Why is the current situation in the Middle East having such a major impact on the price of plastics, why are different regions being affected in different ways, and what happens if the situation escalates? Markets reporter Sam Lovatt, senior analyst Helen McGeough and the ICIS Analytics team investigate.
Please could you explain how the crisis in the Strait of Hormuz is affecting plastic prices?
Global chemical prices are surging at their fastest pace in nearly two decades as the war in Iran disrupts production flows across the Middle East and Asia, raising the risk of supply shortages for Europe from April onwards. ICIS data shows that prices for key petrochemical building blocks have risen more sharply than at any time since 2007.
The crisis is triggering structural shifts across the petrochemical and plastics value chain. A premium for secure energy and chemical supply is emerging, likely to keep chemicals and plastics prices elevated through 2026. Higher crude oil and LNG-linked gas prices will further undermine the cost competitiveness of Asian and European producers, accelerating potential plant shutdowns.
Europe is already seeing acute impacts. In polyethylene (PE), spot prices have doubled at the low end since late February, with LDPE prices now exceeding levels seen during the 2022 Russia–Ukraine crisis and moving towards historical highs.
Why is the crisis having such a large impact? And why are the impacts being felt differently in different parts of the world?
The war is driving strong upward pressure on global chemical prices, with Asia particularly exposed and to a lesser degree Europe, as Middle East supply is disrupted and energy costs rise, further lifting prices while weighing on downstream demand.
Regional differences in impact depend on exposure to the disrupted markets. South Korea, for example, sources 73% of its naphtha and 69% of its crude from the Middle East and has been particularly badly hit by feedstock tightness.
China, meanwhile, is largely self-sufficient in many chemicals such as PP. Chinese PP spot prices have risen far less than equivalent prices in Europe, which imports a lot of PP. China has also built-up large reserves of crude oil so is less exposed to global shortages affecting refineries and downstream chemical plants elsewhere in Asia.
Export flows from the Middle East are being curtailed as producers struggle to ship through the Strait of Hormuz, meaning some Asian producers face feedstock shortages. More than 80% of Middle East polyethylene (PE) export capacity depends on the Strait, excluding additional inland transport from eastern Saudi Arabia to western ports.
The Middle East is a key global exporter of PE, ethylene glycol (EG) and polypropylene (PP). Overall, the Middle East exports nearly three-quarters of its PE production with key importers including southeast Asian countries, the EU and India. The US, exporting around half of its PE output, is well positioned to partially offset supply shortfalls in Europe and Asia through higher exports.
A multitude of potential outcomes are currently on the cards – things may even escalate. What effect would this have on plastic prices?
Put simply, the longer the conflict lasts, the longer and more complex the recovery will be. Restarting the full value chain will be challenging; facilities will require repairs and rebuilding, shipping and logistics networks will need to reset, and operating rates are likely to remain subdued for an extended period. If energy costs stay high, the cost of European plastics production will stay high too.
It is clear the recovery will outlast the duration of the war itself. If the disruption were to persist for three months, the recovery could take as long as nine months.
Elevated prices will persist throughout this recovery phase, with pricing dynamics shifting unevenly as availability improves at different stages of the supply chain.
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