The Middle East has always been a key player in the global energy market, as its geopolitical stability has a huge impact on other industries such as the resin market. In 2024, the region has been back in the news due to recent escalations that have again put the spotlight on its role in global supply chains and commodity prices. This article describes the impact that the Middle East crisis has on resin prices and looks at recent developments and future projections.
Understanding the resin market
Resins are organic compounds that can be classified into various types, including thermoplastics and thermosetting plastics. It is crucial in manufacturing products such as Polyethylene (PE), Polypropylene (PP), and Polyethylene Terephthalate (PET). The pricing of these materials is influenced by several factors such as the following:
Resins made from petrochemical processes are subject to the changes in crude oil and natural gas costs directly, as petrochemical products tend to be in the cost pool
Final prices depend heavily on transportation costs, routes of transportation, and availability of containers
Supply chains can be disrupted by political unrest, causing shortages and an increase in costs
Recent geopolitical developments in the Middle East
The recent conflicts in the Middle East have intensified to a point where they pose a risk to the stability of resin production and pricing trends, with the following significant updates being observed in the situation:
- Geopolitical crisis: In October 2024, a crisis unfolded in the Middle East as Iran fired missiles toward Israel, resulting in a series of counterattacks. This raised worries about disturbances in oil distribution from the area that houses some of the oil-producing countries globally. Although the direct effect on oil production was minimal, the turmoil led to a surge in crude oil costs
- Red Sea shipping turmoil: Shipping bottlenecks have been caused by increased military activity in the Red Sea, which is considered as one of the most crucial oil and resin trade routes for the world. This has resulted in soaring prices of containers, which leaves the Middle East producers of polyethylene and polypropylene unable to supply the market
- Oil price fluctuations: The ongoing conflict in the Middle East has also pushed oil prices up by more than 8% over the last couple of weeks, as fears continue to spread of further military actions involving major oil producers such as Iran. Higher oil prices mean the jump to higher resin production costs
- Production disruptions: Supply problems have been compounded by planned maintenance shutdowns at several resin production facilities in the region. For instance, in 2024, one of the industry’s biggest polyethylene producers has temporarily halted production on a line, creating a further near-term supply shortage
Impact on resin prices
As oil prices rise, resin prices climb along with the commodity of petrochemical feedstocks. The recent escalation of conflict in the Middle East has created a volatile environment
Oil price fluctuations:
Following the missile attacks by Iran in October 2024, Brent crude oil prices spiked by 7%, before dropping back. Just as the resin market mirrored this volatility, prices for PE and PP rose temporarily by approximately 5%
Supply chain disruptions:
Logistical difficulties were also apparent in getting petrochemical feedstocks into the area affected by the conflict. Delays and increases in transportation costs were the results occurring due to shipping routes in the Persian Gulf being affected temporarily. Supply chain bottlenecks caused these factors to result in a 3% rise in resin prices
Market sentiment:
The commodity market is dependent on investor sentiment. Speculative trading followed from the greater geopolitical risk, further pushing up resin prices. Resin prices were up 2% as analysts say speculation from the market drove them up
Price trends in resins
The ongoing geopolitical tensions in the Middle East have significantly impacted the resin market, particularly in the pricing of PE, PP, and PET.
Polyethylene (PE) price trends
Shipping disruptions have led Middle Eastern suppliers to report limited availability of Linear Low-Density Polyethylene (LLDPE) and High-Density Polyethylene (HDPE) in January 2024. Scarcity has pushed up prices and demand has been outstripped by supply.
- Price increases: Asia LLDPE price climbed from US$1,171/MT in January 2024 to US$1,182/MT by March 2024. In Europe, LLDPE prices have increased from US$1,225/MT (FOB, NWE) in January to US$1,382/MT in March 2024. In just 3 months, an increase of approximately 13%
- Regional variations: In March 2024, prices of LLDPE rose to US$1,182/MT in India, a trend that was similar globally. The Indian market is highly dependent on Middle Eastern supplies of PE since it sources about 56% of its imports from the region
- Market sentiment: PE demand is expected to remain strong, mainly for seasonal reasons such as higher activity in construction before the monsoon season. Continued supply constraints from the Middle East will keep upward pressure on prices into Q2 2024
Polypropylene (PP) price trends
The PP market has also experienced significant price increases amid ongoing geopolitical tensions. The shortage has driven up prices, with demand now exceeding supply:
- Recent price changes: The average price for PP in North America increased by almost 3.6% over 2 months from US$1,388/MT in January to US$1,438/MT in March 2024. Prices rose in Europe from EUR 1,313/MT in January to EUR 1,362/MT in March, also mirroring this trend
- Saudi Arabian producer actions: A US$50/ton price increase for PP was imposed by the major Saudi Arabian producer in January 2024, ahead of speculation that the producer would be considering export curbs because of the crisis. The production side has taken a proactive approach and has shown the expectation of more disruptions in the supply chain
- Market dynamics: From around US$1,230/MT in December 2023, PP prices in India moved up to around US$1,303/MT as of January 2024 due to a fall in the supply from Middle Eastern suppliers and a rise in domestic demand, almost a 6% month-to-month increase
Polyethylene Terephthalate (PET) Price Trends
The PET market has faced similar pressures, such as the following, as other resins:
- Price fluctuations: PET prices rose from US$1,215/MT to US$1,245/MT within just 3 weeks of January 2024, reflecting a sharp increase of about 2.5% attributed to heightened production costs and logistical barriers stemming from the conflict
- European market response: In Europe, PET prices increased from approximately US$1,185/MT (FOB, NEW) in January 2024 to around US$1,255/MT by March, representing an overall increase of about 6% during the same period. This rise is largely driven by increased demand from the beverage and packaging industries as warmer weather approaches
- Supply chain disruptions: The disruptions caused by geopolitical tensions have led to delays in cross-border shipments and increased shipping costs. For instance, Platts assessed the spot rate for cargoes from North Asia into West Coast North America as US$6,100/FEU on May 30, 2024. On the same day, East Coast container imports from North Asia were called at US$7,200/FEU. The rates are both at their highest since the early fall of 2022. Similarly, Platts Container Rate 23 – Southeast Asia to West Coast North America – soared to US$6,200 FEU on May 30, 2024, hitting the highest since August 16, 2022. At the same time, PCR25 –Southeast Asia to East Coast North America – climbed to a yearly high of US$7,200/FEU – the highest since September 22, 2022. The surge in the prices was due to diversions in the Red Sea caused by military activities
Long-term implications
While the immediate impact of the Middle East crisis on resin prices was significant, the long-term implications depend on the duration and intensity of the conflict. If the geopolitical situation stabilizes, resin prices are likely to return to pre-crisis levels. However, prolonged instability could lead to sustained higher prices. As the resin market navigates the complexities of a rapidly changing global landscape, several key factors are emerging that could significantly influence pricing and supply dynamics in the near future
- Continued geopolitical tensions: If conflicts escalate further or new conflicts arise involving major oil-producing nations such as Iran or Saudi Arabia, we could see additional spikes in oil prices that would inevitably affect resin costs
- Strategic reserves: Countries and companies may increase their strategic reserves of petrochemical feedstocks to mitigate future supply chain disruptions. This could lead to short-term price increases as demand for storage rises
- Diversification of supply chains: Manufacturers may seek to diversify their supply chains to reduce dependence on the Middle East. This could involve sourcing feedstock from other regions or investing in alternative raw materials
- Technological advancements: Advances in recycling technologies and the development of bio-based resins could reduce the industry’s reliance on petrochemical feedstocks. These innovations could help stabilize resin prices in the long term
Read more: Impact of the Middle East Crisis on Precious Metals Prices
Conclusion
Resin prices globally are feeling the impact of the ongoing crisis in the Middle East. Manufacturers in different sectors are experiencing an increase in oil production costs as a result of rising oil prices and disrupted supply chains. During a volatile geopolitical terrain that continues to evolve, stakeholders must be vigilant and agile in going through this complex space.
Overall, rising costs and inflationary pressures will cause a long-term impact on the industries, and will possibly reconsider the way they source and produce resins. The Middle East crisis has given renewed impetus to the risks to global supply chains from geopolitical instability. The resin market is exceptionally sensitive to changes in oil prices and supply chain disruptions, making it heavily dependent on petrochemical feedstocks. Those companies are better able to adapt quickly (to new business realities) will be better equipped to thrive in an environment of uncertainty and relatively unfettered by risk from global supply chain dysfunction.
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