Core View: The outlook is neutral-to-bullish. On the supply front, new maintenance shutdowns were reported this week, including at Xiaoyi Pengfei. A significant number of units are currently offline, though some restarts are scheduled for late August. The market will be watching the actual implementation of these restarts, with short-term domestic supply expected to decline. In Iran, methanol unit operations have seen little change. While the 1.65 million-tonne Marjan facility restarted last week, the Strait remains closed to shipping. Although two cargoes are reportedly scheduled from Iran in August, the impact on September import volumes is limited, with a substantial reduction in imports anticipated for that month.

On the demand side, traditional downstream sectors remain weak but have shown a slight recent recovery. Operating rates for formaldehyde, acetic acid, and MTBE have increased, while DME operating rates have declined. Other downstream sectors have seen little change. As domestic demand picks up slightly, purchasing volumes have notably increased, boosting recent sentiment in the domestic market. However, the sharp rise in methanol prices has compressed margins for traditional downstream users, and their ability to absorb these costs warrants close monitoring.

Olefin demand has fallen, with the Yanchang integrated unit shutting down earlier this month. One production line at both Datang International and Zhongtian Hechuang has also been halted, and the Bohu MTO unit has recently reduced its operating rate. This points to a decline in overall demand from this sector. Meanwhile, US-Iran negotiations remain deadlocked, keeping crude oil prices in a high-level range. Domestic chemicals are tracking crude oil strength but are outperforming it due to supply constraints. The primary risk for the chemical sector remains geopolitical tensions, and as long as these tensions persist, chemicals are likely to maintain high-level consolidation. Methanol sentiment was ignited by the domestic market this week, but with prices rising sharply, pressure on downstream sectors is increasing. Chasing prices higher is risky, and attention should remain on the potential to widen the PP-3MA spread from its current low levels.

Thermal Coal: Bullish

Coal prices have rebounded recently, supported by high daily consumption at ports and ongoing inventory drawdowns, although the upside for coal prices has been limited.

Domestic Supply: Bullish

Domestic operating rates have declined, with an increasing number of planned maintenance shutdowns. The market will be watching to see if the restarts scheduled for the end of the month are realized.

Imports: Bullish

Some Iranian units have restarted, but the re-blockade of the Strait has led to a sharp drop in Iranian shipments, impacting September imports.

Downstream Demand: Bearish

Traditional downstream operating rates are recovering, leading to a phase of significantly higher demand. However, olefin demand is weak, with the Bohu MTO unit planning a near-term shutdown.

Upstream Profitability: Bearish

While coal prices have increased, methanol prices have risen by a larger margin, leading to a substantial recovery in profits.

MTO Profitability: Bullish

MTO margins have declined recently but remain at relatively high levels, with producers still profitable.

Inventories: Bullish

Port inventories accumulated again this week, but the pace of future builds is expected to be limited. Domestic inventories are drawing down, and total stockpiles remain low.

Domestic supply has seen numerous maintenance shutdowns, leading to a noticeable decline in operating rates. As of the week of August 13th, the national methanol operating rate stood at 72.9%, with coal-based units at 78.9%, coke-oven gas-based units at 56%, and natural gas-based units at 40%. While there are many short-term maintenance shutdowns, some units are scheduled to restart at the end of the month, and the realization of these restarts will be a key focus.

Overseas unit changes have been minimal. In Iran, one line at ZPC has restarted, but other units have seen little change.

Coal prices have shown relative strength recently, with coastal coal inventories drawing down consistently and market speculation about coal policy contributing to the price rebound. With coal consumption at ports remaining high and inventories continuing to fall, coal prices are expected to fluctuate with an upward bias, though the upside potential is limited.

Upstream profits have rebounded sharply. While coal prices have seen a modest rebound, methanol prices have increased more significantly, leading to a clear recovery in methanol margins. Profits for natural gas-based and coke-oven gas-based methanol units have also improved recently. As of August 18th, the coal-based profit in Inner Mongolia was 210 yuan/tonne, the natural gas-based profit in the Southwest was 0 yuan/tonne, and the coke-oven gas profit in Hebei was 840 yuan/tonne.

Traditional demand continues to recover, while MTO demand and profitability have declined significantly. As of August 13th, the MTO operating rate was 70.4%, with the external-purchase methanol-to-olefins unit operating rate at 61.6%. The operating rate for these external-purchase MTO units has seen little change. Profitability for MTO units in East China has continued to decline, and operating rates in the domestic interior have fallen even more sharply, primarily due to the recent surge in local purchasing sentiment, which has driven up domestic prices.

Several MTO units are planning near-term maintenance. Datang International has started a one-month maintenance shutdown, with its integrated unit following suit. Zhongtian Hechuang has one production line down for a short 10-day outage, and the Bohu external-purchase MTO unit is also planning a near-term shutdown.

Traditional downstream demand continues to improve. The recent increase in operating rates is mainly due to the restart of acetic acid units, with MTBE operating rates also recovering slightly. Other downstream sectors remain at low operating rates.

Olefin purchasing remains weak, but traditional sector procurement has increased recently. Domestic order volumes have rebounded strongly, both for new and pending orders. This is driven by the restart of some downstream units, leading to increased contract demand, and by tighter spot supply in the domestic market due to numerous maintenance shutdowns.

Domestic inventories are declining, while port inventories have resumed building after last week's drawdown. Last week, port inventories stood at 648,400 tonnes, with 275,000 tonnes of floating cargo. Port stocks had drawn down last week due to a typhoon limiting unloading and reducing arrivals. However, with the typhoon's impact waning this week, ports have re-accumulated inventory. The pace of future accumulation is expected to be limited. In the domestic market, inventories are declining due to heavy maintenance, but with downstream restarts adding to demand, the domestic market is expected to remain slightly tight in the short term.

Downstream sectors are all destocking. MTO sample enterprise inventories are falling, mainly due to the numerous MTO unit shutdowns. Traditional downstream enterprises in the domestic market are also destocking, as the recent recovery in traditional demand has led to higher consumption of raw material inventories, although restocking activity has also increased noticeably.

The PP-3MA spread has narrowed significantly. Port basis is fluctuating within a narrow range, while the monthly spread is strengthening. The port basis is moving in a tight band. Despite strong domestic spot prices, ports are constrained by MTO unit shutdowns and recent inventory builds, limiting changes in the port basis. Prices are mainly following the upward movement of the futures market. The basis is expected to remain range-bound in the near term, with attention on MTO unit dynamics.

The monthly spread has rebounded recently. As the September contract approaches delivery, the near end is being supported by geopolitical factors and the domestic spot rebound, while the premium on far-end contracts is narrowing due to reduced geopolitical risk. This has led to a stronger spread. With ongoing geopolitical tensions, the 1-5 calendar spread should be monitored for long opportunities.

The PP-3MA spread has declined recently. The PP/L-3MA spreads have narrowed as methanol prices have shown notable strength, driven by increased domestic maintenance and recovering downstream demand. However, as methanol prices have risen, downstream margins are once again being compressed, limiting their ability to absorb further increases. Continue to watch for opportunities to widen these spreads on dips.