Middle East Triggers Widespread Force Majeure In Global Chemical Industry

The escalating Middle East conflict is turning a geopolitical crisis into a systemic supply shock for the global chemical industry as the Strait of Hormuz becomes obstructed.

According to Zhuifeng Trading Desk, according to the latest "Force Majeure Tracking Report" released by Morgan Stanley on March 13, since the outbreak of the Iran conflict, force majeure declarations for major chemical products globally have shown a chain reaction across regions and product categories. The situation involves core products such as ethylene, propylene, polyethylene, polypropylene, PVC, and liquefied natural gas, affecting companies across multiple countries and regions, including China, Japan, South Korea, Singapore, Indonesia, Poland, Germany, Kuwait, Saudi Arabia, and Qatar.

The spot market has already reacted first — the spot price of ethylene in North America increased by 24.0% compared to the last week of February, propylene in North America rose by 12.8%, and the spot price of polypropylene in North America surged by 25.0%.

Morgan Stanley pointed out that raw material availability is the most critical bottleneck currently.If the conflict persists and the Strait of Hormuz remains impassable for a long time, the operating rates in the Middle East and Asia may further decline. Even if some companies do not officially declare force majeure, the actual loss of production capacity will continue to expand.

Olefins and Raw Materials: The First Wave of the Force Majeure Impact

The olefins industry is the major victim of the force majeure declarations in this round. According to a Morgan Stanley report, as of March 12, 3.9% of global ethylene capacity was in a force majeure status, and 3.2% for propylene, both increasing by approximately 1.7 percentage points compared to the data tracked on March 6.

From the regional distribution, the impact was most concentrated in Southeast Asia and Central Europe. The proportion of ethylene production capacity affected in Southeast Asia reached 20.4%, and in Central Europe it reached 60.2%.

Regarding specific declarations, Formosa Plastics Corporation, Nan Ya Plastics Corporation announced on March 9 that its Mailiao Olefins Division had entered a force majeure status due to the escalation of the Middle East conflict, which disrupted naphtha supply, affecting approximately 2.93 million tons/year of ethylene capacity and 2.43 million tons/year of propylene capacity; all production facilities will operate at minimum capacity. Aster Chemicals and Energy in Singapore declared force majeure on March 6, covering 1.15 million tons/year of ethylene, 500,000 tons/year of propylene, and 290,000 tons/year of benzene, citing severe disruption to maritime transportation through the Strait of Hormuz leading to feedstock supply interruptions, with cracker utilization rates dropping to approximately 50%. Thailand’s Rayong Olefins, Singapore’s PCS, and South Korea’s Yeochun NCC (YNCC) also declared force majeure, all citing difficulties in procuring naphtha or propane.

OMV’s Burgkirchen facility in Germany declared force majeure due to technical issues in the crude distillation unit, affecting 485,000 tons/year of ethylene, 225,000 tons/year of propylene, and 70,000 tons/year of butadiene. Poland’s Orlen declared force majeure at its Płock facility for 700,000 tons/year of ethylene, 385,000 tons/year of propylene, and 70,000 tons/year of butadiene; however, the cause and operating rate remain unclear.

Polyolefins and Downstream Polymers: Supply Chain Disruption Propagating Downstream

Force majeure declarations are rapidly propagating downstream along the supply chain. According to a Morgan Stanley report, 1.4% of global polyethylene (PE) capacity and 1.0% of global polypropylene (PP) capacity are currently under force majeure—up by 0.8 and 1.0 percentage points, respectively, from the prior tracking period.

PT Chandra Asri Pacific Tbk of Indonesia announced on March 2 that its 755,000 tons/year PE and 590,000 tons/year PP had entered a state of force majeure, citing the disruption of maritime and raw material distribution due to the security situation in the Strait of Hormuz.

In terms of spot prices, North American PE spot prices increased by 15.1% on average compared to the last week of February, while North American PP prices rose by 25.0%; Western European PE prices increased by 8.6%, and Western European PP prices rose by 7.1%.

Chlor-alkali and Vinyl Products: Chinese Companies Announce Force Majeure En Masse

The chlorine-alkali and vinyl products chain is the area with the most concentrated participation of Chinese companies in this round of force majeure declarations. According to a Morgan Stanley report, 5.2% of global PVC capacity, 5.4% of VCM, 6.4% of EDC, and 1.4% of caustic soda are under force majeure, with all the data being new additions in this round of tracking.

Tianjin Bohua Chemical Development announced force majeure on March 11, affecting its facilities with annual capacities of 905,000 tons of caustic soda, 1.5 million tons of EDC, 1.29 million tons of VCM, and 1.37 million tons of PVC. The company stated that upstream raw material suppliers have formally declared force majeure due to the Middle East conflict, resulting in severe and sudden disruptions to its production and operations. Tianjin LG Bohai announced force majeure on March 10, affecting its facilities with annual capacities of 280,000 tons of caustic soda, 640,000 tons of EDC, 350,000 tons of VCM, and 400,000 tons of PVC. The cause was the closure of the Strait of Hormuz, leading to an interruption in raw material supply; production will be progressively reduced.

Formosa Plastics also declared force majeure on its chlor-alkali chain; Morgan Stanley estimates this affects approximately 1.792 million tons/year of EDC, 1.64 million tons/year of VCM, and 1.19 million tons/year of PVC. Indonesia’s Sulfindo Adiusaha declared force majeure on March 9, affecting 336,000 tons/year of caustic soda, 370,000 tons/year of EDC, 130,000 tons/year of VCM, and 110,000 tons/year of PVC. In Europe, INEOS Inovyn also declared force majeure on PVC exports to its customers.

LNG and Other Products: Local Production in the Middle East Takes the Brunt

Middle Eastern local production facilities have directly suffered from the attack, with the LNG supply chain being particularly severely impacted. Qatar Energy announced on March 2 that its entire 77.4 million tons per year LNG operations in Ras Laffan Industrial City have entered force majeure due to production stoppages following an attack on the industrial city. India's Petronet LNG subsequently declared force majeure on LNG reception on March 5, in line with the statement from Qatar Energy.

Kuwait’s EQUATE has declared force majeure on its 1.15 million metric tons per year ethylene glycol (EG) production due to cargo delivery disruptions caused by the closure of the Strait of Hormuz; the EG-2 unit had previously been shut down. Saudi Arabia’s Sadara Chemical Company has declared force majeure on its 180,000 metric tons per year ethanolamines and 200,000 metric tons per year glycol ethers, with the duration dependent on the lifting of shipping restrictions in the Strait of Hormuz. Bahrain Petroleum Company (BAPCO) has declared force majeure on approximately 379,800 metric tons of Group III base oils following an attack on its refinery complex. Kuwait’s The Kuwait Styrene Company (TKSC) has declared force majeure on approximately 525,000 metric tons of styrene monomer.

Morgan Stanley noted that, given the highly fluid nature of the conflict, the above tracking may not cover all ongoing production stoppages, and investors need to continuously monitor how the evolving situation further impacts the global chemical supply chain.