The Middle East is triggering a "large-scale force majeure" in the global chemical industry.

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The escalating Middle East conflict and disruptions in the Strait of Hormuz are turning a geopolitical crisis into a systemic supply shock for the global chemical industry.

According to Fengchasing Trading Desk and Morgan Stanley’s latest force majeure tracking report released on March 13, since the Iran conflict broke out, global force majeure declarations in major chemical products have shown a cross-regional and cross-category chain reaction, involving core products such as ethylene, propylene, polyethylene, polypropylene, PVC, and liquefied natural gas (LNG), and affecting companies in China, Japan, South Korea, Singapore, Indonesia, Poland, Germany, Kuwait, Saudi Arabia, Qatar, and other countries and regions.

The spot market has been the first to react—North American ethylene spot prices rose 24.0% compared to the last week of February, North American propylene increased by 12.8%, and North American polypropylene spot prices surged by 25.0%.

Morgan Stanley notes that the availability of raw materials is currently the most critical bottleneck. If the conflict persists and the Strait of Hormuz remains blocked for an extended period, operating rates in the Middle East and Asia may decline further; even if some companies have not officially declared force majeure, actual lost capacity will continue to expand.

Olefins and Raw Materials: The First Wave of Force Majeure Impact

The olefin industry chain is the hardest hit in this round of force majeure declarations. According to Morgan Stanley’s report, as of March 12, 3.9% of global ethylene capacity is under force majeure, propylene is at 3.2%, both increasing by about 1.7 percentage points compared to the March 6 tracking data.

Regionally, the impact is most concentrated in Southeast Asia and Central Europe. In Southeast Asia, 20.4% of ethylene capacity is affected, while in Central Europe the proportion reaches 60.2%.

Specifically, Formosa Petrochemical announced on March 9 that its Mailiao Olefins division has entered force majeure status due to supply interruptions of naphtha caused by escalating Middle East conflict, involving approximately 2.93 million tons/year of ethylene capacity and 2.43 million tons/year of propylene, with all production facilities running at minimum capacity. Singapore’s Aster Chemicals and Energy declared force majeure on March 6, involving 1.15 million tons/year of ethylene, 500,000 tons/year of propylene, and 290,000 tons/year of benzene, due to severe disruption of feedstock supply from shipping obstacles in the Strait of Hormuz, with cracker plant operating rates dropping to about 50%. Thailand’s Rayong Olefins, Singapore’s PCS, and South Korea’s Yeochun NCC (YNCC) also announced force majeure, all citing problems in procuring naphtha or propane.

In Germany, OMV announced force majeure at its Burghausen unit due to technical problems at the crude distillation unit, involving 485,000 tons/year of ethylene, 225,000 tons/year of propylene, and 70,000 tons/year of butadiene. Poland’s Orlen declared force majeure for 700,000 tons/year of ethylene, 385,000 tons/year of propylene, and 70,000 tons/year of butadiene in Plock, though the reasons and operating rates remain unclear.

Polyolefins and Downstream Polymers: Supply Chain Breakdowns Impact Downstream

Force majeure declarations are quickly transmitting downstream along the industry chain. According to Morgan Stanley’s report, 1.4% of global polyethylene (PE) capacity and 1.0% of polypropylene (PP) capacity are currently under force majeure, up 0.8 and 1.0 percentage points, respectively, from the previous tracking period.

Formosa Plastics in Taiwan announced force majeure on petrochemical products on March 12, due to shortages of key raw materials such as ethylene and propylene compounded by logistics delays caused by the blockade of the Strait of Hormuz. Morgan Stanley estimates about 970,000 tons/year of Northeast Asia PE capacity are affected. LyondellBasell declared force majeure on polyolefin sales for its European subsidiaries Basell Sales & Marketing Company and Rotterdam Olefins & Polyolefins, citing market uncertainty and difficulties in procuring raw materials due to the Middle East conflict, but Morgan Stanley believes their contract terms and Dutch civil law provide relative protection limiting the actual production impact. Singapore’s The Polyolefins Company (TPC) also declared force majeure, stating its upstream supplier PCS was affected by the Strait of Hormuz situation, forcing multiple production lines to shut down, involving about 270,000 tons/year of PE and 625,000 tons/year of PP.

Indonesia’s PT Chandra Asri Pacific Tbk announced force majeure on March 2 for 755,000 tons/year of PE and 590,000 tons/year of PP, also due to disruption of maritime and raw material deliveries caused by security issues in the Strait of Hormuz.

In terms of spot prices, North American PE spot prices were up 15.1% on average from the last week of February, North American PP up 25.0%; Western European PE up 8.6%, and Western European PP up 7.1%.

Chlor-Alkali and Vinyl Products: Chinese Companies Concentrate Force Majeure Declarations

The chlor-alkali and vinyl product chain is where Chinese companies are most heavily involved in this round of force majeure declarations. According to Morgan Stanley, 5.2% of global PVC capacity, 5.4% of VCM capacity, 6.4% of EDC capacity, and 1.4% of caustic soda capacity are under force majeure, all increases in this tracking cycle.

Tianjin Bohua Chemical Development declared force majeure on March 11, involving 905,000 tons/year of caustic soda, 1.5 million tons/year of EDC, 1.29 million tons/year of VCM and 1.37 million tons/year of PVC, citing that upstream raw material suppliers have officially declared force majeure due to the Middle East conflict, causing its own production and operations to face severe sudden interruption. Tianjin LG Bohai declared force majeure on March 10, involving 280,000 tons/year of caustic soda, 640,000 tons/year of EDC, 350,000 tons/year of VCM, and 400,000 tons/year of PVC, with disruptions attributed to feedstock supply interruptions caused by the Strait of Hormuz blockade, and production will be gradually reduced.

Formosa also declared force majeure in the chlor-alkali chain, with Morgan Stanley estimating about 1.792 million tons/year of EDC, 1.64 million tons/year of VCM, and 1.19 million tons/year of PVC affected. Sulfindo Adiusaha of Indonesia declared force majeure on March 9, involving 336,000 tons/year of caustic soda, 370,000 tons/year of EDC, 130,000 tons/year of VCM, and 110,000 tons/year of PVC. European INEOS Inovyn also declared force majeure on PVC for export customers.

LNG and Other Products: Middle East Local Production Takes the Brunt

Middle East local production facilities have been directly hit, with the LNG supply chain particularly hard-hit. QatarEnergy declared force majeure on March 2 for its whole 77.4 million tons/year LNG business based in Ras Laffan Industrial City, after production was halted following an attack on the city. India’s Petronet LNG subsequently declared force majeure on LNG receipts on March 5, in response to QatarEnergy’s declaration.

Kuwait’s EQUATE declared 1.15 million tons/year of ethylene glycol (EG) under force majeure, due to shipping interruptions caused by the closure of the Strait of Hormuz, with the EG-2 plant already suspended. Saudi Arabia’s Sadara Chemical Company declared force majeure for 180,000 tons/year of ethanolamine and 200,000 tons/year of glycol ethers, with the end date dependent on removal of shipping restrictions at the Strait of Hormuz. Bahrain Petroleum Company (BAPCO) declared force majeure for around 379,800 tons of three categories of base oils after its refining complex was attacked. Kuwait Styrene Company (TKSC) declared around 525,000 tons of styrene monomer under force majeure.

Morgan Stanley points out that given the highly fluid conflict situation, the above tracking may not cover all ongoing production shutdowns, and investors need to continue monitoring the evolving situation and its further impact on the global chemical supply chain.

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The above highlights are from Fengchasing Trading Desk.

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