As the situation in the Middle East escalates, shipping in the Strait of Hormuz is blocked, and a geopolitical conflict is evolving into a systemic impact on the global chemical industry.
According to the latest report from Morgan Stanley, since the outbreak of the conflict in Iran, chemical companies in many places around the world have successively issued "force majeure" statements (that is, they cannot perform due to emergencies), covering key products such as ethylene, propylene, polyethylene, polypropylene, PVC and liquefied natural gas, affecting China, Japan, South Korea, Singapore, Indonesia, Germany, Poland, Saudi Arabia, Kuwait, Qatar and other countries and regions.
The market reacted quickly: North American ethylene spot prices rose 24% in a week, propylene rose 12.8%, and polypropylene soared 25%.
Morgan Stanley pointed out that the most pressing problem at present is the lack of raw materials. If the Strait of Hormuz is interrupted for a long time, the operating rate of many factories in the Middle East and Asia could fall further – even if some companies have not officially declared "force majeure", and the actual loss of production capacity is widening. This wave of impact has just begun.
The olefin industry is the first to bear the brunt: the supply of raw materials has triggered a wave of "force majeure"
In the turmoil in the global chemical supply chain caused by the current round of conflict in the Middle East, the olefin industry chain (mainly ethylene and propylene) has become the earliest and most serious "hardest hit area".
According to Morgan Stanley data as of March 12, 3.9% of the world's ethylene production capacity and 3.2% of propylene production capacity were forced to shut down due to emergencies (i.e., declaring "force majeure"), and the proportion rose by about 1.7 percentage points in just a few days.
Which regions are most affected?
Southeast Asia: Nearly one-fifth (20.4%) of ethylene production capacity has been shut down; Central Europe: More than 60% of ethylene production capacity is interrupted; Why stop? The core reason is that raw materials cannot be transported.
A number of large chemical companies have publicly explained the reasons: Formosa Petrochemical (Taiwan, March 9): Due to the disruption of naphtha supply due to the situation in the Middle East, the ethylene (2.93 million tons/year) and propylene (2.43 million tons/year) units at its Mailiao plant can only operate at minimum load.
Singapore's Aster (March 6): Shipping in the Strait of Hormuz was blocked, raw material ships could not enter, and the operating rate of the pyrolysis plant was directly halved (reduced to 50%), involving 1.15 million tons of ethylene, 500,000 tons of propylene and other production capacity.
Thailand's Rayong Olefins, Singapore's PCS, and South Korea's YNCC have also announced force majeure for almost the same reason: naphtha or propane (cracking raw materials) cannot be bought.
In addition, Europe was not spared: Germany's OMV: Due to equipment failure (crude oil distillation unit problem), it announced force majeure of 485,000 tons of ethylene and other production capacity. Orlen, Poland: Announced the suspension of production of 700,000 tons of ethylene and 385,000 tons of propylene, but did not explain the specific reasons and current construction status.
In general, the crisis began with geopolitical conflicts and quickly evolved into a global storm of raw material supply cuts, and olefins – the starting point for countless products such as plastics, chemical fibers, rubber and more – are at the heart of the first wave.
The chlor-alkali and PVC industries have been hit hard, and Chinese enterprises have been "shut down"
In this round of global chemical supply chain crisis, the chlor-alkali and vinyl product chains (mainly including caustic soda, EDC, VCM and PVC) have become the areas where Chinese companies declare the most "force majeure".
According to Morgan Stanley, there are currently 5.2% of PVC production capacity, 5.4% of VCM production capacity, 6.4% of EDC production capacity, and 1.4% of caustic soda production capacity worldwide. It was forced to stop due to unexpected reasons, and these numbers have been added in recent days.
Why stop? Or because of the supply of raw materials - the source is in the Middle East.
A number of companies have clearly stated the situation: Tianjin Bohua Chemical (March 11): Due to the declaration of force majeure by upstream raw material suppliers affected by the conflict in the Middle East, it is unable to produce normally, involving 1.37 million tons of PVC, 1.29 million tons of VCM, 1.5 million tons of EDC and 905,000 tons of caustic soda.
Tianjin LG Bohai (March 10): Shipping in the Strait of Hormuz has been disrupted, raw materials cannot come in, and production will be gradually reduced, involving 400,000 tons of PVC, 350,000 tons of VCM, 640,000 tons of EDC and 280,000 tons of caustic soda.
Formosa Plastics Group: Also declared force majeure on the chlor-alkali chain, with an estimated impact of 1.19 million tons of PVC, 1.64 million tons of VCM and 1.79 million tons of EDC.
Sulfindo Adiusaha, Indonesia (March 9): Also due to raw material issues, it was announced that 110,000 tons of PVC, 130,000 tons of VCM, 370,000 tons of EDC and 336,000 tons of caustic soda would be suspended.
INEOS Inovyn in Europe: Force majeure for PVC supply was also announced for export customers.
In short, from the Middle East to Asia to Europe, PVC and its upstream products are experiencing a chain shutdown caused by geopolitical conflicts, and China, as one of the world's largest PVC producers, is bearing the brunt.
LNG and other chemicals: Local production in the Middle East bears the brunt
As the conflict in the Middle East escalates, local chemical and energy facilities are directly impacted, and the liquefied natural gas (LNG) supply chain is particularly damaged.
Qatar Energy announced on March 2 that its entire LNG production capacity (77.4 million tons per year) in Ras Slavan Industrial City was completely shut down due to the attack on the industrial zone, and "force majeure" was activated.
This was followed by India's largest LNG importer, Petronet LNG, which announced on March 5 that it would not be able to receive the cargo, citing supply disruptions from its main supplier, Qatar Energy.
Not only LNG, but also other key chemical products have also been shut down on a large scale:
Kuwait's EQUATE: Due to the closure of the Strait of Hormuz and logistics disruptions, it announced the suspension of 1.15 million tons/year of ethylene glycol (EG), of which the EG-2 plant has already been suspended.
Saudi Arabia's Sadara Chemical: Announced the suspension of 180,000 tons of ethanolamine and 200,000 tons of ethylene glycol ether, and the recovery time depends on when the Strait of Hormuz will be reopened.
BAPCO refinery in Bahrain: After the attack, it was announced that about 380,000 tons of Class III base oil (for lubricants, etc.) had entered force majeure.
Kuwait Styrene Company (TKSC): Also announced the suspension of production of 525,000 tons of styrene monomer (plastic raw material).
Morgan Stanley reminds: The current situation is still changing rapidly, and the actual scope of production shutdown may be greater than the published data. Investors need to keep an eye on the progress of the conflict as the crisis continues to spread to global chemical and energy markets.
Jingtai view|Hedging + seizing structural opportunities
For chemical stock investors:
Short-term avoidance: Light hydrocarbon cracking route enterprises that rely heavily on Middle Eastern raw materials (especially Southeast Asia and Northeast Asia).
Relative benefits: North American ethane crackers (self-sufficient in raw materials, increased export premium); China's leading coal chemical industry (such as Baofeng Energy, Hualu Hengsheng), if the policy allows for production expansion; Recycled plastic/alternative material companies (passive increase in demand).
For Commodity Traders:
Go long on olefins and PVC futures in recent months, but be wary of the rapid pullback after the conflict eases; Focus on cross-market arbitrage: The North American vs Asian spread has widened to record highs.
For manufacturing enterprises: immediately start supply chain emergency plans: lock in existing inventory; Finding alternative pathways for non-Middle Eastern raw materials; Evaluate the possibility of product price increases.
Risk warning: If Hormuz resumes navigation within two weeks, the price may fall rapidly; However, if the conflict lasts for more than one month, global chemicals will enter a new supercycle.
