Macro Backdrop
The current U.S.-Iran conflict represents the most severe geopolitical energy crisis since the Cold War. Die Straat van Hormuz, gehuldig as die “globale energie lewenslyn,” is 'n kritieke deurgangsroete vir groot hoeveelhede van die wêreld se ru-olie, vloeibare aardgas (LNG), en Midde-Oosterse chemiese grondstowwe (such as methanol and ethylene glycol).
The primary impacts include supply contraction or disruption, a sharp increase in logistics costs, and a restructuring of the global supply chain. Asian buyers have been forced to look to the U.S. Gulf Coast and Africa for alternative supply sources, which has pushed up premiums for chemical products outside the Middle East and driven a broad upward trend in global chemical prices.
The two-week temporary ceasefire between the U.S. and Iran (effective April 9 through April 25) has primarily led to a temporary dissipation of risk premiums, a pullback in oil prices, and a recovery in shipping and inventory. Over the long term, however, supply deficits, damaged facilities, and trade restructuring will shift the baseline for oil prices upward, while accelerating energy transition and supply chain security initiatives.
Impact on the Energy & Chemical Sector by Product
Crude oil is the ultimate feedstock for the petrochemical and refining industries, and its price fluctuations cascade down to downstream energy and chemical products in the form of costs. In general, products closer to the upstream sector are more heavily influenced by crude oil pricing; as the processing chain extends downstream, the cost share of raw feedstocks decreases.
Based on how fundamental impacts are transmitted through chemical products, the intensity of the impact is ranked from strongest to weakest as follows:
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Most Heavily Impacted: Crude oil, bitumen (asphalt), fuel oil, methanol, LPG, ethylene glycol (MEG).
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Significantly Impacted: Ethylene, propylene, polyethylene (PE), polypropylene (PP).
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Moderately Impacted: Styrene, PX (paraxylene), PTA, pure benzene, ens.
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Minimally Impacted: PVC, urea, ens.
Product Outlook
ek. Crude Oil, Fuel Oil, and Bitumen
Crude Oil
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Logical Analysis:
Obstructions to Middle Eastern spot exports combined with production losses drove both domestic and international oil prices sharply higher. Concurrently, driven by the alignment of deliverable supply, warehouse warrant inventories, and freight costs, SC (Shanghai Crude) absolute prices and near-month structures temporarily surged to extreme highs. Toward the end of the quarter, domestic market sentiment cooled down, causing the spread between SC and international benchmarks to correct downward from previous highs. At the beginning of the second quarter, signs of cooling in the ceasefire negotiations led crude oil to give up part of its geopolitical risk premium.
Absolute crude oil prices are expected to exhibit high volatility overall in Q2. If the breakdown of U.S.-Israel-Iran negotiations keeps Middle East tensions elevated and the Strait of Hormuz remains blocked, the average price of SC may fluctuate within the range of 750–850 RMB/barrel, while Brent may average 105–115 USD/barrel. Conversely, if a practical truce is reached between the U.S. and Iran and the Strait of Hormuz reopens for navigation, the average price of SC may drop to the 550–650 RMB/barrel range, while Brent could descend to 85–95 USD/barrel.
Fuel Oil
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Logical Analysis:
The fundamentals of low-sulfur fuel oil (LSFO) show a tight balance; domestic bonded ship bunkering demand has picked up slightly, while domestic LSFO production remains at low levels. Last year, the Ministry of Commerce issued the first batch of LSFO export quotas for 2026, and market expectations of expanding supply briefly pressured the near-month LU (low-sulfur fuel oil) contract. Subsequently, escalating geopolitical tensions fueled bullish sentiment, causing a reversal in the domestic calendar spread structure. Externally, overseas demand for low-sulfur fuel oil (VLSFO) weakened month-on-month, with cross-regional spreads largely maintaining a premium structure.
Regarding high-sulfur fuel oil (HSFO), the blockade of the Strait of Hormuz disrupted global high-sulfur supply, consequently tightening deliverable spot supply in Asia. Driven by the dual factors of cost-side transmission and tight feedstock supply, the FU5-6 calendar spread widened significantly to over 250 RMB/ton. As both the U.S. and Iran seek to normalize the situation, trading sentiment on the FU contract has undergone adjustments; however, due to the highly speculative nature of this product, it remains heavily influenced by market sentiment, resulting in an ongoing tug-of-war between bulls and bears.
Bitumen (Asphalt)
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Logical Analysis:
The supply of diluted bitumen is tightening, and refiners face restricted procurement channels. They may choose stably supplied Canadian TMX crude as an alternative; however, this oil grade is relatively less economical than prior feedstocks, forcing refinery production costs higher. Some refiners have instead turned to Russian ESPO crude, which requires upgrading corresponding bitumen production units. Against the backdrop of continuously rising feedstock prices, a degree of downside support exists for BU bitumen futures prices.
II. Polyester and Rubber Sectors
PX (Paraxylene)
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Logical Analysis:
Naphtha is the core feedstock for the aromatics and olefins chains. In recent years, alongside the rapid commissioning of private mega-refineries in China and the policy trend of “reducing fuel and increasing chemicals,” China’s naphtha imports have grown year by year, turning the country into a net naphtha importer. In 2025, China’s total naphtha imports reached 16.8317 million tons—a sharp year-on-year increase of 38.6%, setting a historic high. Russia, the UAE, and India ranked as the top three import sources, supplemented by South Korea, Qatar, Kuwait, and Saudi Arabia.
Compared to Japan and South Korea, China’s naphtha market possesses a certain degree of risk resilience. On one hand, China’s import dependency on naphtha was below 20% in 2025, and the continuous advancement of domestic refining-chemical integration means many chemical enterprises possess their own stable naphtha supply channels. On the other hand, China’s naphtha import sources are highly diversified; if Middle Eastern naphtha runs short, shortfalls can be backfilled through countries like Russia and India.
In terms of PX imports, China’s PX import dependency hovers around 20%. Because China’s polyester chain has continuously advanced its integration process in recent years, most existing domestic PX units are configured as supporting facilities for downstream PTA. Imported PX serves as a supplement to domestic supply and acts as a marginal variable on China’s PX supply side. South Korea is China’s largest PX import trading partner, followed by Japan, with the two countries combined accounting for roughly 60% of total imports.
The energy structures of Japan and South Korea are heavily reliant on the Middle East. According to ICIS data, Middle Eastern naphtha accounts for over 70% en 60% of Japan’s and South Korea’s naphtha imports, respectively. Tracing further upstream along the supply chain, approximately 80% of Japanese and Korean oil tankers must pass through the Strait of Hormuz; specifically, over 95% of Japan’s Middle Eastern crude and 70% of South Korea’s imported crude rely on this waterway. Furthermore, refineries in both Japan and South Korea are calibrated for Middle Eastern crude, making it difficult to switch oil sources in the short term. The risk of feedstock supply disruptions, compounded by skyrocketing ocean freight rates and insurance premiums, will deal a major blow to the aromatics industries in Japan and South Korea.
Following the closure of the Strait of Hormuz, Idemitsu Kosan (Japan’s second-largest oil company) slashed its supply of petroleum products, and PX producer ENEOS declared force majeure, slowing down shipment speeds. South Korea’s energy structure is slightly less dependent on the Middle East than Japan’s, but its UAC 1-million-ton unit was shut down due to MX (mixed xylenes) supply issues with plans to remain offline through the end of the month; Korean firms such as Lotte Chemical and LG Chem have already logged losses. If the blockade becomes prolonged, it may lead to a drop in aromatics output and a reduction in PX export volumes from Japan and South Korea, which would in turn create a significant shortfall in China’s PX import supply.
PTA (Purified Terephthalic Acid)
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Logical Analysis:
The price increases of upstream PX feedstocks are being transmitted downstream to PTA. In March, spot processing fees for PTA compressed significantly. Egter, because China’s PTA industry is highly self-sufficient and production capacity is highly concentrated, it has been able to smoothly pass feedstock price increases down to downstream polyester. The compression of PTA processing fees remains manageable and is tracking better than the situation seen in Q3 and Q4 of last year. Some units preemptively lowered operating rates due to feedstock constraints—such as Yisheng New Materials, Fuhuaichuang, and Fujian Billion, involving an annual capacity scale of 14 million tons—but a large number of previously maintained units have also resumed operations. PTA output remains elevated.
In terms of inventory, operating rates for downstream polyester filament yarn remain low while PTA production stays high, maintaining a pattern of accumulation in social inventories of PTA. Entering April, the PX feedstock shortage is set to become more severe than in March. PTA operating levels may be dragged down by PX, exhibiting a synchronized downward trend. Meanwhile, downstream polyester enterprises producing filament and staple fiber will continue to choose to lower operating rates to protect industry profit margins. Looking ahead, the accumulation trend in PTA social inventories may be suppressed, or could even pivot directly into destocking.
PF (Polyester Fiber / Staple Fiber)
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Logical Analysis:
Since the outbreak of hostilities, feedstock prices have risen sharply. To protect profit margins, filament manufacturers have lowered operating rates and implemented self-disciplined production cuts. Filament operating levels have declined continuously since mid-March, while POY and FDY margins have remained high. Moving into April, as geopolitical tensions temporarily eased, downstream buyers—fearing subsequent sharp price rebounds—engaged in moderate restocking. Consequently, weekly production and sales for filament and staple fiber warmed up, halting the accumulation trend of factory inventories. Egter, downstream demand this year has shown no distinct signs of recovery compared to last year, with printing and dyeing operating rates hitting their lowest point in nearly five years. Opportunistic, rigid-demand restocking remains the primary strategy for most downstream textile enterprises.
Butadiene Rubber (BR)
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Logical Analysis:
Butadiene rubber (also known as cis-polybutadiene rubber or BR) is highly dependent on its raw material, butadiene. It is a synthetic rubber material produced via the polymerization of butadiene monomers, with the chemical formula $\text{(C}_4\text{H}_6)_n$. Beyond BR, butadiene is also utilized to produce styrene-butadiene rubber (SBR) and ABS resin, though only BR relies on butadiene as its sole primary monomer. Over 90% of butadiene production processes utilize the C4 extraction method, which isolates and distills the C4 fraction—a byproduct of ethylene cracking units. Therefore, as an ethylene cracking byproduct, the stability of butadiene supply is dictated by ethylene plant operating rates, indirek beperk die kapasiteitsbenutting van butadieenrubber.
In March, winsmarges vir BR het buitengewoon vinnig verswak en was baie ernstiger as historiese norme, negatiewe terugvoer oor BR-aanbod veroorsaak: gedurende die week van April 3, die produksie bruto marge vir BR het tot -12.7%, en bedryfstariewe is gesny van 81.7% voor die V.S.-Israel-Iran-konflik tot by 44.8%. Furthermore, soos die toevoerkant stywer getrek het, lokopryse het versterk, veroorsaak dat die basis van negatief na positief verander. Sowel sosiale as termynbeursvoorraad het begin terugtrek.
III. Poliolefien Sektor
Poliëtileen (PE)
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Logical Analysis:
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Invoervlak: In 2025, China ingevoer 1.13 miljoen ton poliëtileen uit Iran, rekening hou met 8.39% of total imports, wat 'n sekere mate van aanbodafhanklikheid aandui.
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Koste vlak: Plaaslike poliëtileenproduksie is oorwegend op olie gebaseer, verantwoording vir ongeveer 65%; increases in crude oil prices directly drive up production costs.
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Combined Impact: Iran acts as both a source of PE imports and a major exporter of crude oil and methanol. The overlapping transmission of costs and trade yields a highly noticeable impact on this product.
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Polypropylene (PP)
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Logical Analysis:
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Invoervlak: In 2025, China imported only 226,000 tons of polypropylene from Iran. This volume is negligible, meaning the direct supply shock can be discounted.
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Koste vlak: Oil-based polypropylene accounts for about 50% of production. While it will also track crude oil price increases, its cost sensitivity is lower than that of polyethylene.
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Combined Impact: The actual impact on supply is limited; price movements will primarily track crude oil, market sentiment, and fluctuations across the broader polyolefin sector.
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Methanol
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Logical Analysis:
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Market Status: Iran is the world’s second-largest methanol producer and first-largest methanol exporter, playing a monumental role in the global trade landscape.
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Supply Impact: Disruptions to shipping in the Strait of Hormuz will directly trigger a contraction in global methanol supply, arrival delays, and a substantial increase in logistics costs.
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Combined Impact: Methanol is the most directly impacted and highly elastic product under this conflict. It serves both as a key cost variable for polyolefins and as the core beneficiary of geopolitical risk premiums.
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Broad Polyolefins (PE + PP)
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Logical Analysis:
The direct import shock remains weak overall; polyethylene is slightly affected, while polypropylene sees virtually no direct impact. The core upward driver stems from a dual-cost push: rising crude oil costs paired with climbing methanol prices. In the short term, market performance is primarily sentiment-driven, whereas the actual impacts on supply and demand will manifest with a lag, leaving the market highly susceptible to pulse-like price surges.
Summary: Phase-by-Phase Geopolitical Market Evolution
The report emphasizes that for geopolitical risk-driven markets of this nature, sentiment drivers are often stronger than fundamentals. The progression typically unfolds across distinct stages:
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Initial Phase (Extreme Blockade): Panic sentiment escalates and risk premiums surge, potentially driving oil prices above 130 USD/barrel and methanol past 3,500 RMB/ton.
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Stalemate Phase (Demand Negative Feedback): High prices begin to choke off demand, causing downstream industries to cut production, which can lead to larger-than-expected declines in PE/PP.
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Resolution Phase (Supply Overhang): Once the conflict ends, the concentrated release of backlogged and oversupplied volumes will trigger a deep correction in products like methanol.