde margins have recently hit historic lows, but with the Golden September-Silver October peak demand season underway, the scope for further operating rate improvement is limited. Looking to 2026, limited new formaldehyde capacity is planned, and most of it comes with downstream integration. Given weak end-user demand, Q4 formaldehyde additions are expected to be modest.

Acetic acid: operating at high rates. Acetic acid margins are currently healthy. With few known maintenance shutdowns in Q4 and 3.4 million tonnes of new capacity planned to come online, operating rates are expected to remain high.

4. Port inventory: drawdown expected until strait reopens

Port inventory: drawdown expectations. With limited scheduled arrivals and increased essential offtake, port inventories have continued to decline, reaching 426,700 tonnes—historically low levels. Given the likely sharp contraction in September-October imports, and most port-based MTO units being shut down or running at low loads, the drawdown pace is expected to be moderate. If the Strait of Hormuz reopens, port inventories are expected to shift into accumulation.

5. Price spreads and basis

Port-inland spreads widening. Methanol prices have risen sharply on geopolitical conflict, opening arbitrage windows between ports and inland regions in H1, with inland cargoes flowing to ports. Recently, port-inland spreads have widened again, reopening some arbitrage opportunities.

Basis. In H1, geopolitical factors kept arrivals persistently low, driving rapid inventory drawdowns and a significant strengthening of the basis. With September-October import expectations sharply lower and port inventories expected to decline, the basis should remain strong but rangebound. If the strait reopens and imports recover significantly, port inventories would build and the basis would weaken notably.

Inter-month spreads and PP-MA spread. Before US-Iran tensions ease, rolling near-month positive carry trades can be considered; if geopolitical tensions loosen, 1-5 reverse spreads should be monitored. On the PP-MA spread, an expansion trade in the main contract is worth watching in the near term.

6. Balance sheet scenario

Assuming geopolitical tensions ease, methanol would revert to fundamentals. On supply, given Trump's late-November midterm elections, assuming tensions ease around October and most Iranian units have already restarted, imports would increase notably from November once the strait reopens. On demand, once Iranian imports recover following geopolitical relief, coastal MTO units are expected to progressively restart. Overall, should geopolitical tensions ease, methanol prices would peak and decline, with port inventories shifting from drawdown to accumulation. However, there remains a risk of geopolitical recurrence after Trump's midterm elections.