Special Report: Polymer Prices Surge Amid Iran War.

Introduction

The global polymer market is entering a period of extreme price volatility, with prices rising daily as the ongoing conflict involving Iran disrupts global energy and petrochemical supply chains.

What was once described as a “once-in-a-century” disruption is now becoming a recurring reality, following COVID-19 and the war in Ukraine. However, the current situation may prove even more severe.

Iran War Disrupting Global Polymer Supply

At the centre of the current crisis is disruption around the Strait of Hormuz, one of the most important trade routes in the world for oil, gas and petrochemical feedstocks.

This is having a direct and immediate effect on both availability and price.

Middle East Supply Disruption Is Affecting Global Markets

The Middle East is a major supplier of polymers and polymer feedstocks into Europe and Asia, particularly for materials such as HDPE and Polypropylene.

The impact is both direct and indirect:

• Direct disruption to polymer exports from the region
• Indirect disruption to raw materials such as naphtha and other oil-derived feedstocks

Why Polymer Prices Are Rising So Fast

Polymer pricing ultimately comes down to supply and demand. Right now, both sides of the equation are under pressure.

• Supply is restricted and uncertain
• Demand remains high because buyers are prioritising security of supply

In practical terms, this means the market is currently being driven more by availability than affordability. Buyers are continuing to place orders because they are concerned about securing material, not because prices are attractive.

Feedstock Crisis: Naphtha Prices Driving Costs Up

One of the clearest examples of the current pressure is naphtha, a key raw material in polymer production. Spot pricing has moved quickly.

• End of February: $576 per tonne
• Mid-March: $893 per tonne
• Increase: 55%

That increase is feeding directly into the cost of producing monomers and, ultimately, finished polymers.

Europe: Capacity Exists, But Raw Materials Are Limited

Europe technically has spare production capacity, having operated at relatively low run rates for some time. However, the issue is not simply plant availability, it is access to the raw materials needed to increase output.

Two major crackers in Europe (Shell and SABIC) are taking significant capacity offline over the next two months. This represents the temporary loss of approximately:

• 1.5 million tonnes of annual ethylene capacity
• 900,000 tonnes of annual propylene capacity

Spot monomer prices are trading at a significant premium over contract prices, with one ethylene trade reported at an 82% increase over the contract price.

Asia Facing the Most Severe Shortages

Asia is particularly vulnerable because of its dependence on Middle Eastern feedstocks.

To take one example, South Korea sources around 60% of its naphtha from the region and around 80% of its oil supply from the same area.

Current estimates suggest Asia could be missing around 1 million tonnes of ethylene in April. At the time of reporting, there were also said to be:

• 28 cracker shutdowns or reduced operating rates across Asia
• Around 35 force majeures across Asia and the Middle East

This represents a significant reduction in the global capacity available to produce polymers.

US Production Is Increasing—But Prices Are Still Rising

There is some positive news in that the United States is less dependent on Middle Eastern feedstocks and is ramping up production. However, that does not necessarily mean lower prices for European buyers.

Reports suggest US suppliers are still looking at price increases in the region of £500–£600 per tonne for products such as polyethylene next month.

In a tight global market, additional supply is likely to go to the highest bidder, which means increased US production alone is unlikely to stabilise European pricing.

Could This Be Worse Than COVID?

Comparisons with the COVID period are understandable, but in some respects this situation may prove even more difficult.

• There is no clear sign of a rapid resolution to the conflict
• Supply chain disruption is likely to continue for months, even after any ceasefire
• Energy, feedstock and logistics pressures are all hitting at the same time

For polymer buyers, the outlook remains highly uncertain, and the market is expected to stay volatile for the foreseeable future.

What Polymer Buyers Should Do Now

In the current environment, businesses need to take a proactive approach to procurement and supply planning.

• Secure supply early wherever possible
• Maintain close contact with suppliers
• Prepare for continued volatility in both price and availability

As a stockist, Plastribution will continue to do everything possible to keep customers supplied and informed as the market develops.