The escalating conflict in the Middle East and the obstruction of the Strait of Hormuz are transforming a geopolitical crisis into a systemic supply shock for the global chemical industry. According to a latest Force Majeure Tracking Report released by Morgan Stanley on March 13, since the outbreak of the Iran conflict, force majeure declarations for major global chemical products have shown a chain reaction spreading across regions and categories. This involves core products such as ethylene, propylene, polyethylene, polypropylene, PVC, and liquefied natural gas, affecting companies in China, Japan, South Korea, Singapore, Indonesia, Poland, Germany, Kuwait, Saudi Arabia, Qatar, and other countries and regions.
The spot market has already reacted. 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 pointed out that feedstock availability is currently the most critical bottleneck. If the conflict persists and the Strait of Hormuz remains impassable long-term, operating rates in the Middle East and Asia could decline further. Even if some companies have not officially declared force majeure, actual capacity losses are expected to continue widening.
**Olefins and Feedstocks: The First Wave of the Force Majeure Surge** The olefins industry chain has been the hardest hit by this wave of force majeure declarations. According to the Morgan Stanley report, as of March 12, 3.9% of global ethylene capacity and 3.2% of global propylene capacity were under force majeure, both increasing by approximately 1.7 percentage points from the March 6 tracking data. Regionally, the impact is most concentrated in Southeast Asia and Central Europe. Affected ethylene capacity in Southeast Asia reached 20.4%, while in Central Europe, the figure was as high as 60.2%.
Specific declarations include Formosa Petrochemical announcing force majeure for its Mailiao olefins unit on March 9, citing naphtha supply disruptions due to the escalated Middle East conflict. This involves approximately 2.93 million tons/year of ethylene capacity and 2.43 million tons/year of propylene capacity, with all production facilities operating at minimum capacity. Singapore's Aster Chemicals and Energy declared force majeure on March 6, affecting 1.15 million tons/year of ethylene, 500,000 tons/year of propylene, and 290,000 tons/year of benzene, due to severe disruptions in maritime transport through the Strait of Hormuz causing feedstock supply issues, forcing cracker operating rates down to about 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. Germany's OMV declared force majeure at its Burghausen facility due to technical issues with 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 for 700,000 tons/year of ethylene, 385,000 tons/year of propylene, and 70,000 tons/year of butadiene at Plock, though the specific reason and operating rate remain unclear.
**Polyolefins and Downstream Polymers: Supply Chain Disruptions Spread Downstream** Force majeure declarations are rapidly spreading downstream along the supply chain. According to Morgan Stanley's report, 1.4% of global polyethylene (PE) capacity and 1.0% of global polypropylene (PP) capacity are now under force majeure, increasing by 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 affected PE capacity in Northeast Asia is approximately 970,000 tons/year. LyondellBasell declared force majeure for polyolefin sales by 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 the actual production impact is relatively limited due to contract terms and protections under Dutch civil law. Singapore's The Polyolefins Company (TPC) also declared force majeure, stating its upstream supplier PCS was impacted by the Strait of Hormuz situation, forcing multiple production lines to shut down, involving approximately 270,000 tons/year of PE and 625,000 tons/year of PP. Indonesia's PT Chandra Asri Pacific Tbk declared force majeure for 755,000 tons/year of PE and 590,000 tons/year of PP on March 2, also attributing it to disruptions in maritime shipping and feedstock distribution caused by the security situation in the Strait of Hormuz.
Spot price-wise, North American PE spot prices rose an average of 15.1% compared to the final week of February, while North American PP prices surged 25.0%. In Western Europe, PE prices increased by 8.6% and PP prices by 7.1%.
**Chlor-Alkali and Vinyls: Concentration of Chinese Company Declarations** The chlor-alkali and vinyl product chain is the sector with the highest concentration of force majeure declarations from Chinese companies in this wave. According to Morgan Stanley's report, 5.2% of global PVC capacity, 5.4% of VCM capacity, 6.4% of EDC capacity, and 1.4% of caustic soda capacity are now under force majeure, with these figures representing 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 officially declared force majeure due to the Middle East conflict, causing severe sudden disruptions to its own production and operations. Tianjin LG Bohai declared force majeure on March 10, affecting 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 disruptions 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 customers.
**LNG and Other Products: Middle East Production Bears the Brunt** Production facilities within the Middle East are directly impacted, with the LNG supply chain suffering particularly severe blows. QatarEnergy declared force majeure for its entire 77.4 million tons/year LNG operations at Ras Laffan Industrial City on March 2, 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 end date 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 III base oils after its refinery complex was attacked. Kuwait's The Kuwait Styrene Company (TKSC) declared force majeure for approximately 525,000 tons of styrene monomer.
Morgan Stanley noted that given the highly fluid conflict situation, this tracking may not capture all ongoing production halts, and investors need to continuously monitor the situation's evolution for further impacts on the global chemical supply chain.
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