Bank of America says petrochemical markets have experienced a pronounced spike in prices for feedstocks such as ethylene and propylene, along with many of their downstream derivatives, as the Iran conflict disrupts production and shipping in the Middle East.
The bank points to the closure of the Strait of Hormuz as a central constraint. That closure has curtailed operations at petrochemical plants across the Middle East - a region that represents the worlds third-largest capacity for these materials after China and the United States - and, in many cases, facilities have reported direct damage from attacks during the conflict.
More than half of the regions petrochemical capacity has reported damage tied to the fighting. Even where plants remain intact, operations have been suspended because there is insufficient tanker availability through the Strait of Hormuz to move chemical output, despite many of those facilities relying on domestic feedstocks.
Asia, which accounts for nearly half of global ethylene capacity and about 60% of propylene capacity, has been hit particularly hard. Utilization rates in the region have fallen below 70% as producers reduce runs or temporarily shutter units. Some Asian operations are running below 60% of capacity, which is materially under the approximately 80% utilization level generally viewed as the threshold for economic viability in the sector. The regions dependence on imported feedstocks has exacerbated the downturn in output.
China has performed better relative to other Asian markets by tapping its oil stockpiles. Nevertheless, the country's supply of Iranian condensate and liquids faces potential interruption because of the broader regional upheaval.
European petrochemical utilization rates have also eased, with Bank of America estimating a decline of roughly 3% from pre-conflict levels. The bank notes that tight clean tanker availability has limited the ability to re-route naphtha shipments from Europe to Asia as a substitute source of feedstock.
In contrast, United States petrochemical plants are operating at their strongest levels since 2021, buoyed by abundant domestic feedstock supplies. However, the US faces constraints on export logistics, which reduces the ability of ethane and ethylene produced domestically to fully supply strained global markets.
Across regions, polyethylene and polypropylene margins in the US and Europe have risen since the conflict began, while producers in Asia confront greater margin pressure. The Strait of Hormuz has remained closed for more than two months, and Bank of America projects that petrochemical margins will remain elevated through at least the end of the year as the industry addresses the operational and logistical fallout.
Implications
- Supply disruptions and tanker shortages are constraining flows of key petrochemical feedstocks globally.
- Regional divergences are widening: the US is relatively strong on feedstock availability but limited by export capacity; Asia is seeing sharp utilization declines; Europe faces modest drops and rerouting limits.
- Market margins have risen in the US and Europe and are expected to remain elevated as recovery of disrupted capacity proceeds.