On June 14, 2026, the United States and Iran formally reached a 14-point truce memorandum of understanding (MOU). The agreement stipulates the lifting of the maritime blockade and the full resumption of shipping through the Strait of Hormuz within 30 days, alongside a suspension of sanctions on Iranian oil and petrochemical products; it also mandates advancing comprehensive negotiations on the nuclear issue and lifting remaining sanctions within 60 days. This news fundamentally reversed the Middle East tensions that had persisted for nearly four months. The energy risk premium—accumulated due to geopolitical conflict—rapidly dissipated, causing international oil prices to plummet. This price drop cascaded down the industrial chain, triggering a broad-based correction across the domestic chemical sector. This article provides a comprehensive analysis of the event's profound impact on the domestic chemical industry, examining six key dimensions: an interpretation of the core event, changes on the crude oil front, transmission across the industrial chain, divergent trends among specific products, the reshaping of supply-demand dynamics, and medium-to-long-term risks and trends.

I. Overview of the Core Event: Geopolitical Risks Subside, Global Energy Logistics Set for Recovery

The recent Middle East conflict lasted several months, disrupting shipping through the Strait of Hormuz and restricting the operation of Iranian oil and gas facilities. This directly interrupted the transport of Middle Eastern supplies—including crude oil, liquefied petroleum gas (LPG), methanol, and ethylene glycol—driving up shipping costs and market risk aversion, while adding significant geopolitical premiums to the prices of chemical products.

The US-Iran MOU outlines clear implementation milestones: first, the US will lift the maritime blockade on Iran within 30 days, allowing navigation through the Strait of Hormuz to gradually resume; second, sanctions on the sale of Iranian oil and petrochemical products are suspended immediately, restoring Iran's access to financial resources; and third, final negotiations on the nuclear issue will be advanced within 60 days, leading to the comprehensive lifting of all sanctions. While the first large energy tanker has already successfully passed through the Strait, a full return to pre-conflict shipping levels will take weeks or even months due to the need for channel clearing and vessel redeployment. In the short term, market panic has rapidly subsided, and the geopolitical rationale that previously supported chemical product prices has significantly weakened. In the medium to long term, the gradual return of Iranian oil and gas production capacity and Middle Eastern petrochemical supplies will rebalance the global chemical supply chain, ushering in a phase where industry valuation and pricing mechanisms are reshaped.

II. Upstream Shock: Sharp Drop in International Oil Prices and Rapid Shift Downward in Chemical Cost Baselines

The Strait of Hormuz is a critical artery for the global transport of crude oil and petrochemical products, handling over one-third of global crude oil shipments. As the "cost anchor" for the chemical industry, oil prices were the first to experience a deep correction.

Following the news, international crude oil futures plummeted; the main SC crude oil contract saw a maximum single-day drop of nearly 8%, while Brent and WTI crude prices also fell sharply, shedding the risk premiums that had accumulated due to geopolitical tensions. Although the EIA's monthly report raised its forecast for the global crude oil supply-demand gap for 2026—widening the projected daily deficit to 3.87 million barrels—and medium-to-long-term fundamentals remain tight, expectations of a short-term supply recovery have dominated market sentiment, pushing oil prices into a period of weakness.

The decline in oil prices directly drove down the costs of basic feedstocks such as naphtha, propane, and ethane, thereby eroding the cost support for chemical products at the source. For the chemical sector as a whole, the cost factor shifted from a source of "strong support" to a "weak drag," serving as the primary catalyst for the broad-based correction across the industry.

III. Supply Chain Transmission: Synchronized Decline Across the Chain with Significantly Enhanced Transmission Efficiency

The drop in crude oil prices propagated rapidly through the mature chemical supply chain, creating two core transmission pathways that encompassed the vast majority of mainstream chemical products, resulting in a market-wide synchronized decline:

Olefin Supply Chain (Crude Oil → Naphtha → Ethylene/Propylene)

Ethylene and propylene prices fell in tandem with crude oil, subsequently triggering a collective correction in mid- and downstream products such as polypropylene, polyethylene, styrene, ethylene glycol, and propylene oxide. Characterized by massive domestic production capacity and a high degree of marketization, this chain exhibits the most sensitive price response, with single-day declines generally ranging from 3% to 7%. Production costs for domestic refining and coal-chemical enterprises have declined; however, as downstream sectors are in a traditional off-season, demand has failed to absorb the price drops, causing product margins to come under renewed pressure after a brief recovery.

Aromatics & Polyester Chain (Crude Oil → Naphtha → PX → PTA → Polyester)

PX and PTA prices have plummeted in tandem with crude oil, while downstream products like polyester chips and polyester filament yarn have weakened simultaneously. The textile industry is currently in its summer off-season; downstream weaving mills and garment manufacturers are adopting a "wait-and-see" approach—buying only when prices fall rather than rise—resulting in sluggish purchasing interest. Price transmission is characterized by a pattern where raw material prices drop, finished product prices follow suit, and demand remains absent.

Products Highly Dependent on the Middle East (Crude Oil → Oil/Gas Feedstocks → Methanol, LPG)

Methanol and LPG are the chemical products with the highest import dependency in China, relying heavily on supplies from the Middle East and shipments through the Strait of Hormuz. Previously, shipping disruptions caused delays in import cargoes and a sharp drop in arrival volumes, keeping port inventories low and prices consistently strong. Following the reopening of the Strait, delayed cargoes are arriving en masse; combined with falling overseas prices, Methanol and LPG have experienced the steepest declines in this cycle—with main contracts dropping over 8% in a single day—marking a fundamental reversal in supply-demand dynamics.

Overall, the speed of price transmission in this instance has been far faster than in typical cycles; the market has rapidly shed the geopolitical premium, and the chemical sector as a whole has entered a phase of seeking a new cost equilibrium.

IV. Divergence Among Specific Products: Varying Strength Based on Import Dependency and Process Routes

Influenced by supply structures, import dependency, and production processes, the extent of price declines and future trajectories for different chemical products vary significantly, falling roughly into three categories:

(1) High Dependency on Middle East Imports: Leading the Decline, with the Clearest Supply-Demand Reversal

Representative products: Methanol, LPG, Ethylene Glycol (MEG)

These products have a high share of domestic imports and were previously supported for an extended period by shipping disruptions and instability at overseas production facilities, keeping port inventories at low levels. Once navigation through the Strait of Hormuz resumes, delayed shipments and new orders will arrive successively, likely driving a rapid rebound in import volumes. Combined with price drops in overseas markets, this will lead to a significant short-term surge in supply. Commodities in this category face the heaviest short-term pressure; prices will continue to absorb the influx of new supplies until port inventories return to reasonable levels.

(II) Oil-based Bulk Chemicals: Falling in tandem with oil prices; fluctuating within a range

Representative products: Polypropylene (PP), Polyethylene (PE), Styrene, PTA, and solvent products.

These products rely primarily on crude oil and naphtha as feedstocks; while cost-side prices track the decline in oil prices, domestic self-sufficiency is high and local plant operating rates remain stable, resulting in limited supply elasticity. Meanwhile, downstream demand is weak due to the off-season. Prices are falling in the short term in line with broader market trends, though the magnitude of the decline is smaller than that of methanol or LPG. Future market movements will be driven by a combination of oil price fluctuations and domestic supply-demand dynamics, likely shifting toward range-bound consolidation following the initial sharp drop.

(III) Coal-based Chemicals & Domestically Self-sufficient Products: Limited decline; relatively independent price trends

Representative products: Urea, soda ash, coke, calcium carbide, and coal-to-ethylene glycol.

These products rely mainly on coal and show weak correlation with international oil prices. The recent downturn was driven primarily by overall market sentiment rather than fundamental shifts. Coal prices are supported by peak summer demand, keeping coal-chemical production costs stable. However, factors such as high inventories and weak demand for urea and soda ash mean prices are likely to fluctuate within a weak range, with minimal marginal impact from US-Iran tensions.

(IV) New Chemical Materials & Downstream Products: Passive price declines; rebound potential determined by end-market demand

End-market products such as coatings, adhesives, plastic goods, and chemical fiber fabrics do not rely directly on imports; their price reductions are primarily driven by falling upstream raw material costs. However, with end-market consumption currently in the off-season—characterized by insufficient orders and high inventories of finished goods—companies have limited room to lower prices further and struggle to restore profit margins through price hikes. Consequently, these products are tracking the weakness of raw materials and lack the momentum for an independent price rally. V. Reshaping of Inventories, Import/Export Dynamics, and Global Supply-Demand Patterns

1. Inventories: Port stocks shift from decline to rise; the destocking trend ends

Previously, transit restrictions in the Strait of Hormuz kept port inventories of imports—such as methanol, LPG, and ethylene glycol—persistently low, providing significant price support. With the resumption of shipping and a surge of overseas cargoes arriving at ports, inventories at major domestic coastal ports are shifting from continuous destocking to periodic accumulation; this renewed inventory pressure is further suppressing spot prices. Domestic chemical plant and commercial inventories were already at moderate-to-high levels; compounded by a weakening market, traders' willingness to stockpile has plummeted, leading them to generally adopt a "low-inventory, high-turnover" model.

2. Imports and Exports: Global chemical trade flows recover; domestic-international price spreads realign

As a core export hub for petrochemicals, the Middle East saw its export channels—covering crude oil, condensate, methanol, LPG, and fertilizers—fully reopened following the resumption of shipping, allowing global chemical trade flows to return to normal. In the short term, an influx of low-priced overseas goods into the domestic market has narrowed the domestic-international price spread, reducing export orders for products that previously held a competitive advantage abroad. In the medium to long term, domestic chemical imports and exports will return to a normal rhythm, and opportunities for regional arbitrage will be redistributed.

3. Global Supply and Demand: Shifting from "regional shortages" to "global rebalancing"

During the conflict, production cuts at Middle Eastern facilities and shipping disruptions caused regional supply shortages, creating a global chemical market characterized by "localized tightness but overall looseness." Following the implementation of the US-Iran agreement, production capacity in Iran and the surrounding Middle East has gradually resumed; combined with the release of previously stranded cargoes, global chemical supplies are steadily increasing. Viewed alongside overseas demand—where manufacturing recovery in Europe and the US remains sluggish while essential demand in Southeast and South Asia stays stable—the pace of supply recovery is outpacing that of demand. Consequently, the global chemical supply-demand landscape is shifting from a state of structural, tight balance to one of loose rebalancing. VI. Changes in Industry Profits: Redistribution of Profits Along the Value Chain

Refining & Integrated Enterprises: Declines in crude oil and naphtha prices have directly lowered production costs. While there is a lag in the drop of chemical product prices—allowing for a slight short-term recovery in margins for refineries and large integrated facilities—profit margins will narrow again as downstream product prices inevitably fall in tandem.

Coal-to-Chemical Enterprises: With feedstock coal prices remaining firm while downstream chemical prices fall, profit margins for coal-to-olefin and coal-to-methanol producers are being squeezed. Some facilities are once again facing the risk of operating at a loss, raising the possibility of forced reductions in operating rates later on.

Midstream Traders: Rapid price declines have resulted in losses on existing inventory, causing a sharp drop in speculative trading and overall market activity; the industry has entered a phase characterized by "thin margins and low turnover."

Downstream End-User Enterprises: Lower raw material costs—combined with opportunities to restock at low prices during the off-season—have eased cost pressures for mid- and downstream manufacturers. However, with limited ability to raise end-product prices, profit improvements remain modest, as weak demand caps the extent of margin recovery.

Overall, this market downturn has redistributed profits across the chemical value chain, shifting upstream profits—which had previously been inflated by geopolitical premiums—back toward mid- and downstream sectors.

VII. Outlook and Phased Trend Forecast

Next 1–3 Weeks: Weakness Prevails; Absorbing Supply and Sentiment

Expectations regarding a US-Iran agreement and the resumption of shipping through the Strait have already been fully priced in; the chemical sector is expected to continue its pattern of weak, range-bound fluctuation. Methanol and LPG—commodities with high import dependency—retain downside potential. Oil-based chemicals will track oil price fluctuations, while coal-based chemical varieties will likely see limited declines, trading mostly sideways.

Key Indicators to Watch: Actual vessel traffic through the Strait of Hormuz, the pace of arrivals for Middle Eastern cargoes, changes in domestic port inventories, and signals that international oil prices have stopped falling. Market sentiment remains bearish in the short term; actual transactions are driven primarily by essential demand, with minimal speculative purchasing. Second Half of the Year: A Return to Fundamentals and Range-Bound Volatility

Key Fundamental Drivers: A global crude oil supply-demand gap persists for the year, providing a solid floor for oil prices, while the cost baseline for chemical products remains higher than pre-conflict levels.

Supply Drivers: Middle Eastern supplies are fully returning to the market, and new domestic chemical production capacity continues to come online, resulting in an overall loose supply environment.

Demand Drivers: Global manufacturing is recovering slowly, while domestic downstream chemical demand fluctuates in line with macroeconomic trends and seasonal patterns.

In the long term, the geopolitical market rally that lasted four months has concluded; the chemical industry is reverting to three core drivers: crude oil costs, domestic supply-demand dynamics, and seasonal cycles. Unidirectional price trends are unlikely, and range-bound volatility will characterize the market in the second half of the year. Meanwhile, the industry will accelerate the phase-out of outdated, high-energy-consuming, and low-value-added capacity, further highlighting the competitive advantages of integrated, low-energy-consumption enterprises.

VIII. Summary

The memorandum of understanding between the US and Iran and the reopening of the Strait of Hormuz mark a major turning point for the global chemical market. In the short term, the geopolitical premium is rapidly unwinding; the sharp drop in oil prices is driving a sector-wide price correction, with products heavily reliant on imports facing the most significant pressure. In the medium term, the resumption of shipping and production capacity will increase supply, though uncertainty regarding negotiations and a seasonal rebound in demand will trigger a tug-of-war between bulls and bears. In the long term, the chemical industry will move past geopolitically driven trends and return to supply-demand fundamentals.

Market participants should remain vigilant in the short term regarding price risks associated with the concentrated arrival of imports and inventory accumulation. In the medium term, focus should be placed on the progress of shipping through the Strait, US-Iran negotiations, and potential demand reversals during the traditional off-season. In the long term, strategies should be grounded in industry fundamentals, monitoring profit margin recovery across the value chain and shifts in capacity structure to capitalize on tactical opportunities amidst market divergence.

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