Chang'an Futures: Middle East Tensions Escalate, Methanol Continues to Strengthen

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I. The ongoing geopolitical conflict in the Middle East continues, and global methanol supply declines

Since Feb 28, when direct military clashes broke out between the U.S. and Israel and Iran, the conflict has continued to escalate and has shown a widening trend. As of Mar 30, both sides’ military actions are still ongoing, and their statements and positions remain firm.

Judging from the latest military actions by both sides and their strike targets, the U.S.-Israel coalition’s strike intensity continues to step up. The targets have shifted from purely military facilities to infrastructure and energy facilities. Between Mar 27 and Mar 30, large-scale airstrikes were launched in succession against Iran’s core nuclear facilities such as the Khondab heavy water reactor and uranium enrichment plants. This was followed by strikes against Iran’s two major steel plants and their supporting power facilities. On Mar 29, dozens of Israeli fighter jets bombed Iran’s Tehran and Isfahan weapon R&D centers, severely impairing Iran’s defense industry production capacity. At the same time, Iran’s retaliatory actions have also continued to escalate. On Mar 29, Iran launched ballistic missiles at Israel’s Haifa refinery and the Saudi Jubail port, causing severe damage to the facilities and leading to the further shutdown of Saudi SABIC plants. In addition, Iran carried out multiple rounds of drone attacks on the Kuwait International Airport and the Dubai port in the UAE. Currently, neither side shows any clear sign of backing down, and their stance remains tough. Israeli Prime Minister Benjamin Netanyahu has clearly stated that Iran’s nuclear capabilities must be completely destroyed, and military operations will not stop until Iran abandons all ballistic missile plans. U.S. Vice President Vance also said that once military objectives are achieved, U.S. forces will withdraw quickly, but at the same time, two aircraft carrier strike groups will be added to the Persian Gulf to further strengthen military deterrence. In Iran, Supreme Leader Ali Khamenei issued a tough response, saying that the aggressive actions of the U.S.-Israel coalition will face retaliation beyond imagination, which will make Israel and the U.S. pay a heavy price. Intermediation by the international community has not achieved breakthrough progress, and it has not even entered a “fighting while negotiating” stalemate.

At present, the Middle East situation still has significant uncertainty. The parties’ core demands are at odds with each other, and the likelihood of reaching a comprehensive reconciliation is low. In the short term, the situation may be difficult to ease. Iran and Middle East methanol installations are unlikely to recover, and traffic volume through the Strait of Hormuz will also remain low. This means the methanol supply shortage situation in the Middle East will persist, and the impact on the global methanol market will deepen further. The longer the conflict lasts, the more profound the reshaping of the methanol supply-demand pattern will be.

II. Industrial aspect: The sustained improvement of a loose fundamentals pattern driven by reduced imports

1. Supply: Domestic installations running at high load may be unable to fully offset the reduction in imports

As of the week of Mar 27, domestic methanol plant capacity utilization was 92.73%, up 0.79 percentage points month-on-month and up 9.98 percentage points year-on-year. Weekly output was 2.0716 million tons, up 0.177 million tons month-on-month and up 2.168 million tons year-on-year. Although Mar–Apr is a traditional period for spring inspections, due to the rise in methanol prices, domestic companies are operating more actively, and the impact of spring inspections has been significantly weakened. In the main production regions in northwest China, capacity utilization remains above 95%. It is expected that total methanol production in March will return to around 9 million tons. April is expected to remain at a high level. However, the installations are already close to full capacity, leaving limited room for further increase. In terms of imported supply, due to the Middle East situation and the impact of Hormuz Strait blockade, import volumes have fallen sharply. Total imports in March are expected to drop to 0.5 million tons, and the reduction in imports in April will become even more evident. In 2025, domestic methanol average monthly production is about 8.5 million tons. Current production is about 0.5 million tons higher than the average, while average monthly imports are about 1.2 million tons; current imports are about 0.7 million tons lower than the average. In addition, as time goes on, import volumes will further decline. With domestic production reaching its ceiling, domestic supply will gradually find it difficult to make up for the reduced imports, and the pressure from import shortages will become even more apparent.

Figure 1: Methanol weekly capacity utilization                    Unit: %

Source: Longzhong Information, Chang’an Futures

Figure 2: Overseas plant operating rates                        Unit: %

Source: Longzhong Information, Chang’an Futures

2. Demand: Downstream demand gradually rebounds during peak season

The demand side overall shows resilience, and the seasonal rebound trend is evident. In the week of Mar 27, MTO plant capacity utilization was 85.58%, up 1.29 percentage points month-on-month, and 1.96 percentage points lower than the same period last year. Downstream polyolefins rose sharply due to higher crude oil prices, profitability for CTO/MTO plants improved significantly, and enterprises’ operating enthusiasm increased.

Figure 3: Capacity utilization of methanol-to-olefins plants             Unit: %

Source: Longzhong Information, Chang’an Futures

Figure 4: Formaldehyde plant capacity utilization                       Unit: %

Source: Longzhong Information, Chang’an Futures

Figure 5: Acetic acid plant capacity utilization                          Unit: %

Source: Longzhong Information, Chang’an Futures

Figure 6: MTBE export sales plants weekly capacity utilization          Unit: %

Source: Longzhong Information, Chang’an Futures

Traditional demand has entered the peak consumption season. As temperatures rise, operating rates for downstream industries such as formaldehyde and dimethyl ether gradually increase. Terminal demand from construction, chemicals, and other sectors rebounds, further driving methanol consumption. Although high prices suppress some marginal demand, core demand remains fairly resilient. Overall, demand is showing a trend of steady increase, providing support for methanol prices. In the week of Mar 27, capacity utilization for glacial acetic acid plants was 84.6%, down 0.8 percentage points month-on-month and down 4.85 percentage points year-on-year. Capacity utilization for dimethyl ether plants was 5.38%, up 0.74 percentage points month-on-month, and down 1.36 percentage points year-on-year. Capacity utilization for formaldehyde plants was 44.3%, up 3.55 percentage points month-on-month, and down 8.88 percentage points year-on-year. Capacity utilization for Shandong MTBE plants was 69.89%, up 0.38 percentage points month-on-month, and up 6.84 percentage points year-on-year.

Figure 7: Methanol-to-olefins production gross margin               Unit: yuan/ton

Source: Longzhong Information, Chang’an Futures

Figure 8: Shandong formaldehyde production gross margin               Unit: yuan/ton

Source: Longzhong Information, Chang’an Futures

Figure 9: Jiangsu glacial acetic acid production gross margin           Unit: yuan/ton

Source: Longzhong Information, Chang’an Futures

Figure 10: Shandong MTBE production gross margin                      Unit: yuan/ton

Source: Longzhong Information, Chang’an Futures

3. Inventories: Inventories at each link remain high, but the pace of destocking has accelerated

From the inventory end, ports have been continuously in a destocking channel, further confirming that market supply and demand is gradually shifting from loose to tight balance. As of Mar 27, methanol social inventories were 1.5885 million tons. Although this is 0.4869 million tons higher than the same period last year, it decreased by 0.1586 million tons month-on-month and has been destocking for the fourth consecutive week. Of this, port inventories were 1.1555 million tons, down 0.1062 million tons month-on-month; year-on-year, they increased by 0.3817 million tons. Factory inventories were 0.433 million tons, down 0.0524 million tons month-on-month; year-on-year, they increased by 0.1052 million tons. Downstream enterprise inventories were 0.1639 million tons, down 0.005 million tons month-on-month; year-on-year, they increased by 0.0183 million tons.

If the current situation continues, import volumes in Apr–May will remain low. Coupled with demand seasonal rebound and rerouting trade driven by large price differences between domestic and overseas markets, port inventories will keep accelerating in destocking. At the same time, widening the price gap between ports and inland areas will also bring more inland cargoes into port regions, easing pressure on inland manufacturers’ inventories and thereby supporting the overall methanol price.

Figure 11: Methanol social inventories                            Unit: 10,000 tons

Source: Longzhong Information, Chang’an Futures

Figure 12: Methanol inventories at plants                         Unit: 10,000 tons

Source: Longzhong Information, Chang’an Futures

Figure 13: Methanol port inventories                              Unit: 10,000 tons

Source: Longzhong Information, Chang’an Futures

Figure 14: Inventories of downstream manufacturers               Unit: 10,000 tons

Source: Longzhong Information, Chang’an Futures

4. Costs: Limited increase in raw material prices, and plant profitability improves significantly

On the cost side, methanol prices have continued to strengthen, but raw material prices have risen much less than methanol, and losses at plants under various production routes have improved significantly.

Coal-to-methanol plants’ costs mainly hinge on coal prices. Recently, coal prices have continued to rise. The main logic is that after crude oil prices rise, the energy substitution effect pushes international coal prices higher. Looking back at the industrial landscape: at present, domestic coal supply is basically normal; imported coal prices are steady to slightly strong. Indonesia plans to introduce new coal export regulations, which may levy an export tax on coal starting Apr 1. At the same time, the latest comments from Indonesia’s minister indicate that if nickel and coal prices remain high, the government may loosen restrictions on production quota limits. However, some countries that rely on natural gas power generation plan to switch to coal-fired power. Also, Indonesia’s loosening of production quotas is conditional on coal prices staying high, which still supports international coal prices. On the demand side, the China Iron and Steel Association’s research shows that 493 coal-fired power plants nationwide consume an average of 4.0138 million tons of coal per day; this continues to decrease month-on-month. The number of days of available inventory is 22.54 days, also down month-on-month, but it is still at a high level for the same period. There is insufficient motivation for large-scale centralized restocking. Although there has been some cooling and rainy weather recently, overall temperatures have rebounded, and the market has entered the off-season for power coal consumption. In non-power sectors, influenced by higher prices of chemical products, profits for coal-chemical enterprises have expanded further. Plant operating rates have remained high, improving enterprises’ willingness to procure raw materials. Therefore, overall: although domestic markets have entered the traditional off-season for consumption, the Middle East conflict raises the focus of global energy prices. International coal prices rise, and additionally, higher chemical product prices increase coal-chemical enterprises’ operating enthusiasm, providing dual support to domestic coal prices. It is expected that coal prices will trade in a firm range.

Figure 15: Methanol theoretical costs under different production routes               Unit: yuan/ton

Source: Longzhong Information, Chang’an Futures

Figure 16: Methanol theoretical profits under different production routes               Unit: yuan/ton

Source: Longzhong Information, Chang’an Futures

III. The Middle East situation heats up, and methanol keeps strengthening

The core logic of the current methanol market remains the supply crisis brought by the tense situation in the Middle East. The absolute level of inventories or minor changes in demand is no longer the primary factor driving prices. Before the situation shows clear and credible easing signals, the market will continue to trade this logic, and prices are more likely to rise than fall. Even if the situation eases, if it enters a “fighting while negotiating” stalemate, methanol plants cannot restart, or if traffic volume through the Strait of Hormuz remains low, the reduction in supply may still be difficult to fully improve in the short term. The fading of risk premium could cause prices to fall quickly, but the shift higher of the price center of gravity also makes it difficult for methanol prices to return to the pre-conflict level. Trading volatility has been relatively large recently. It is suggested to manage positions reasonably, mainly taking long positions on pullbacks, and to be cautious about chasing rising prices. For reference only.

Chang’an Futures: Zhang Chen

Mar 30, 2026

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Responsible editor: Zhu Huanan