The Middle East is causing a "force majeure" in the global chemical industry.

The ongoing escalation of the Middle East conflict is causing disruptions in the Strait of Hormuz, turning a geopolitical crisis into a systemic supply shock for the global chemical industry. According to trading sources, Morgan Stanley's latest force majeure tracking report released on March 13 shows that since the outbreak of the Iran conflict, force majeure declarations for major chemical products globally have spread across regions and categories, affecting core categories such as ethylene, propylene, polyethylene, polypropylene, PVC, and liquefied natural gas, impacting 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 - with North American ethylene spot prices increasing by 24.0% in the last week of February, North American propylene increasing by 12.8%, and North American polypropylene spot prices soaring by 25.0%. Morgan Stanley points out that the availability of raw materials is currently the most critical bottleneck. If the conflict continues and the Strait of Hormuz remains impassable for an extended period, the operating rates in the Middle East and Asia may further decline. Even if some companies have not formally declared force majeure, actual production capacity losses are expected to continue to expand. Olefins and raw materials: The first wave of impact from the force majeure wave The olefins industry chain is the hardest-hit area in this round of force majeure declarations. According to the Morgan Stanley report, as of March 12, 3.9% of global ethylene production capacity and 3.2% of propylene production capacity were in a force majeure state, an increase of about 1.7 percentage points from the tracking data on March 6. In terms of regional distribution, the impact is most concentrated in Southeast Asia and Central Europe. The proportion of affected ethylene production capacity in Southeast Asia is as high as 20.4%, and in Central Europe, it is 60.2%. Specific declarations include Formosa Petrochemical announcing on March 9th that its Mailiao olefins department is in a force majeure state due to interruptions in naphtha supply from the Middle East conflict, affecting around 2.93 million tons per year of ethylene production capacity and 2.43 million tons per year of propylene production capacity. Several other companies in different countries have also announced force majeure declarations. Polyolefins and downstream polymers: Supply chain disruptions spreading downstream Force majeure declarations are rapidly spreading downstream along the industry chain. According to the Morgan Stanley report, 1.4% of global polyethylene (PE) production capacity and 1.0% of polypropylene (PP) production capacity are in a force majeure state, an increase of 0.8 and 1.0 percentage points, respectively, from the previous tracking period. Taiwan's Formosa Plastics announced on P...