Recent geopolitical narratives have taken on new trends, primarily revolving around two main themes: U.S.-Iran relations and Greenland. Geopolitical tensions between the United States and Iran have escalated significantly: the U.S. State Department issued its highest-level security warning, demanding citizens evacuate Iran immediately and threatening to impose an additional 25% tariff on countries engaging in commercial dealings with Iran. Concurrently, the U.S. military has deployed additional forces to the Middle East and discussed various military strike options, including airstrikes on military facilities. Iran has responded resolutely; its supreme leader has called for domestic unity, the military announced it is on its highest alert status, and warned it would retaliate against U.S. bases and shipping targets if attacked, while also retaining a willingness to resolve the dispute through negotiations. Currently, both sides are in a state of "brinkmanship," where any miscalculation could trigger a conflict.
The tensions between the two countries pose a significant risk of shock to global commodity markets. The extreme scenario most feared by the market is a disruption to navigation through the Strait of Hormuz, which handles approximately 20% of global oil shipments; any interruption could trigger a sharp, spike-like surge in oil prices. Furthermore, Iran is a significant exporter of chemicals such as methanol, liquefied petroleum gas (LPG), and polyethylene. Iranian methanol accounts for nearly half of China's imports (data from SteelHome shows that in the first 11 months of 2025, China imported 814,700 tonnes of methanol from Iran, accounting for 6.42% of total methanol imports). Conflict would directly threaten the supply chains of these related chemical products. Geopolitical risk premiums have already driven prices of safe-haven assets like gold and silver to record highs, with potential spillover effects into metal markets.
Simultaneously, disagreements between the United States and Europe over Greenland are also increasing: on January 17, the U.S. announced it would impose additional tariffs on eight European countries, including Denmark and Germany, to coerce them into accepting the U.S. demand for a "complete acquisition of Greenland." In response, many European nations have explicitly opposed what they term "blackmail" and, at Denmark's invitation, have dispatched symbolic military forces to Greenland to show political support. This geopolitical dispute directly impacts the pricing of critical metals, as Greenland holds approximately 32% of the world's rare earth reserves, along with substantial strategic resources like copper, cobalt, and nickel. On one hand, tensions have increased price volatility for assets like rare earths and silver through safe-haven demand; on the other hand, if the U.S. were to gain actual control of the island and promote resource development in the future, it could potentially reshape the global rare earth supply chain. Even before any supply chain restructuring, various countries might further engage in strategic stockpiling of important metal raw materials.
Another key discussion involves identifying structural opportunities arising from the "reduce oil, increase chemicals" trend. Naphtha, as the "mother of chemicals," is produced through steam cracking units, yielding both olefins and cracked gasoline, the latter being an important source of aromatics. Consequently, the scale of olefin production capacity passively determines the supply base for aromatic feedstocks, creating a typical characteristic of "passive supply." Against this backdrop, the primary trading opportunity focuses on the structural tightness in naphtha supply. The starting point of this logic is the peaking and subsequent decline in global gasoline demand, which directly dampens refineries' enthusiasm for processing crude oil through crude distillation units (CDUs), with naphtha being a by-product of this process. At the same time, domestic refining capacity in China is approaching the policy ceiling, and small, independent refineries—which lack secondary processing capacity and primarily sell naphtha—are being phased out. Meanwhile, state-owned refineries' accompanying chemical facilities mostly consume naphtha internally. The result is that, against the backdrop of continuous chemical capacity expansion, the supply of commercially available naphtha in China will face a long-term bottleneck. This makes ethylene crackers and aromatics units that purchase naphtha externally the critical marginal capacity, whose profit fluctuations will significantly influence the prices of olefins and aromatics.
Based on the above logic, the second trading opportunity focuses on the substitution space created by the global shift in refining and chemical capacity. High-cost, aging refineries in Europe, Japan, and South Korea are undergoing large-scale closures, including many ethylene crackers that use naphtha as feedstock. This exiting capacity恰好 provides market space for China's massive new chemical capacity, fueling discussions about potentially high volatility in future ethylene supply.
Finally, attention must be paid to the impact of main product capacity expansion on by-products. If significant new capacity is added in the future to meet domestic ethylene demand, primarily through steam cracking and coal/methanol-to-olefins (CTO/MTO) routes, these units will co-produce large quantities of propylene. The supply of this propylene is rigid and unaffected by its own profitability, thereby severely squeezing the profit margins of propane dehydrogenation (PDH) units that rely on purchased propane. This pressure will subsequently transmit downstream to products like polypropylene (PP), presenting structurally bearish opportunities.
The third key discussion focuses on commodities where industrial pricing power is temporarily outweighing macroeconomic influences, primarily pulp and domestic soybeans. Regarding pulp, we observe that globally, there is significant new capacity for hardwood pulp, while new capacity for softwood pulp is relatively limited. On the demand side, a stronger Renminbi has fueled a domestic restocking cycle. According to the China Paper Association, global shipments to China from January to November 2025 increased by approximately 9% year-on-year, providing temporary support to global pulp prices. During this process, upstream costs, particularly for wood chips, have risen noticeably, leading upstream pulp mills to potentially pass on these cost increases through price hikes. If future developments clarify the supply bottlenecks for softwood pulp, combined with certain rigid domestic demand, pulp prices are expected to maintain a relatively strong trajectory. We believe the downside potential for the current 05 contract below 5,400 yuan/ton is relatively limited.
Proactive capacity reductions are occurring in North America and Northern Europe. The most significant impact comes from the exit of high-cost capacity in these regions. A landmark event is the permanent closure of Domtar's Crofton facility in British Columbia, Canada, on January 4, 2026, which will directly remove 380,000 tonnes of annual supply of high-quality Northern Bleached Softwood Kraft (NBSK) pulp. Concurrently, a wave of shutdowns is underway in Europe, with Nordic producers having already cut over 500,000 tonnes of NBSK supply in the second half of 2025. For instance, Metsä Group plans market-related downtime at its Rauma mill, while UPM is negotiating potential layoffs and production cuts at its Kaukas, Kymi, and Pietarsaari mills in Finland (with a combined capacity of approximately 1.5 million tonnes/year), adjustments expected to be implemented in the first half of 2026. These actions clearly indicate that high-cost regions are undergoing a painful capacity rationalization amid low-price conditions.
Policy adjustments are also a factor, notably Indonesia's revocation of forest harvesting permits covering over 1 million hectares. In Southeast Asia, forestry policies in Indonesia pose a significant threat to future raw material supply. The government under new President Subianto has revoked forest harvesting permits exceeding 1 million hectares nationwide; combined with previous restrictions, the total affected area reaches 1.5 million hectares. This policy shift stems from a reassessment of over-logging, soil erosion, and the resulting exacerbation of floods, with the Sumatra region having lost 4.4 million hectares of forest since 2001. Although, aside from the PT Toba plant producing dissolving pulp, no large-scale shutdowns have occurred yet, the long-term legislative tightening around timber harvesting directly threatens the wood supply security for numerous pulp mills in South Sumatra, embedding uncertainty into the global hardwood pulp supply chain.
Tight supply of raw wood chips is exacerbating the situation. A structural shortage of fiber raw materials is intensifying supply tightness. In Canada, particularly British Columbia (BC), new U.S. tariffs have led to production cuts or closures at numerous sawmills, leaving pulp mills that rely on residual chips from these sawmills facing fiber shortages. Several sawmills announced accelerated production cuts in BC during Q4 2025. West Fraser recently announced the permanent closure of a medium-sized sawmill (100 Mile House Sawmill, capacity 160,000 board feet) in central BC, located near an operating market pulp mill. Given mortgage rates in North America (likely to remain above 6%) and current tariff policies between the U.S. and Canada, production at sawmills is expected to decline further in the coming months, impacting available wood fiber. Substituting residual chips with whole-log chips would increase pulp mills' cash costs by $50 to $85 per ton, further squeezing their profit margins and increasing the risk of these mills becoming economically unviable.
Regarding domestic soybeans, after a significant previous rally (the main contract rose from a low of around 3,800 yuan/ton to a high near 4,400 yuan/ton), prices in producing areas currently remain high. The core drivers are still the parallel activities of Sinograin depot purchases and signed-order acquisitions, coupled with hoarding sentiment among holders (this year's grassroots sales progress is significantly slower than the same period last year). However, high prices are also dampening purchasing enthusiasm among mid- and downstream enterprises. Recently, producing areas have entered a state of "price without market," with some traders turning to auction markets for restocking. Last week, all lots in two Sinograin two-way auctions were sold, but all sales-direction lots in the second auction transacted at the reserve price. The fading premium for old-crop soybeans also reflects increasingly cautious sentiment among enterprises.
Announcements last Friday from Sinograin's Hongyan branch and Bei'an direct depot stating that this year's purchase tasks have been completed may signal a temporary weakening in the marginal pace of procurement. Simultaneously, downstream soybean product consumption is being suppressed by low-priced meat and egg products, falling costs for imported soybeans, and supply pressure from Russian non-GMO soybeans in the Northeast are all weakening the subsequent restocking intensity for mid- and downstream players. We believe the price peak before the Spring Festival may have been temporarily reached. If the anticipated tapering of reserve purchases materializes after the festival, soybean prices could then face pressure from a concentrated release of social inventories. Nevertheless, attention must also be paid to potential disruptions to the arrival schedule of imported soybeans due to customs clearance policies and the resulting spillover effects on domestic soybean prices.
Futures trading advisory practitioner information: Z0012209.
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