Escalating Middle East conflicts and disruptions in the Strait of Hormuz are transforming a geopolitical crisis into a systemic supply shock for the worldwide chemical industry.
According to a March 13 force majeure tracking report from Morgan Stanley, since the outbreak of the Iran conflict, force majeure declarations for major global chemical products have shown a chain reaction spreading across regions and product categories. Core products affected include ethylene, propylene, polyethylene, polypropylene, PVC, and liquefied natural gas (LNG). The impacted companies span numerous countries and regions, including China, Japan, South Korea, Singapore, Indonesia, Poland, Germany, Kuwait, Saudi Arabia, and Qatar.
Spot markets have reacted swiftly. North American ethylene spot prices rose 24.0% compared to the final week of February, North American propylene increased by 12.8%, and North American polypropylene spot prices surged by 25.0%.
Morgan Stanley highlighted that feedstock availability is currently the most critical bottleneck. Should the conflict persist and the Strait of Hormuz remain impassable long-term, operating rates in the Middle East and Asia could decline further. Even for companies that have not formally declared force majeure, actual production losses are expected to continue widening.
Olefins and Feedstocks: The First Wave of Force Majeure The olefins supply chain has been hardest hit in this wave of declarations. As of March 12, Morgan Stanley's report indicates that 3.9% of global ethylene capacity and 3.2% of global propylene capacity are under force majeure, both figures representing an increase of approximately 1.7 percentage points from tracking data on March 6.
Regionally, the impact is most concentrated in Southeast Asia and Central Europe. A significant 20.4% of Southeast Asia's ethylene capacity is affected, while the figure reaches 60.2% for Central Europe.
Specific declarations include Formosa Petrochemical, which declared force majeure at its Mailiao olefins unit on March 9. This was attributed to naphtha supply disruptions caused by the escalating Middle East conflict, affecting approximately 2.93 million tons per year of ethylene capacity and 2.43 million tons per year of propylene capacity, with all production facilities operating at minimum capacity. Singapore's Aster Chemicals and Energy declared force majeure on March 6, impacting 1.15 million tons/year of ethylene, 500,000 tons/year of propylene, and 290,000 tons/year of benzene, citing severe disruptions to maritime transport through the Strait of Hormuz that forced cracker operating rates down to around 50%. Thailand's Rayong Olefins, Singapore's PCS, and South Korea's Yeochun NCC (YNCC) also declared force majeure, all pointing to受阻 naphtha or propane procurement.
In Europe, Germany's OMV declared force majeure at its Burghausen facility due to technical issues at a crude distillation unit, affecting 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 at Plock for 700,000 tons/year of ethylene, 385,000 tons/year of propylene, and 70,000 tons/year of butadiene, though the specific reason and operating rates remain unclear.
Polyolefins and Downstream Polymers: Supply Chain Breaks Spread Downstream Force majeure declarations are rapidly propagating downstream along the supply chain. Morgan Stanley's report states that 1.4% of global polyethylene (PE) capacity and 1.0% of global polypropylene (PP) capacity are now under force majeure, increases of 0.8 and 1.0 percentage points, respectively, from the previous tracking period.
Taiwan's Formosa Plastics declared force majeure for petrochemical products on March 12, citing shortages of key feedstocks like ethylene and propylene combined with logistics delays from the Strait of Hormuz blockade. Morgan Stanley estimates this affects approximately 970,000 tons/year of PE capacity in Northeast Asia. LyondellBasell declared force majeure for polyolefin sales through its European subsidiaries Basell Sales & Marketing Company and Rotterdam Olefins & Polyolefins, citing market uncertainty and feedstock procurement difficulties stemming from the Middle East conflict. However, Morgan Stanley believes contractual terms and protections under Dutch civil law may limit the actual production impact. Singapore's The Polyolefins Company (TPC) also declared force majeure, stating that its upstream supplier PCS was impacted by the Strait of Hormuz situation, forcing multiple production lines to shut down, affecting roughly 270,000 tons/year of PE and 625,000 tons/year of PP.
Indonesia's PT Chandra Asri Pacific Tbk declared force majeure on March 2 for 755,000 tons/year of PE and 590,000 tons/year of PP, again attributing it to disruptions in maritime transport and feedstock distribution caused by the security situation in the Strait of Hormuz.
On spot prices, North American PE spot prices rose an average of 15.1% from the last week of February, while North American PP prices jumped 25.0%. In Western Europe, PE prices increased 8.6% and PP prices rose 7.1%.
Chlor-Alkali and Vinyls: Concentrated Declarations by Chinese Firms The chlor-alkali and vinyl product chains represent the area with the most concentrated participation by Chinese companies in this wave of force majeure. According to Morgan Stanley's report, 5.2% of global PVC capacity is now under force majeure, along with 5.4% of VCM, 6.4% of EDC, and 1.4% of caustic soda capacity. These figures represent new additions in the current tracking period.
Tianjin Bohua Chemical Development declared force majeure on March 11, affecting 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. The company stated that upstream feedstock suppliers had formally declared force majeure due to the Middle East conflict, causing severe and sudden disruption to its own production and operations. Tianjin LG Bohai declared force majeure on March 10, impacting 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, citing feedstock supply interruptions from the Strait of Hormuz blockade, with production to be gradually reduced.
Formosa Plastics also declared force majeure within the chlor-alkali chain, with Morgan Stanley estimating impacts on approximately 1.792 million tons/year of EDC, 1.64 million tons/year of VCM, and 1.19 million tons/year of PVC. Indonesia's Sulfindo Adiusaha declared force majeure on March 9, affecting 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. Europe's INEOS Inovyn also declared force majeure for PVC exports to its customers.
LNG and Other Products: Middle East Production Directly Impacted Production facilities within the Middle East are suffering direct impacts, with the LNG supply chain particularly hard hit. QatarEnergy declared force majeure on March 2 for its entire 77.4 million tons per year LNG operations at Ras Laffan Industrial City, following a halt in production after the industrial city was attacked. India's Petronet LNG subsequently declared force majeure for LNG receipts on March 5, echoing its supplier QatarEnergy's declaration.
Kuwait's EQUATE declared force majeure for 1.15 million tons/year of ethylene glycol (EG), citing cargo distribution disruptions from the closure of the Strait of Hormuz, with its EG-2 unit already idled. Saudi Arabia's Sadara Chemical Company declared force majeure for 180,000 tons/year of ethanolamines and 200,000 tons/year of glycol ethers, with the duration dependent on the lifting of shipping restrictions in the Strait of Hormuz. Bahrain Petroleum Company (BAPCO) declared force majeure for approximately 379,800 tons of Group I base oils following an attack on its refinery complex. Kuwait's The Kuwait Styrene Company (TKSC) declared force majeure for roughly 525,000 tons of styrene monomer.
Morgan Stanley cautioned that, given the highly fluid conflict situation, this tracking may not capture all ongoing production stoppages. Investors are advised to continue monitoring the situation's evolution and its potential for further impacts on the global chemical supply chain.
Comments