SunSirs: Middle East Conflict Triggers Global Chemical Supply Crisis

According to a report by Xinhua News Agency citing US media on the 28th, US President Trump has told his aides to prepare for a long-term blockade of Iran.

This geopolitical conflict, which began in late February, is evolving from warnings of soaring prices into a full-blown ‘supply disruption’ crisis. The impact of this crisis is particularly severe for the Asia-Pacific region, as approximately 70% of the raw materials required for chemical production in the region are imported from the Middle East – far higher than the 20% relied upon by Europe. Moreover, the Asia-Pacific is the global hub for chemical production, accounting for around 65% of global output and approximately 51% of manufacturing value added. This means that a disruption in Middle Eastern raw material supplies will directly impact the linchpin of the global supply chain.

As the global manufacturing hub, Asia is facing its most severe supply shock in recent years. Several petrochemical plants have already reduced operations to minimum capacity (50% to 60%), and as inventories continue to be depleted, some plants face the risk of shutdown.

According to relevant reports, even if the severe supply disruptions triggered by the conflict in the Middle East were to end in May, global energy prices would still surge by 24% by 2026. Dow Chemical CEO Fritling previously warned that when the Strait of Hormuz is closed, approximately 20% of global seaborne oil trade is forced to halt, and up to 50% of ethylene trade is affected.

I. Naphtha: The ‘Blood Supply’ to Asia’s Chemical Plants

Naphtha is the feedstock for olefin and aromatics cracking units; it is the ‘lifeblood’ of Asia’s chemical industry and the first domino to fall in this crisis.

According to ICIS data, over 60% of Asia’s seaborne naphtha imports rely on the Middle East, and by 2025, more than 54% of global naphtha shipments to Asia will pass through the Strait of Hormuz. The blockade is systematically squeezing Asia’s ethylene capacity – according to ICIS estimates, the average operating rate of South Korean petrochemical plants in March was just 66%, a significant drop from 80% in February. Data from the Japan Petrochemical Industry Association (JPCA) shows that ethylene plant utilization rates fell to 68.6% in March, a historic low.

The more far-reaching impact lies in the fact that the disruption to naphtha supplies is being transmitted through both the olefin and aromatics pathways to all downstream chemical derivatives, including polyethylene, polypropylene, styrene and pure benzene. As of the end of April, a recent report by Goldman Sachs indicated that prices for basic chemicals have surged by over 60% in recent weeks, with the pace and magnitude of the increases reaching twice that of the 2022 European energy crisis; currently, approximately 20% of the global supply of chemical products has been disrupted. As the global manufacturing hub, Asia is facing its most severe supply shock in recent years – numerous petrochemical plants have reduced operations to minimum capacity, and with inventories continuing to be depleted, some plants face the risk of shutdown.

II. Methanol: Iran’s average daily output has fallen from 23,000 tons to 1,200 tons

Methanol is a core upstream raw material for paint solvents and resins, and is also one of the chemical products for which China has the highest import dependency.

Following the blockade of the Strait of Hormuz, methanol plants in Iran have been in a state of complete shutdown since the conflict began. According to data from Galaxy Futures, Iran’s average daily methanol production has fallen from 23,000 tons to around 1,200 tons, a decline of nearly 95%. Compounded by the complete shutdown of SABIC’s 4.7-million-tonne-per-year methanol plant in Jubail, Saudi Arabia, due to force majeure, the global methanol supply shortfall has rapidly widened.

This disruption in production capacity is being swiftly reflected in inventory levels, with stocks in East and South China continuing to deplete rapidly. Market participants report that “the methanol supply shortfall has exceeded 20%, with orders extending into August”, and that in the spot market, “it is not a question of price, but rather that it is simply impossible to buy”.

Iran’s methanol exports to China have contracted significantly. As of late April, data from Yingfu showed that methanol prices had risen by 46% since the start of the year and by 30% year-on-year. Domestic coal-to-methanol plants are operating at full capacity to fill the gap, operating “whenever possible”, but they are still struggling to make up for the shortfall in gas-based production.

III. Sulphur and Titanium Dioxide: With Costs Collapsing, Delivery Has Become the Greatest Risk

China’s reliance on imported sulphur stands at approximately 65% to 70%, with around 56% sourced from five Middle Eastern countries. The blockade of the Strait of Hormuz has effectively ‘severed’ a key global trade route for sulphur. Compounded by production disruptions at major sulphur processing facilities in the Middle East, such as those in Qatar, and Russia’s extension of its sulphur export ban until June 2026, global supply has suddenly tightened.

Prices have reached record highs. Following the outbreak of conflict in late February, sulphur prices started at RMB 4,050 per ton and rose steadily throughout March, with granular sulphur at Yangtze River ports exceeding RMB6,120 per ton by month-end – a monthly increase of nearly 50%. On 6 April, the domestic benchmark price for sulphur hit a record high of RMB 6,700 per ton. Data shows that the average domestic sulphur price in April was approximately RMB 6,400 per ton, a 34% increase month-on-month and a 178% increase year-on-year. Sulphuric acid prices have surged in tandem – according to data from the China Sulphuric Acid Industry Association, the average price of sulphuric acid in China was just RMB 295 per ton in 2024, rising to RMB 605 per ton in 2025, an increase of 105%; by April 2026, the average price of 98% sulphuric acid had exceeded RMB 1,600 per ton, a rise of nearly 130%.

The disruption to sulphuric acid supplies has dealt a direct blow to titanium dioxide production capacity using the sulphuric acid process. Titanium dioxide manufacturers are facing extreme difficulties in procuring raw materials, with some producers still unable to accept new orders. Long Bai Group issued price adjustment notices three times within a single month; by April, titanium dioxide prices had risen for the fourth consecutive time this year, with cumulative domestic price increases reaching RMB 3,200 to 3,500 per ton. A research report by Huachuang Securities noted that raw material costs account for over 60% of the total cost of titanium dioxide, and the industry is generally facing cost inversion.

IV. Ethylene Glycol: April imports fell to 300,000 tons, hitting a low not seen in recent years

Ethylene glycol is a core raw material for the production of polyester resins and is widely used in industrial coatings, powder coatings and other sectors. According to statistics from the General Administration of Customs, total domestic ethylene glycol imports in 2025 amounted to approximately 7.72 million tons, of which 4.226 million tons were imported from Saudi Arabia, accounting for as much as 55 per cent, whilst Middle Eastern sources accounted for approximately 65 per cent of the total.

According to a recent report by Huatai Futures on 29 April, the operating rates of overseas ethylene glycol plants have fallen to low levels, and a significant reduction in imports between April and May is now a foregone conclusion. Some plants and utility facilities in the Middle East have sustained damage, and it will take some time for imports to recover. According to a report by Capital Futures on 28 April, China’s ethylene glycol imports in April are expected to fall to around 300,000 tons, a substantial decline compared to the previous monthly import volume of 600,000 to 700,000 tons. CCF data shows that as of 27 April, inventories at major ports in East China had fallen to 883,000 tons, a month-on-month decrease of 94,000 tons, indicating that the inflection point for port destocking has been reached.

Domestic production facilities are also under pressure. Affected by tight naphtha supplies, the operating rate of ethylene-based ethylene glycol plants has fallen to 53.4%, a 10% decline from early March. Downstream polyester operating rates have seen only a limited decline, leading to strong expectations for ethylene glycol destocking in April and further exacerbating the supply-demand imbalance.

V. Pure Benzene and Styrene: Refinery Output Cuts and Sharp Decline in Imports

Pure benzene is the primary feedstock for coating resins such as styrene, caprolactam and phenol; the entire aromatics chemical chain has suffered a knock-on effect from this crisis.

Following the lockdown, Asian refineries have significantly reduced operating rates due to a shortage of naphtha feedstock, directly leading to a decline in pure benzene supply. Affected by tight overseas supply, foreign companies in South Korea have begun repurchasing shipments of pure benzene previously sold to China; should the strait remain closed, domestic imports of pure benzene are expected to fall sharply.

According to Cailian News, SABIC has declared force majeure on the production of styrene monomer and methanol. It is reported that SABIC’s total styrene production capacity stands at approximately 1.8 million tons. In the early stages of the blockade, the main futures contract for styrene briefly hit the daily price limit and continues to fluctuate at elevated levels.

VI. PPE Resins: Global Production Hubs Shut Down, PCBs Face Critical Raw Material Shortages

In the PCB industry, high-purity polyphenylene ether (PPE) resin has faced the most direct ‘targeted supply disruption’. Following the attack on the Jubail petrochemical complex in Saudi Arabia in early April, SABIC’s production lines—which account for approximately 70% of global high-purity PPE supply—have remained shut down to this day. This material is an indispensable strategic substrate for high-speed copper-clad laminates used in AI servers and 5G base stations.

Meanwhile, the “double blow” inflicted by the blockade on both the PCB and coatings sectors is evident in the case of epoxy resin. According to Reuters, South Korean PCB manufacturer Daeduck Electronics revealed that delivery lead times for chemical materials such as epoxy resin have lengthened from three weeks to 15 weeks, with downstream customers including global electronics giants such as Samsung, SK Hynix and AMD. Epoxy resin is also a core curing agent for coatings, and its price has risen from RMB 14 to 20 per kilogram, an increase of nearly 43%. Copper-clad laminate suppliers such as Taiyo have notified customers that prices for certain products will rise by 20% to 40% from 25 April.

The ‘cross-impact’ of the blockade on both PCBs and coatings is evident in the case of epoxy resins. According to Reuters, South Korean PCB manufacturer Daeduck Electronics has revealed that delivery lead times for chemical materials such as epoxy resins have lengthened from three weeks to 15 weeks, with downstream customers including global electronics giants such as Samsung, SK Hynix and AMD. Epoxy resin is also a core curing agent for coatings, and its price has risen from RMB 14 to 20 per kilogram, an increase of nearly 43%. Copper-clad laminate suppliers such as Taiyo have notified customers that prices for certain products will rise by 20% to 40% from 25 April.

Regarding copper foil and electronic-grade glass fiber cloth, high-end production capacity is highly concentrated, with expansion cycles lasting 18 to 24 months. The shortage is unlikely to ease before 2027, further constraining global PCB production capacity and delivery schedules.

Global chemical supply constraints are not expected to ease before the third quarter of 2026

Even if the US-Iran conflict were to end immediately, it would take until at least 2027 for chemical supplies to return to normal, as even if the Strait of Hormuz were to reopen immediately, raw materials would still face multiple delays before reaching petrochemical cracking plants in Asia or Europe: approximately 30 days for security clearance, around 30 days to clear shipping backlogs, approximately 25 days for transport to Asia or Europe, port congestion of approximately 10 days, and the restart of cracking units taking approximately 45 days, totaling approximately 140 days.

Dow Chemical has stated that the impact is expected to persist well beyond the end of the conflict, with the normalization of the petrochemical supply chain taking approximately 250 to 275 days. Chemical products and raw materials are prioritized behind oil, fuel and fertilizers in the clearance of shipping backlogs in the Strait of Hormuz, facing a double-queue dilemma.

Overall, relief in the supply of chemical products in Europe and Asia is not expected before the third quarter of 2026. This will further drive up chemical prices, exacerbate supply chain disruptions and lead to a deeper contraction in demand.

The impact of rising petrochemical derivative prices on the cost of goods sold for European and American enterprises varies by sector. Calculations indicate that the average increase in the cost of goods sold across all sectors is approximately 11%, but there are significant differences between sectors: the furniture, medical aesthetics and apparel sectors are hardest hit, with increases in the cost of goods sold of 20%, 18% and 15% respectively; the automotive and consumer electronics sectors have risen by 11% and 7% respectively; pharmaceuticals have risen by 10%; food and beverages were less affected, with increases of 3% and 4% respectively. It is worth noting that the above estimates consider only petrochemical price factors and do not yet incorporate the impact of rising costs for other raw materials, logistics and transport, or energy.

As supply chains in Asia are generally shorter, whilst pricing contracts for European and American enterprises are typically based on quarterly, half-yearly or annual cycles, the peak impact on these enterprises is expected to occur in the third or fourth quarter of 2026.

If the flow of chemical raw materials cannot be restored immediately, severe supply chain disruptions and a sharp contraction in demand will no longer be a low-probability scenario; a prolonged blockade of the Strait of Hormuz would mean that the supply shocks affecting the global chemical and manufacturing industries would continue to intensify. Investors need to reassess their investments in the consumer goods, manufacturing, chemical and related supply chain sectors, and make full preparations for the cost pressures and inflation risks that may arise in the second half of 2026.

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