As the military operations in the United States against Iran continue, Chinese supply chains are beginning to face severe pressures. The latest analysis indicates that the conflict has been ongoing for six weeks, causing a global energy market standstill. Prices of key industrial products in China have surged significantly, and supply disruptions are becoming increasingly severe.
In March of this year, factory gate prices in China saw their first year-on-year increase since 2022. Prices of certain polyethylene products in China have doubled, causing disruptions in markets for raw materials used in various products such as plastic bags, bottles, clothing, and toys. Prices of some carbon fiber products have also risen by 20% (with some raw materials sourced from the Middle East, widely used in the automotive and consumer goods industries).
According to a report by the Financial Times, analysis citing a warning from Cameron Johnson, senior partner at Shanghai supply chain consulting firm Tidalwave Solutions, suggests that the current supply disruptions may be more severe than during the COVID-19 pandemic. All raw materials, especially those that may require imports or rely on materials already in short supply, are facing risks of scarcity, tight supply, and uncertainty about when normal operations can resume.
The analysis points out that prior to the outbreak of the Iran conflict, about one-third of China’s oil and 25% of its natural gas imports depended on the Middle East. The Middle East is also a significant source for petrochemical products like methanol, polyethylene, sulfur, and agricultural products. While China has not yet been forced to tap into its strategic oil reserves, rising oil prices and shipping delays have impacted a range of petroleum and chemical products.
These pressures have not only raised concerns among manufacturers but have also led top Chinese officials to question the resilience of their energy security system. In a rare public warning in a policy document in late March, Peng Shaozong, former official of the National Development and Reform Commission and current vice chairman of the China Society for Economic Reform, cautioned against preparing for the worst in a complex and severe external environment.
Peng warned that energy-intensive industries such as logistics, transportation, aviation, shipping, and steel have seen costs soar by up to 25%, eroding corporate profits and putting tremendous pressure on small businesses. High-end manufacturing is also at significant risk, as critical raw material supplies, including industrial gases like helium used in key industries such as semiconductors and medical technology, are unavailable.
Analysts at the Beijing-based consultancy firm Trivium China stated last week that since the attacks on Iran, domestic prices of high-purity helium in China have surged by 110%, while prices of low-purity liquid helium have also increased by 65% since the beginning of the year.
The shortage of raw materials has also affected lower-end manufacturers. A shelving manufacturer in Wenzhou, eastern China, revealed that due to recent spikes in raw material prices, especially core plastics, they have decided to raise prices for certain new orders this month. An exporter of camping products at the Yiwu Small Commodities Center disclosed that due to a 20% increase in fabric costs, prices of products such as tents and camping chairs are expected to rise, leading to delayed or reduced orders.
It is believed that during the rise in oil prices, China’s state-owned petroleum sector has absorbed some of the price increases, meaning that consumers have not yet fully felt the impact of soaring oil prices.
At the onset of the Iran conflict, the Chinese authorities banned exports of diesel, aviation kerosene, and certain fertilizer products to secure domestic supply. Analysts and diplomats have warned that as the conflict persists, the Chinese government may further restrict exports of industrial inputs, including plastics, fertilizer blends, and sulfuric acid, among others, jeopardizing countries that rely on trade with China.