**Prospective US-Iran Dialogues and the Persistent Supply Disruptions in the Chemical Sector**<\/p>\n
The likelihood of forthcoming negotiations between Iran and the United States does not offer much hope for resolving the current supply disruptions in the chemical sector. Even if these talks yield some success, the remedies will not swiftly address the complications afflicting the supply chains for fertilizers and commodity chemicals. This dilemma arises from a significant drop in the number of vessels navigating the Strait of Hormuz over recent weeks, further exacerbated by intentional strikes on energy and chemical infrastructure from missiles and drones amid the conflict.<\/p>\n
Seth Goldstein, a chemical equity analyst at Morningstar, remarks, “It appears considerable damage has already been inflicted.” He emphasizes that even if the strait completely reopens, the most severe consequences of the supply disruption have yet to manifest fully. The final cargoes leaving the Gulf prior to the conflict have generally reached their destinations, leaving uncertainty regarding when future shipments will reliably resume.<\/p>\n
The decline in hydrocarbon exports has rapidly resulted in price increases, with crude oil prices surging from around $60 to approximately $100 per barrel, alongside even sharper spikes. Petrochemical facilities in China and other parts of Asia rely heavily on regional feedstocks, especially naphtha. Notably, Japan sources 70% of its naphtha from the Middle East, while South Korea\u2019s reliance is at 50%, as per S&P Global.<\/p>\n
The fallout has resulted in significant reductions in ethylene production capacity in both South Korea and Japan, according to Sebastian Bray, head of chemicals research at the investment bank Berenberg. He states, “China possesses the advantage of considerable strategic oil reserves and can harness coal-to-chemicals more effectively than other regions in Asia.” The production of critical chemicals such as ethylene, propylene, and intermediates like polyethylene, polypropylene, and styrene has experienced substantial declines. Steve Lewandowski, a petrochemical analyst at Chemical Market Analytics, estimates a recent drop in petrochemical operating rates by 5% to 6%.<\/p>\n
Retailers continue to sell goods made from these polymers, exhausting their stocks, according to Lewandowski: “We\u2019re still trying to understand what is occurring in the broader petrochemical sector.”<\/p>\n
The pre-conflict rise in production levels for polymer building blocks\u2014such as ethylene, propylene, butadiene, and benzene\u2014due to increased capacity in China initially cushioned the industry’s vulnerability to the Iran supply shock. Goldstein explains, “Beginning this conflict with a surplus means the effects were postponed.” Nevertheless, he warns that the situation is on the brink of swift changes. “Everyone in the chemical value chain likely had a few weeks’ supply,” Goldstein indicates. “If the crisis extends much beyond April, we may encounter greater difficulties for certain chemicals.”<\/p>\n
Despite this, there may be short-term beneficiaries. Europe has increasingly depended on Middle Eastern chemical supplies, while cheaper imports from China had pressured crackers into halting operations. Goldstein suggests there might be a temporary respite: “Perhaps that substantial wave of supply closures anticipated for 2026 won\u2019t occur, allowing plants to remain operational longer due to elevated prices.” Bray observes upward momentum in several commodity prices expected in the near term.<\/p>\n
In the meantime, chemical manufacturers with access to affordable ethane from US shale gas extraction, like LyondellBasell and Dow, are likely to benefit from rising prices. “The higher oil prices rise, the more appealing ethane becomes for ethylene production,” notes Lewandowski. North American production could help fill some supply voids, with its refining capacity previously functioning at about 80%, according to Goldstein, providing some spare capacity to mitigate the supply shock. However, analysts advise against anticipations of increased investment in extraction infrastructure or the establishment of new chemical plants in response to the war by US fracking companies. “The US doesn\u2019t possess an endless supply of cheap feedstock. Once you deplete what is available, the remaining feedstock can be costly,” asserts Lewandowski. “Moreover, suppliers in the Middle East with access to inexpensive feedstocks will eventually resume operations.”<\/p>\n
The ongoing conflict might ultimately result in the closure of certain chemical facilities. “I believe most Chinese capacity will return online,” Bray speculates, despite current plans to modernize the Chinese chemical industry by replacing older facilities with larger, more efficient ones. “It remains uncertain whether less competitive Southeast Asian capacity in South Korea, Thailand, and a few other regions will come back online after being shut down due to feedstock shortages,” he adds.<\/p>\n
**Fertilizers Under Pressure**<\/p>\n
The Gulf region is also a key producer of various fertilizers, reportedly contributing 45% of global urea exports and 20% to 30% of global ammonia exports. However, these exports are unlikely to be prioritized. “If the strait reopens, oil, LNG,<\/p>\n","protected":false},"excerpt":{"rendered":"
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