FACTBOX: Chemical market navigates disruptions as US-Iran conflict triggers upstream production outages

Chemical market participants are delaying decisions as an immediate measure at the beginning of the week March. 2 following heightened tensions between the US and Iran.

The polymer market in the Middle East, as well as its key destination markets India, Turkey and Africa, was effectively paused March 2, with most offers being withdrawn or suspended including those from outside the Middle East.

In addition, in Europe, with the volatility in upstream crude and naphtha, negotiations for the ethylene industry-settled contract price for March were ongoing.

Upstream, Saudi Aramco's Ras Tanura oil refinery was confirmed shut partially "as a precautionary measure" due to a fire at the facility on March 2.

In addition, prior to the Feb. 28-Mar. 1 weekend, Saudi Arabia's Advanced Petrochemical Company was on force majeure for polypropylene and National Industrialization Company (Tasnee) was on planned periodic maintenance shutdown at Saudi Ethylene and Polyethylene Company, both expected to come back online at the end of March and the beginning of March, respectively. Uncertainty remained regarding these two sites' ongoing outages in light of recent developments in the region.

Trades

• Middle east polymer trade is effectively suspended, according to market sources, as producers withdrew all offers. In addition, no shipping companies were heard ready to ship out of the region as of March 2. In particular, no polypropylene shipments were likely in the next three days, according to PP buyer sources. Significant trade disruptions are expected in the near future, according to a producer.
• Polymer offers into Turkey and the African markets are effectively suspended or have been withdrawn by most importers and traders, not only in the Middle East but also in Asia, including China and Korea. Market participants expected higher FOB offers as well as freight rates.
• Offers of polypropylene from the Middle East into Europe have been paused, while European producers assess the evolving situation, seeking to raise prices on higher feedstock and low imports.
• In the Indian market, sources said there were no new offers for polyethylene from the Middle East, while the existing ones were on hold. Trades were unlikely to conclude given the current situation, as sellers refrained from indicating any price ranges for now due to cargo delivery uncertainty. Meanwhile, domestic markets in India are strengthening amid the Iran issue, as local producers were still assessing the situation and had not yet issued revised prices.

• Freight rates in the Middle East are rising as shipping activity slows, driven by heightened risks following Iran's retaliation against neighboring countries in response to US and Israeli airstrikes on Feb. 28, BIMCO's top security official said on March 1. A shipping source indicated that it would charge $3,000-4,000/FEU for a security surcharge effective March 2.

Infrastructure

• Saudi Aramco's Ras Tanura oil refinery has shut partially "as a precautionary measure" due to a fire at the facility, with no impact on petroleum supply to local markets, according to an official energy ministry statement, as reported by the state-run Saudi Press Agency March 2.
• Prior to the Feb. 28 and March 1 weekend, Saudi Arabia's Advanced Petrochemical Company issued a force majeure on polypropylene supplies to Asia with immediate effect due to the ongoing conflict in the Middle East, according to three separate buyers based in Asia who cited a company notice dated Feb. 3, expecting it to last until March 31.
• Prior to the Feb. 28 and March 1 weekend, National Industrialization Company (Tasnee) announced a planned periodic maintenance shutdown at Saudi Ethylene and Polyethylene Company (SEPC) on Jan. 1. The shutdown will coincide with an extended shutdown related to the ethylene cracker expansion project for approximately 66 days, according to a company announcement.

Prices

• As of Feb. 27, the March European ethylene industry contract price settlement was pending, with market participants anticipating an increase from February amid a rise in the feedstock naphtha pricing.
• With the MCP unsettled as of March 2, and following a sharp rise in oil prices, uncertain market sentiment heightened around the feedstock price increase to pressure the ethylene contract price discussions. "I had expected the certainty of higher cracker feedstock costs to weigh on the MCP settlement indeed," a trader said.
• The European propylene monthly contract price did settle Feb. 27, at a Eur35/mt increase; however, sentiment remains bullish amid further expectations of firmer naphtha costs.
• European industry-settled monthly contract price of butadiene was already settled at Eur55/mt in the prior week. However, a source said on Feb. 25 that "Whatever was decided at MCP has left out the huge risk regarding what may happen in Middle East in this coming weekend in the oil market."
• On the virgin and recycled polymer market, producers in EMEA are taking initial positions to raise prices at stronger increases than realized in the feedstock olefins markets for March. Participants are still assessing the situation and watching for developments.
• In the aromatics chain, the European MTBE market was heard in a wait-and-see mode. For MTBE, no fresh export offers were heard from Asia to European traders, and activity had paused as global players from Asia and Europe assessed the direction of the market amid heightened uncertainty.
• European hydrocarbon solvents market is expected to come under upward pricing pressure as firmer crude, naphtha and gasoline prices filter through the value chain. A trader in southern Europe said spot offers were raised by 10%, citing a sharp rise in feedstock.
• In the European xylenes and toluene market, caution remained as many awaited further developments in the Middle East, with many players holding back from placing volumes in the spot market. Traders also anticipate weaker demand from West Africa for the gasoline blending component amid uncertainties over shipping routes. "Nobody will offer anything today," a trader said. "We will need to wait for things to settle a bit."