US-Iran uncertainty and high freight may slow MEG supply recovery

MEG supply from the Persian Gulf is unlikely to recover quickly despite some vessels passing through the Strait of Hormuz. US-Iran uncertainty, cautious shipowners, limited tankers and high freight rates may constrain recovery. China's MEG imports may rise to around 350,000 mt in July, but August-September arrivals remain uncertain.

-Four MEG vessels carrying around 120,000 mt for China have passed through the Strait of Hormuz since late June, but overall traffic remains volatile.

-Strait traffic dropped to 31 vessels on 29-Jun, down about 62% from the 25-Jun peak, reflecting ongoing instability.

-US-Iran talks remain uncertain, keeping shipowners cautious and limiting chemical tanker participation in the Persian Gulf.

-Freight rates have surged sharply, while July imports may recover to around 350,000 mt, with August-September supply still uncertain.

Recovery still faces major constraints

MEG supply from the Persian Gulf is unlikely to return quickly despite some vessels moving through the Strait of Hormuz in late June. US-Iran negotiation uncertainty, cautious shipowners and elevated freight rates continue to constrain the recovery of supply.

Since late June, several chemical tankers have passed through the Strait of Hormuz, including four MEG vessels carrying around 120,000 mt of cargo for China. However, traffic has slowed again after last weekend's US-Iran military exchanges. The immediate trigger was Iran's drone attack on a merchant vessel that did not follow the route designated by Iran, followed by Tehran's firm claim of "absolute control" over the strait.

Hormuz traffic slows again

Vessel traffic through the strait fell to 31 vessels on 29-Jun, including 15 outbound vessels. This was down around 62% from 25-Jun, when 82 vessels passed through the strait, including 61 outbound vessels, marking the peak since late June.

Over the weekend, only one MEG vessel carrying Iranian cargo crossed the strait successfully. Most other chemical tankers in the Persian Gulf moved to Dubai port to avoid risk.

Shipowners remain cautious

According to media reports, Iran's foreign ministry said there are no plans for talks with the US in the coming days. An Iranian delegation went to Doha to follow up on the implementation of the US-Iran memorandum, but this was unrelated to the US visit to Qatar. The two sides have not yet entered final agreement talks.

This leaves US-Iran negotiations uncertain and shipowners cautious about stable passage through the strait. Around 230 vessels entered the Persian Gulf in the past 10 days, mainly tankers, cargo vessels and dry bulk carriers. Only nine were chemical tankers. During the three-month closure of the Strait of Hormuz, many shipowners shifted fleets to other routes, so it may take several weeks for capacity to return to the Persian Gulf.

Freight costs add pressure

High freight rates are another constraint on overseas supply recovery. As of 25-Jun, Persian Gulf-India/China WS freight had surged to 650-897 points, or around 6.5-9 times the benchmark rate, reaching a 2026 high. Chemical freight rates have also risen sharply.

The temporary reopening of the Strait of Hormuz triggered a rush for vessels, while the tight supply-demand balance in shipping pushed freight premiums sharply higher.

Import recovery remains uncertain

According to CCFGroup's forecast, China's MEG imports are likely to recover to around 350,000 mt in July as some floating cargoes moved out in late June. However, August-September imports remain uncertain. The key variables are possible volatility in the 60-day US-Iran negotiation period and the efficiency of chemical tankers returning to the Persian Gulf.

So far, MEG units in the Persian Gulf remain largely shut, with only three units in Iran and Kuwait still operating.