Future talks among Iran and the US are unlikely to rescue supply shocks to chemicals. Even if successful, negotiations will now not quickly resolve issues with fertilisers and commodity chemicals. This is a result of a far fewer ships passing through the strait of Hormuz for weeks, along with the focusing on energy and chemical infrastructure at the time of warfare with missiles and drones.
‘It looks like a lots of damage has already been done,’ stated Seth Goldstein, a chemical equity analyst at Morningstar. ‘Even if the strait fully reopened, the major part of the supply slock has yet to really take hold.’ This is in part due to the last remaining cargoes that left the Gulf earlier the war begun, will now in general have reached at their locations, with little signal of when future shipments might dependably continue.
The supply focus on hydrocarbon exports rapidly fed through to price increases, with crude oil increasing from around $60 a barrel to around $100, with even higher peak. Petrochemical facilities in China and the rest of Asia depend on feedstocks from the region, particularly naphtha. Japan imports 70% of its naphtha from the Middle East and South Korea 50%, as per the S&P Global.
One outcome has been considerably closures of ethylene capacity in South Korea and Japan, highlights Sebastian Bray, head of chemicals research at investment bank Berenberg. ‘China has the benefit of substantial strategic oil reserves and the ability to utilise coal-to-chemicals more than other parts of Asia.’ There have been considerably diminishes in output in basic chemicals including ethylene and propylene along with intermediates like polyethylene, polypropylene and styrene, mentioned Steve Lewandowski, petrochemical analyst at Chemical Market Analytics. ‘We reckon working rates last week declined 5% to 6% for petrochemicals,’ he stated.
Simultaneously, retailers are trading items made with these polymers, running down stocks, Lewandowski explains: ‘We’re continuously trying to make clear what is going on in the wider petrochemical chain.’
The surge in manufacturing volumes earlier than the war for polymer building blocks including ethylene, propylene, butadiene and benzene – the end result of capacity building in China – supposed that inventory levels were high, to begin with insulating industry somewhat from the Iran supply shock. ‘Begin this war with an oversupply approach the effect was delayed,’ stated Goldstein. However, analysts trust that the circumstance will change soon. ‘Everybody in the chemical value chain probably had some weeks’ supply,’ stated Goldstein. ‘If the crisis continue much beyond April, then for certain chemicals we may have more issues.’
Some can advantage in the short term. Europe gradually of sourced chemicals from the Middle East and reasonably-priced imports from China had put crackers under pressure, with shutdowns and closure plans. Now there could be a pause– at least temporarily. ‘Possibly that huge wave of supply closures that had been set to happen in 2026 won’t and plants remain online longer due to higher costs will help them,’ stated Goldstein. There seems to be upward momentum for numerous commodity costs in the near term, Bray stated.
Meanwhile, chemical manufacturers with access to reasonably-priced ethane from US shale gas extraction, which include LyondellBasell and Dow, will probably profit from rose prices. ‘The higher oil goes, the more attractive ethane is for making ethylene,’ notes Lewandowski. North American manufacturing can fill some gaps, when you consider that its refining capacity was earlier running at around 80%, stated Goldstein, and it has some extra capacity to alleviate some of the supply shock. Analysts, but, say that fracking corporations in the US will not invest in more extraction infrastructure, nor will ,more chemical facilities be formed in response to the war. ‘The US doesn’t have an endless supply of reasonably-priced feedstock. When you exhaust what you’ve got, the left over feedstock can be costly,’ says Lewandowski. Also, everyone is aware that Middle East suppliers access to cheap feedstocks will come back online ultimately.’
The battle could lead a few facilities to close. ‘I suppose most Chinese capacity will come back online,’ stated Bray, however existing plans to modernize the Chinese chemical industry via replacing older plants with larger, more efficient facilities. ‘It is an open query whether or not less competitive southeast Asian potential in South Korea, Thailand and some different [places] come back online after being shut down due to the feedstock [shortages],’ he mentioned.
Fertiliser feeling the pinch
The Gulf is likewise important manufacturer of numerous fertilisers. By some evaluation, it accounted for 45% of world urea exports and 20% to 30% of world ammonia exports. These exports are not going to be prioritized. ‘If the strait reopens, it is going to be prioritized for oil, [liquefied natural gas (LNG)] and perhaps fuel products more than chemicals and containers,’ stated Steve Lewandowski, petrochemical analyst at Chemical Market Analytics.
Some facilities needs to be repaired. Iranian missiles hit the Ras Laffan Industrial City in Qatar, that is essential for natural gas feedstocks for urea and ammonia. The conflict also impacted offline the Qatar Fertiliser Company, which supplies around 14% of worldwide urea. Iran was the second largest fertiliser manufacturer in the Middle East after Qatar, and its facilities are likely damaged. ‘Iranian facilities have been possibly hit hard,’ stated Goldstein. ‘Some chemicals and fertilisers can [also] be inputs to explosives, so those facilities were probable on target lists.’
The Gulf exports big quantities of phosphate fertilisers, particularly to Asian nations without much natural gas such as India, Pakistan and Bangladesh. Likewise sulfur is a important fertiliser ingredient and a byproduct of crude oil, mainly ‘sour crude’ that has been effected by the war. Spot expenses for sulfur have surged in China, due to the supply shock.
The Middle East is the largest supplier of sulfur to Morocco’s stated-owned OCP, the world’s largest phosphate manufacturer, for example. It lately brought ahead maintenance that would reduce its fertiliser output by around 30%. ‘My study on that is that it is down to the sulfur shortage,’ stated Goldstein.
In March, China – also foremost fertiliser manufacturers– started restricting exports. Nations such as Ethiopia, Malaysia and Vietnam reportedly depends on China for over 60% of their fertiliser imports. Fertiliser maker Yara warned that extended disruption of exports from the Gulf will effect worldwide supply and food security. It anticipated that farmers will possibly cut back fertiliser purchases in response to surging costs.
Ripple results
Some other chemicals with supplies being squeezed include helium and methanol. Qatar generates about a third of global helium, that’s used in computer chip manufacturing, in welding and fibre optics and to cool superconducting magnets in MRI scanners. Helium is usually a byproduct of LNG manufacturing, so harm to facilities in Qatar took out some helium resources too.
Iran is the world’s second largest methanol producer, with around 11% of worldwide capability. It is the main source of methanol imports for Asia, particularly China’s east coast, as per the market research firm OPIS. This is an crucial industrial solvent and feedstock for olefins, formaldehyde, acetic acid and a variety of different chemicals. ‘Methanol is used within the production of silicones and prices for those in China have increased appreciably,’ says Bray. ‘For urea and methanol, the damage to Iran’s export capacity is unsure however the war might have huge implications over the next few years,’ says Bray.
Higher commodity prices are feeding down into increases in a few fine and speciality chemicals. On 30 March, BASF declared a 20% global price rise for pharmaceutical excipients and selected energetic pharmaceutical ingredients. ‘It’s a response to input cost rises and, in some cases, likely the knowledge that Asian peers might also have issue delivering in future due to feedstock shortages,’ stated Bray. ‘It’s not just in pharmaceuticals. It is in household and care. Quite a broad set of price increases.’
An unknown factor that could accentuate supply shocks is how a much damage has been done to manufacturing facilities and how long these will take to restore. Qatar expected that it’d take 2–5 years to restore its damaged sites. ‘It going to take [at least] 6–9 months earlier than we see meaningful supply coming back online,’ stated Goldstein. ‘That is assuming we’ve got a ceasefire and we don’t see further destruction of facilities.’
Longer term, economists predict that price rises will take time to ripple via the economy, which in turn ought to push down demand and economic activity. Goldstein stated , given the importance of the supply shock, ‘we’re going to see lasting higher costs at some point of most of 2026, if not into 2027 as well.’ This may could dull demand for consumer goods, which in turn could be terrible for the chemical sector. ‘An environment of higher energy expenses is usually bad for industrial demand globally and that will ultimately show up in chemicals volumes,’ stated Bray.
