By Alex Wu
As oil tankers halt operations in the Middle East to avoid risks amid the ongoing Iran war, crude oil and chemical raw material prices have risen sharply, creating significant pressure on China’s industrial chain.
Approximately 20 million barrels of crude oil passed through the Strait of Hormuz daily before the war broke out on Feb. 28, accounting for about one-fifth of global oil consumption. The Iran regime has been attacking ships traveling through the Strait of Hormuz, bringing this vital maritime energy route to a near standstill.
China depends on crude oil imports for approximately 72 percent of its domestic crude oil consumption, with 44 percent of that amount originating from the Middle East. The vast majority of those imports pass through the Strait of Hormuz.
The Chinese regime’s National Development and Reform Commission increased domestic retail prices for gasoline and diesel on March 10, with gasoline rising by 695 yuan ($100.8) per ton and diesel by 670 yuan ($97.2) per ton, marking one of the largest single price adjustments in recent years. Long lines formed at gas stations in many areas, with one Chinese resident telling The Epoch Times that the daily price hikes has resulted in long lines, making it impossible to even get into a gas station.
Iran is not only an oil producer but also a major supplier of chemical raw materials, especially methanol, and is an important source for many Asian markets. The Strait of Hormuz carries approximately 35 percent of global maritime methanol trade, and the Iran war cuts off this vital channel for Middle Eastern supplies to Asia.
Since the Iran war broke out, prices as a result have been driven up in China’s raw chemical and oil markets and are rapidly spreading to the chemical industry chain.
The sectors heavily reliant on these upstream raw materials, such as plastics, synthetic fibers, and fertilizers, have been affected the most. Rising polyethylene prices will directly increase the cost of packaging products.
Prices for chemical commodities in China’s domestic futures market have continued to rise, according to mainland Chinese media. On March 12, crude oil surged by over 18 percent and purified terephthalic acid (PTA) rose by more than 13 percent, while commodities such as paraxylene and propylene each posted price rises exceeding 10 percent. Meanwhile, the price of dichloromethane has skyrocketed from approximately 1,630 yuan ($236) per ton to around 2,800 yuan ($406) per ton—an increase of roughly 70 percent.
Correspondingly, the midstream polyolefin sector in China is experiencing losses due to rising raw material prices, while downstream product manufacturers face the additional predicament of grappling with the pass-through of these cost pressures.
Chemical raw material costs account for approximately 10 percent to 20 percent of the costs in the home appliance and automotive industries. As upstream costs continue to be passed on, the prices of end products may gradually rise.
Driving up Plastics Prices
This has a particular impact on plastics in the Chinese market.
The Zhangmutou Plastics Trading Market in Dongguan in Guangdong Province has an annual transaction volume of nearly 100 billion yuan ($16 billion), accounting for about one-tenth of China’s plastics materials market, and is regarded as an important indicator of industry trends.
Qian Fucheng (pseudonym for safety concerns), head of a polymer technology company in Guangdong, told The Epoch Times that there was a period of panic in the Zhangmutou Plastics Trading Market since the war broke out.
“At the beginning, many manufacturers had insufficient inventory, and the demand for restocking was concentrated,“ he said. ”The warehouse shipments suddenly increased, and a large number of trucks lined up to wait for loading, which once caused traffic congestion.”
Qian said that the price surge has had a significant impact on downstream enterprises. “The prices of common raw materials have now nearly doubled, which has a great impact on downstream production costs, and some enterprises may face the risk of losses. This round of price increases is mainly driven by the rise in petrochemical product prices.”
Since the war started, as of March 12, ABS plastic raw materials soared from 8,000 yuan ($1,160) per ton to over 13,000 yuan ($1,885) per ton—an increase of more than 60 percent.
PC plastic raw materials surged from 11,000 yuan ($1,595) per ton to over 16,000 yuan ($2,329) per ton—an increase of more than 40 percent.
These materials are widely used in the manufacture of consumer products such as mobile phone and laptop casings, keyboards, vacuum cleaners, automotive interior parts such as dashboards, security windows and soundproof walls, safety shields, toys, food storage and drinking water containers, as well packaging.
Wu Tiexing (pseudonym for safety concerns), the head of a packaging materials company in Zhengzhou in Henan Province, told The Epoch Times: “The price increase of upstream manufacturers is relatively big, and the cost is passed down to the downstream layer by layer. Mid-range processing enterprises like ours have almost no profit margin, and many enterprises feel that it is not very meaningful to do it.”
He said that raw material prices are currently fluctuating wildly. “Raw material prices are changing almost daily, and many companies are afraid to stockpile goods, or even suspend raw material purchases to wait and see.”
Methanol
Besides plastics, other chemical raw materials are also under pressure in the Chinese market. Methanol prices rose to 2,811 yuan ($408) per ton, on March 13, an increase of 6.08 percent from the previous day. Over the past month, the price of methanol has risen by 25.04 percent.
Although China has a methanol production capacity of approximately 118 million tons, it still relies on imports for 12 percent to 15 percent of its consumption, with about 60 percent of those imports coming from Iran.
Cheng Mulan and Gu Xiaohua contributed to this report.
