Petrochemical supply flows from the Middle East during the second half of the year are contingent on shipping bottlenecks, much of which will depend on how the conflict between the United States and Iran develops. But market participants said there was unlikely to be a quick return to pre-war trade flow levels for most chemicals originating in the Middle East, as the economics of global trade change.
While there is likely to be a rise in supply options as transit through the Strait of Hormuz remains open, a longer period of delivery uncertainty could make supply options from the Middle East unattractive, market participants said. A trade source said that Indian importers are still seeking clarifications from their banks regarding purchases from Iran.
“There have been reports of damage to facilities in the area,” an India-based buy-side market participant said. “Potential production disruption is unknown.”
Buyers and sellers will likely bear the financial cost of the damages for a few months, the buyer said.
Separately, market participants said whether Chinese-origin exports – of methanol, polypropylene and polyethylene, among others that have filled the gap amid the conflict – remain attractive in terms of prices and delivery timelines during the second half will be an important factor to watch.
China is advancing in the vacuum
China has shifted from its traditional role as a net importer to a swing regional supplier, especially for styrene and methanol. This dynamic is expected to continue through the second half of 2026, although the depletion of coastal stocks may eventually constrain the volume of spot cargoes available for export.
Chinese market participants remain broadly uninterested in imported supplies, according to China-based end-users and traders, even as coastal stocks continue to decline, well below the typical range of 900,000 to 1.1 million metric tons. Internal production compensates for this, as domestic methanol operating rates have risen sharply since the beginning of the conflict. Methanol buyers and traders said regular trade flows from Trinidad and Tobago, Southeast Asia, Chile, Russia, Oman and Venezuela should keep Chinese supply fundamentals balanced in the absence of Iranian methanol, which makes up about 50% of China’s total annual methanol imports.
Taiwan faces the greatest vulnerability among buyers in Northeast Asia. Taiwan obtains a significant share of its methanol from Saudi Arabia under fixed-term contracts, leaving it structurally deficient in the current environment. Re-exports from mainland China provided partial relief, but were not enough to fully compensate for the loss of non-sanctioned Middle East supplies.
Southeast Asia is relatively less exposed, with Saudi molecules representing about 10% of the total regional demand for methanol. While the market faces additional upside risks from planned shifts and unplanned outages across the region, Chinese export shipments are expected to partially cap the upside.
In the polymer space, China has become a major new exporter of polypropylene due to rapid capacity expansion and slowing domestic demand growth.
A major part of this shift can be attributed to China’s raw materials strategy. Faced with volatile naphtha and the availability of imported feedstocks, China has expanded coal-to-olefins conversion rates. Operating rates have reached 100% for some CTO producers, market participants said. CTO producers have also benefited from lower costs compared to crackers and propane dehydrogenation plants.
However, China’s export competitiveness is now being tested. Vietnam has emerged as one of the most competitive PP suppliers in Asia, with raw material levels recovering in the region. Weak consumer demand for PP finished goods also led to oversupply in Southeast Asia, resulting in lower export prices in Vietnam.
Overall, China has become a major exporter of PP through disruptions in Middle Eastern production, diversification of raw materials, and recovery of shipping routes. However, the strength of its exports will depend on whether it is able to compete with Vietnam and the Middle East while maintaining cost-effective access to global markets.
Shipping bottlenecks
Market participants said the closure of the Strait of Hormuz prompted producers to transport materials to ports operating in other parts of the region.
Another sell-side source based in the Middle East said: “The rise in road freight has increased the cost of materials, as large quantities of them were under contract and were canceled due to long sailing times.”
While there is an expectation that a large amount of material, already backlogged at ports, could be sold as distressed cargo, market participants expect shipping companies to continue to charge additional risk charges amid prolonged uncertainty over the truce. This could keep prices of chemicals originating in the Middle East high for an extended period in the second half, prompting buyers to look for other sources of imports, they said.
Separately, a trade source said that non-sanctioned shipowners were refraining from carrying cargo of Iranian origin due to fears of sanctions or defaulting on payments.
For polymer producers, one concern is the liquidation of inventories that built up at alternative ports in the Middle East during the closure of the Strait of Hormuz.
“Producers paid additional ground freight charges to transport materials to ports operating during the war,” the first sell-side source said. “Their liquidation from those alternative ports, where sailing times are longer, is an additional concern.”
Market participants said that even if the Strait of Hormuz remains open and hostilities between the United States, Iran and Israel subside, traders estimate that it will take three months before shipping returns to normal, and that petroleum products will take priority over chemicals in any resumption of flows.
As US-Iran tensions rise, the closure of the Strait of Hormuz is once again in focus, and concerns over shipping delays, prioritization of crude oil and bases to pass through Hormuz and continued rising raw material costs are likely to be among the factors that market participants will be closely monitoring in the second half of 2026.
source: Platts
