In the first half of July, the overall formaldehyde market showed a fluctuating downward trend. The market trend is dominated by the two-way game of cost and supply and demand, presenting the core characteristics of “raw materials first suppress and then rise, terminal demand is weak in the off-season, and market supply is slightly contracted”. As of July 15th, the average price of formaldehyde in Shandong Province was reported at 1243 yuan/ton, a decrease of 6.84% from the beginning of the month.
Driving factor analysis
Cost side: weak at first, then strong, with support shifting from loose to tight
The international market variables have driven the recovery of the methanol market. Affected by the news of the US Iran freight channel on July 14th, the geopolitical risks in the Middle East have intensified, and the expectation of tightening methanol supply has risen. The rebound and upward adjustment of methanol spot prices in many domestic places have directly promoted the repair of formaldehyde cost support.
However, the upward space for methanol prices is limited, and the positive support for formaldehyde is difficult to sustain and amplify. It is expected that the domestic methanol import sources will concentrate at the port in mid to late July, and the port inventory will show a cumulative trend. Coupled with the overall weak terminal demand of the entire industry chain, the upward momentum of methanol is insufficient, which can only provide a bottom support for the formaldehyde market and cannot promote a significant increase in its price.
Demand side: Continued weakness, driven by rigid demand, cautious procurement
July is the off-season for traditional formaldehyde consumption, and multiple factors are suppressing the recovery of terminal demand. Firstly, the scorching summer heat and periodic floods in the south directly restrict the production of sheet metal and adhesive enterprises in core production areas such as southern China and Guangxi, resulting in low activity in terminal production and a significant decrease in market enthusiasm for purchasing goods; Secondly, the new national standards for the sheet metal industry continue to be implemented and promoted, and the industry is in a transitional period of capacity adjustment and process adaptation. Downstream enterprises generally implement low inventory operation strategies, only purchasing on demand without bulk stocking actions; Thirdly, downstream supporting industries such as adhesives and urea formaldehyde resins have overall low profits and weak cost transmission capabilities, further suppressing the urgent release of formaldehyde. Overall, the demand for formaldehyde terminals in the first half of this month was lower than the same period last year compared to the same period last year. The market was mainly dominated by scattered transactions for essential needs, without the support of a centralized replenishment market.
Supply side: Fine tuning of production, overall controllable support for the market
Affected by the decline in product prices and shrinking industry profits in the early stage, many domestic formaldehyde production enterprises have voluntarily reduced their production, and some small and medium-sized units have temporarily stopped for maintenance. The overall operating rate of the industry has slightly fallen, and the effective supply of goods in the market has moderately contracted. The moderate reduction on the supply side effectively offset the negative pressure on the demand side, avoiding the risk of a deep decline in market prices, and providing key support for the stabilization of the market in mid July. At the same time, the overall inventory of the industry remains at a low level, and the pressure on manufacturers’ inventory is relatively small, which continues to highlight the mentality of raising prices.
Market forecast: weak and stable oscillations are the main trend, with limited room for ups and downs
The short-term market will present a volatile pattern of “cost bottoming out and demand peaking”. On the cost side, methanol is expected to operate strongly in the short term due to the geopolitical risks in the Middle East. However, the increase in import sources, port inventory accumulation, and weak terminal demand will continue to limit its upward potential. The overall cost of formaldehyde is stable but under pressure, with weak upward momentum. On the demand side, the summer off-season effect continues, and the trend of high temperatures, low operating rates of terminal enterprises, and cautious market procurement is difficult to reverse in the short term. Weak demand remains the core factor suppressing market conditions. The overall supply side is controllable, and manufacturers continue to operate at low production and low inventory levels, which provides a certain support for market prices. The overall market situation has limited room for fluctuations.
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