War in Middle East could affect resin prices

By Karen Hanna

Tens of millions of tons of resins — PE and PP in particular — are exposed to disruption as conflict in the Middle East continues to spread following the start of U.S. and Israeli war on Iran on Feb. 28.

While the U.S. doesn’t source materials from Iran, resin industry experts warned that supply chain shifts could affect availability and pricing. Wider supply chain interruptions could follow, as ports sustain damage or close due to the conflict. Reports indicate that shipping lanes in the Strait of Hormuz, bounded by Iran and Oman, could close, and several of the world's major shipping companies have announced they are avoiding the route.

“What we’ve been fearing for weeks has come to pass. And this isn’t just geopolitics. It brings real risk to the North American plastics industry,” states a March 2 Resin Market Moves newsletter from Michael Workman, director of business for research firm RTi International and director of growth for RTi subsidiary ResinSmart. 

In addition to other cargo essential to the world economy, 20 percent of world's energy supply travels through the Strait of Hormuz, Workman said. 

Resin price increases — due to availability, global anxiety and energy market price hikes — are likely, as Asian and European buyers turn from the Middle East to the U.S. to fill demand for resin.

“Price momentum can build quickly — even without domestic outages,” the newsletter states.

In a video update of the situation, Workman urged discipline over emotional responses to coming volatility.

“It's important to remember to maintain your calm, avoid panic when negotiating, and short-term cost and shock potential long-term depends entirely on how long this lasts. ... A few things to do this week: If you buy polyethylene, review your polyethylene inventory. Know how many weeks of supply you have. ... Monitor Gulf Coast export activity,” Workman said.

He continued, “Make sure you understand your contract mechanisms, fully index timing, when your price changes and how long those agreements are in effect. You may need to be thinking about alternative supply sources. ... Avoid reactionary over-buying; that's just going to continue to push leverage towards the producer.”

According to Workman, 37 percent of globally traded PE and 28 percent of PP originate in the Middle East. A few years ago, Iran shipped more than 3.3 million tons of PE, mostly to China.

But, the ResinSmart newsletter states, “For North American buyers, this isn’t about Iranian imports. It’s about global trade rebalancing.”

Overall, according to a report compiled by Argus, a commodity markets research firm, the Middle East has more than 25 million tons of PE capacity per year, accounting for about 15 percent of global capacity. Slightly less than half of that comes from Saudi Arabia.

The Middle East also accounts for more than 11 million tons of PP capacity, or about 9 percent of the world’s total capacity. Saudi Arabia represents about half that capacity, with Iran contributing about 1.3 million tons.

As the ResinSmart newsletter states:

“For North American resin buyers, this is the key point is that while the U.S. may not rely on Middle Eastern resin imports, the global market absolutely does.

“And when 30 to 40 percent of globally traded polyolefins are exposed to conflict risk, the impact shows up everywhere — including here.”

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Other brands belonging to Endeavor B2B, PMM's parent company, are following the impact of the U.S.-Israeli war on Iran:

• OPEC+ to begin unwinding voluntary cuts as market risks intensify: Conglin Xu at Oil & Gas Journal notes that major oil-producing countries are allowing members to increase production. Oil prices have spiked since the invasion, and extra supply could ease prices.

• Oil prices rise sharply: Also from Oil & Gas Journal, crude oil prices surged following coordinated US and Israeli strikes on Iranian military targets on Feb. 28, heightening geopolitical tensions and fueling concerns over potential supply disruptions through the Strait of Hormuz, one of the world’s most critical energy chokepoints.