"Hormuz Strait Chokehold Effect Ferments, Asian Ethylene Prices Skyrocket"

Since the end of February, due to escalating US-Iran conflicts and disruptions in the Strait of Hormuz, ethylene prices, a key petrochemical raw material, have continued to surge in the Asian market. As of the close on March 18, CFR Northeast Asia and CFR Southeast Asia ethylene prices both rose to $1,280/ton, a significant increase of $80/ton in a single day. In the Chinese market, on March 17, the East China ethylene spot price had risen to 9,700 yuan/ton.

According to Zhuo Chuang Information, since February 28, the cumulative increase in CFR Northeast Asia and Southeast Asia prices has been about 80%. In China, the East China ethylene price has increased by approximately 65% since the end of February.

The closure of the Strait of Hormuz has severely disrupted the transportation of key raw materials such as Middle Eastern crude oil, naphtha, and liquefied natural gas. According to Longzhong Information, due to China’s high dependence on Middle Eastern naphtha cracking units, this supply disruption has had a substantial impact on domestic ethylene production. As of last week, the utilization rate of domestic naphtha cracking capacity for ethylene had fallen to 82.44%, down 6.19 percentage points from before the conflict. Geopolitical risks have triggered a reduction in cracking plant operations, leading to a clear contraction in the overall supply along the ethylene industry chain.

Naphtha is a critical intermediate connecting crude oil with basic chemicals like ethylene and propylene. ICIS data shows that over 60% of Asia’s seaborne naphtha imports come from the Middle East.

South Korea, as a major importer of naphtha, imports about 4 million tons per month, with over 55% coming from Middle Eastern countries such as the UAE, Qatar, and Kuwait. Following the supply disruptions, mainstream Korean petrochemical companies have generally reduced operating rates. Yeochun NCC even decided to permanently shut down two naphtha cracking units, reducing ethylene capacity by 60% annually; Lotte Chemical also closed a cracking unit with an annual capacity of 1.1 million tons. On March 18, the South Korean government raised the resource security crisis alert from “Attention” to “Caution” to address this severe situation.

In Japan, according to incomplete statistics, within two weeks of the Iran conflict outbreak, six out of twelve Japanese ethylene plants had cut capacity. Citibank analysts in Japan warned that if market conditions do not improve by mid-April, “several ethylene units may face reduction or shutdown risks,” which would also impact downstream derivatives such as ethylene, propylene, and butanes.

According to Jinlianchuang analysis, steam cracking units in Asia that use naphtha as raw material are experiencing a large-scale shutdown wave. Companies in Japan, Korea, Singapore, Malaysia, Indonesia, Thailand, and other countries have been forced to reduce load or declare force majeure, with some cracking units operating at only 60% of capacity. The tight supply situation has even led to reductions in contractual supply volumes, with spot sources nearly exhausted.

In China, affected by the continued decline in Japan and Korea cracking operations and tight spot supplies, domestic ethylene prices have surged sharply in March. As of March 13, the listed price in East China reached 9,500 yuan/ton, a 62.39% increase from the end of February. Notably, the price difference between domestic and international ethylene prices has widened, highlighting the raw material advantage of coal-based olefin and ethane cracking routes.

Longzhong Information states that from March to April, domestic ethylene capacity utilization will be in a temporarily low range, with supply constrained by raw material shortages and routine maintenance, supporting ethylene prices to rise easily but difficult to fall. Despite downstream products facing profit pressure due to rising raw material costs, urgent procurement will still support ethylene prices. The supply-demand balance is expected to remain tight from March to April. Under the combined effects of high costs, limited supply, and low inventories, ethylene prices in East China may stay in the high range of 9,500 to 10,000 yuan/ton.

It is also worth noting that beyond this short-term supply shock caused by geopolitical conflicts, the long-term landscape of the global ethylene industry is undergoing profound restructuring. According to the latest data from Bloomberg New Energy Finance (BNEF), by 2026, the global net ethylene capacity will reach 14.6 million tons, nearly double the average annual new capacity added over the past five years, setting a record for annual growth.

BNEF data shows that Saudi Arabia, Iran, Qatar, Kuwait, and the UAE together have about 33 million tons per year of ethylene capacity, roughly equivalent to the combined capacity of Europe and South Korea. If the Strait of Hormuz remains blocked long-term, in a severe supply disruption scenario, up to 35 million tons per year of ethylene capacity in Asia could lose raw material supply.

Supply shocks are accelerating the integration of the petrochemical industries in Japan and South Korea, a process that had already begun before the conflict erupted. In January, Mitsubishi Chemical, Mitsui Chemicals, and Asahi Kasei reached an agreement to form a new company to integrate ethylene production in western Japan. In South Korea, in August last year, the top ten petrochemical companies agreed to cut 25% of their naphtha cracking capacity.

Zhao Pengfei, a chemical analyst at Jinlianchuang, commented that in the short term, the Middle East conflict is likely to persist, and the raw material shortage in Asia will not ease quickly. The tight supply situation in the Asian and domestic ethylene markets will continue, with prices remaining firm or slightly strong. However, considering downstream and terminal demand tolerance, as well as potential impacts from US exports, further price increases may be limited.