The ongoing conflict in the Middle East has led to severe turbulence in the global energy market. With Iran threatening to attack ships passing through the vital energy passage of the Strait of Hormuz, the flow of oil has almost come to a standstill. As oil tankers seek shelter and supply risks increase, the prices of crude oil and chemical raw materials have experienced drastic fluctuations, putting a triple pressure on China’s industries that heavily rely on energy and chemical imports – a combination of “supply shortages, soaring costs, and logistical disruptions”.
On March 9, as the United States and Israel entered the second week of conflict with Iran, the market was in extreme panic over the potential disruption in the energy supply chain. The international benchmark oil, Brent crude oil prices, surged close to $120 per barrel. However, President Trump stated in a media interview that “the conflict might end quickly”, leading to a swift reversal in market sentiment, resulting in a significant drop in oil prices below $90. Nevertheless, the energy market remains highly sensitive and volatile.
Research institutions point out that about 20 million barrels of crude oil pass through the Strait of Hormuz every day, accounting for approximately one-fifth of global oil consumption. China’s dependence on crude oil imports is about 72%, with 44% coming from the Middle East, the majority of which transits through this strait. If navigation is blocked, both energy and chemical raw material supplies will face pressure.
On March 10, China’s National Development and Reform Commission announced an increase in the domestic retail prices of gasoline and diesel, with gasoline rising by 695 yuan per ton and diesel by 670 yuan, marking one of the largest single adjustments in recent years. Long queues formed at gas stations in many places, with some people expressing frustration over the daily price hikes and the difficulty of getting fuel.
The rapid rise in energy prices has quickly transmitted to the chemical industry chain, especially impacting plastics, considered as “industrial raw materials”.
The Zhangmutou Plastic Trading Market in Dongguan, Guangdong, with an annual trading volume approaching billions of RMB, comprising about one-tenth of China’s plastic materials market, is viewed as a crucial industry indicator.
According to reports from SunSirs, OilChem price tracking reports, and industry insiders, following the outbreak of conflict in the Middle East, in the week from March 2nd to 9th, prices of upstream materials such as ABS resin and polycarbonate (PC) surged under market panic, with some regions witnessing price increases of nearly 40%, and certain categories experiencing rapid pricing fluctuations within hours.
Qian Fucheng (pseudonym), the head of a polymer technology company in Guangdong, stated during an interview with Epoch Times, “There has indeed been a period of panic in Zhangmutou Plastic City. Initially, many manufacturing enterprises faced inventory shortages, leading to a sudden increase in restocking demands. Warehouses saw a surge in shipments, causing a traffic jam with numerous trucks queuing up for loading.”
Reported by Southern Metropolis Daily, due to concentrated deliveries, there were massive queues of trucks waiting to load goods around the Zhangmutou market, leading to noticeable traffic congestion on main roads.
Qian Fucheng pointed out that the sharp price increases have significantly impacted downstream enterprises: “General raw material prices have nearly doubled now, greatly affecting the production costs of downstream businesses, some of which may face the risk of losses. This round of price hikes is mainly driven by the rising prices of petrochemical products.”
According to price tracking data, the price of engineering plastic polycarbonate (PC) has increased from a low of 11,000 yuan per ton last year to 14,000 to 15,000 yuan. This material is widely used in manufacturing consumer products such as mobile phone and laptop casings, theft-proof windows and sound barriers, safety shields, and water containers.
The rapid rise in raw material prices has put immense pressure on midstream processing companies.
Wu Tiexing (pseudonym), head of a packaging material company in Zhengzhou, Henan, candidly stated to Epoch Times, “The price hikes from upstream manufacturers are significant, with costs being transferred layer by layer downstream. For companies like us in the midstream processing sector, there is hardly any profit margin, and many feel that operating under these circumstances is not very rewarding.”
He noted that raw material prices are fluctuating dramatically: “Now, raw material prices change almost daily, many companies are afraid to stock up, some even suspend purchasing raw materials to wait and see.”
In this situation, companies can only maintain a rapid turnover. “If customers accept the prices, we have to sell quickly after processing, basically charging very low processing fees with almost no profit in between, sometimes even ending up with slight losses.”
Wu Tiexing believes the fundamental reason for the current market volatility is closely related to the energy supply. “The essence of this conflict is still a resource issue, especially oil. Iran is a significant oil-producing country, once the supply is affected, domestic market prices will naturally rise.”
The frequent price changes have made business operations more challenging. “Prices are changing daily now, making it difficult to plan production. Customers are inquiring prices everywhere, leading to significant market liquidity,” he lamented.
In addition to plastic materials, various chemical raw materials are also facing supply pressures.
Research institutions point out that Iran is not only an oil-producing country but also a crucial supplier of chemical raw materials, with the methanol market being particularly sensitive to the situation. The Strait of Hormuz carries about 35% of global methanol sea trade, blocking the passage of Middle East goods into Asia directly affects the supply chain.
According to monitoring by Zhengzhou Commodity Exchange (ZCE) and SunSirs, methanol prices have surged by 20% to 25% since March, with the Eastern China region, which relies on imports, being the most impacted. China has approximately 118 million tons of methanol production capacity, but still, 12% to 15% of consumption depends on imports, with about sixty percent coming from Iran.
If port operations or strait transportation are blocked, the domestic methanol supply-demand landscape could change rapidly, further affecting the production of downstream products such as polymethyl methacrylate (PMMA) for acrylic sheets, MMA, and formaldehyde for coatings.
Furthermore, according to Dalian Commodity Exchange futures quotes, the price of ethylene glycol (EG), which is used in producing polyester fibers and plastic bottles (PET), has increased by nearly 18% in March. Styrene Monomer (SM), used in the production of high-end appliances, automotive parts, insulation boards, and fresh cold chain transport boxes, has increased by 15% to 20%.
China’s liquefied petroleum gas (LPG) market also heavily relies on Middle East supplies, with over seventy percent of imports. Forty-five point eight percent of imports need to pass through the Strait of Hormuz. Compared to the end of February, LPG prices have already increased by more than 20% in the first nine days of March.
According to energy agency ICIS data, about a quarter of China’s LPG imports come from Iran. The dual pressures of rising oil prices and blocked transportation have forced the market supply to tighten.
The mainland’s Xingyuan Chemical Industrial Park Research Institute points out that the impact of the Middle East conflict on the chemical industry is not merely about rising oil prices but a combination of the three-fold pressure of “supply shortages, soaring costs, and logistical disruptions”.
Simultaneously, due to excessively rapid price fluctuations, buyer reluctance in the market is visibly increasing.
The chemical industry has a high transmission effect, affecting industries heavily reliant on upstream raw materials such as plastics, synthetic fibers, fertilizers, etc., the most. For instance, in the plastic packaging industry, raw material costs account for more than seventy percent, and with the price increase of polyethylene (PE), packaging product costs will directly rise.
According to reports from various institutions like Baichuan Yingfu, on March 9, due to oil prices surging close to $120, triggering panic, some regions saw a daily price increase in the PE market of up to 27%, with some traders even choosing to “suspend quoting” temporarily, in a wait-and-see approach.
In contrast, the appliance and automotive industries, where chemical raw material costs account for around 10% to 20%, face a relatively limited short-term impact. However, as upstream costs continue to transmit, end-product prices may gradually rise.
The industry generally believes that the resolution of the crisis in the Strait of Hormuz will be a critical factor influencing market trends. If the crisis lasts only one to two months, the market may absorb it gradually through inventory adjustments and alternative supplies. However, if it persists for more than three months, global energy and chemical supply chains will face deeper impacts, with small and medium-sized enterprises lacking resilience possibly facing shutdowns or even exiting the market.