Middle East conflict triggers a "cost tsunami" in the chemical industry supply chain, with many giants announcing price hikes

Ask AI · How exactly does the Middle East conflict trigger a surge in chemical costs?

By | Jiemian Industrial

The U.S.-led and Israeli-Iranian military conflict has entered its 26th day. This geopolitical crisis is evolving into a “cost tsunami” that disrupts the global chemical industry chain, and multiple chemical giants have begun announcing price increases.

On March 25, Jiemian News learned that Wacker in Germany will raise the prices of its organosilicon product lines starting April 1 this year.

Wacker said that the recent Middle East military conflict has seriously disrupted global energy and raw material markets, and international trade routes have also been greatly affected, with oil, natural gas, raw materials, and logistics costs rising significantly. Wacker’s global organosilicon business has been especially impacted.

“Given the magnitude of the current cost increases—especially in energy, raw material and logistics costs—price adjustments are now unavoidable.” Wacker said.

Wacker is a German specialty chemicals company and one of the world’s largest producers of organosilicon products.

The organosilicon products it supplies mainly include silicone oils, silicone emulsions, silicone resins, silicone elastomers, sealants, silanes, silane-modified polymers, and fumed silica, among others. These products are mainly used in fields such as automobiles, construction, chemicals, cosmetics, medical technology, energy and electronics, paper-making, and textiles.

Chemical companies that have recently announced product price hikes are not limited to Wacker.

German chemical giant BASF previously announced that, starting March 18, it would raise prices in the European market for multiple categories of products under its portfolio, including household care, industrial cleaning, and industrial formulation additives, with increases reaching up to 30%.

In its announcement, BASF said this is mainly to address sharp fluctuations in the prices and supply of key raw materials, the continuous rise in domestic and international logistics costs, and the substantial increase in packaging and energy costs.

According to “China Chemical Information Weekly,” on March 5, Hunstman announced that, due to the rapid deterioration of the geopolitical situation in the Middle East causing a spike in European natural gas prices, its MDI production costs had risen significantly. It decided to impose a natural gas surcharge of 200 euros per ton on all its MDI products sold to Europe, Africa, the Middle East, and India.

Since the outbreak of the U.S.-U.K.-I-Iran conflict—after the U.S. and Israel-Iran conflict—shipping through the Strait of Hormuz has been disrupted, and the global oil-and-gas chemical market has experienced intense shocks.

About 20 million barrels of liquid fuel are transported daily through the Strait of Hormuz, accounting for about 19% of global supply. This includes nearly 14 million barrels of crude oil, which is one-third of the volume of seaborne crude oil trade.

Data show that Brent crude jumped from $70.75 per barrel on February 26, at one point surging past the $100 level and peaking at around $119. As “the mother of chemicals,” crude oil price increases spread quickly to the entire petrochemical industry chain.

On March 18, a report released by India’s market analysis agency Polymerupdate showed that since the conflict broke out on February 28, global polymer prices had surged by 24%-75% within two weeks.

After the Russian-Ukrainian conflict in 2022 caused a surge in natural gas prices, Europe’s chemical industry has been in a difficult adjustment period. This time, the Middle East situation once again poses a challenge to Europe’s chemical industry.

Beyond Europe, Asia is also deeply affected.

A research report from Cathay Tongxing Securities noted that due to concerns about future raw material supply, several large Asian integrated refining and petrochemical companies are either already lowering or planning to lower the operating rates of their crude distillation and vacuum units. In South Korea, SK, Hanwha, and GS companies’ PX units have expectations of reduced-load operation.

In markets such as India, the contraction in gas supply for cooking forces some households to buy large numbers of induction cookers, quickly exhausting related online and store inventories.

Cathay Tongxing Securities said the Strait of Hormuz accounts for 35% of global urea, 33% of synthetic ammonia, and 45% of sulfur transportation volume. The capacity of alternative transport routes is extremely limited, able to cover only about 20% of normal capacity. If uncertainty in the Middle East situation continues, the balance in the global fertilizer supply and demand market could be significantly affected.

Based on the lengthening of supply cutoff cycles and the reshaping of global energy security logic, Goldman Sachs has comprehensively raised its forecasts for oil prices for this year and next, warning that in extreme cases oil prices will set a new record in history—$147.