[Introduction] This week, methanol futures declined in a volatile manner, primarily pressured by the expectation of U.S.-Iran negotiations materializing, which further fueled market speculation about the opening of the Strait. Port inventories remain in a destocking channel, and with some export plans still in the pipeline, decreasing available spot cargoes supported the strongest rise in Taicang spot basis to over 300 yuan/ton (with even higher levels in South China). As some major holders showed willingness to sell at a high basis, the difficulty in concluding transactions under demand constraints led to a pullback in the spot basis in the latter half of the week.

Inland inventories continued to decline this week, with many major production plants in the production areas already implementing shipment restrictions. Amid the low-season environment, overall market demand continued to offset the positive impact of destocking. With the operating rates of port-based MTO plants becoming clear, there has been more news this week concerning Shandong MTO plants. Although most of it has yet to be officially confirmed, market rumors are largely based on expectations for product-specific margins.

First, let’s briefly review the profit performance of the olefin chain:

Looking at propylene downstream sectors, only polypropylene powder saw a slight profit recovery, while PO and octanol—two high-value-added downstream products—experienced significant load reductions due to deep losses: PO operating rates fell by 7.1 percentage points to 63.9%, and octanol operating rates plunged by 13 percentage points to 78%. Butanol, acrylic acid, and acrylonitrile also suffered sharp profit declines. The main reasons for the weak downstream performance are twofold: on one hand, propylene feedstock prices remain high, squeezing downstream profit margins; on the other hand, there is an imbalance between supply and demand downstream, with weak end-user demand leading to limited product price increases. If this "squeezed from both ends" situation persists, it will trigger broader load cuts and production halts, which will in turn erode propylene demand. Based on the above, the sharp profit decline in butanol and octanol will undoubtedly affect the operating performance of some MTO plants in Shandong and Jiangsu.

Table 1 Monthly average profit changes for propylene downstream products (Unit: yuan/ton)

| Product | April | May | Change | Change % |
| --- | --- | --- | --- | --- |
| Polypropylene powder | -349 | -66 | 283 | 81.09% |
| Propylene oxide | 942 | -1337 | -2279 | -242.04% |
| n-Butanol | 942 | 38 | -904 | -95.97% |
| Octanol | 579 | -302 | -881 | -152.16% |
| Acrylic acid | 3075 | 530 | -2546 | -82.78% |
| Acrylonitrile | -347 | -796 | -449 | -129.39% |

Source: chempricehub

On the ethylene chain, profits for SM, EG, and EO all saw some recovery in May, mainly due to a further sharp decline in ethylene overseas prices. However, the substitution logic of ethylene from overseas mostly applies to port-based MTO plants, and those olefin plants with good capabilities for overseas procurement have already been idled.

Table 2 Monthly average profit changes for ethylene and downstream products (Unit: yuan/ton)

(Note: Table content was not provided in the original text for this section)

From the perspective of traditional methanol downstream sectors, the supply-demand relationship in the formaldehyde market shifted from tight to loose during the week. As multiple units raised operating rates, market supply gradually became ample, and downstream purchasing enthusiasm weakened from strong to weak. Northern downstream buyers adopted a more rational approach, while southern downstream buyers maintained small-scale procurement for essential needs. Although MTBE saw profit improvement this week, there remains room for operating rates to decline further. Acetic acid operating rates first rose then fell this week, with profits remaining under continuous pressure.

In summary, against the backdrop of the low season and the expectation of the Strait opening due to factors beyond the industry, the performance of methanol is likely to remain under pressure in the near term. However, with energy prices trending higher at the bottom and the unwinding of negative industry factors, the peak-season expectations and restocking demand may still arrive over time. Continue to monitor the situation on the Strait and the profit performance of the industrial chain.