Formic Acid Prices Tumble in China Despite High Freight Costs During June 2024

The Chinese Formic Acid market experienced a decent price decline in June 2024, defying the trend of high freight costs. This unexpected downturn was attributed to a low downstream textile and leather industry impacting both the supply and demand sides of the market. The utmost low interest from the consumer segment weakened the demand for Formic Acid from crucial downstream industries like textiles and preservatives. This weakness stemmed from the off-season for these sectors, resulting in flat downstream buying and an overall stagnant market atmosphere. With a limited demand, manufacturers found themselves accumulating stocks of Formic Acid. This excess supply further pressured prices downward.

Faced with a mountain of unsold products, some companies resorted to offering substantial discounts to stimulate shipments. This tactic led to a loosening of negotiation prices, with buyers holding the upper hand to settle at USD 420/MT Formic Acid FOB, Qingdao, China at a drop of 2.3% during June 2024. Procurement primarily occurred on an as-needed basis, with limited interest in speculative purchases. Despite the high freight costs, the supply side of the market remained robust. Manufacturers had enough Formic Acid readily available, further exacerbating the imbalance between supply and demand which resulted in supply outpacing demand during this timeframe. Moreover, the sluggish demand wasn't confined to China's domestic market. High freight charges, coupled with weak downstream demand in overseas markets, resulted in stagnant exports of Formic acid from China. Transactions primarily took place on an immediate basis, reflecting the cautious sentiment across the global market.

Adding fuel to the fire, the decline of the methanol market, a key raw material for Formic Acid production, weakened the cost support for Formic Acid producers. This, in turn, allowed them more flexibility in offering lower prices as the weak methanol market resulted in a cheaper production cost. Between January and May of 2024, China's feedstock methanol production facilities saw a significant increase in activity, averaging a 76.92% operation rate. This represents a 6-percentage point jump compared to the same timeframe in the prior year. Recognizing the oversupply situation, major Formic acid manufacturing facilities in China strategically reduced production rates. This move aimed to prevent even larger inventory buildups and help stabilize market conditions.

As per ChemAnalyst, the market of Formic Acid in China is foreseen to decline further in July 2024 under the influence of the low downstream textile industry. A combination of weak market fundamentals and limited trading activity is expected to erode any potential price increases for Formic Acid amidst feeble purchasing appetite.