Eight Months of War Turns China Petrochemical Glut Into a Crunch
China has burned through much of a petrochemicals glut built up by years of overproduction as the US-Iran war chokes oil flows, setting the stage for higher prices for an array of industrial materials.
China is facing a petrochemical supply crunch as a result of the US-Iran war, which has disrupted oil flows and dried up Iranian crude exports. The shortage is most acute in the aromatics chain and downstream products, such as rubber for car tyres and plastic bottles. JPMorgan Chase & Co and ICIS data providers report that Chinese inventory levels are nearing empty.
The tightness in Chinese markets has already impacted consumers, contributing to inflation across various products. The price increases have also affected China's producer price index, which tracked wholesale inflation, rising from below zero in February to 5% in September. The country's petrochemical inventories were built up due to years of overcapacity and overproduction, making them an unintended cushion during the crisis.
However, the depleting stocks are unsustainable in the long term, as China aims to maintain buffers against future supply shocks. Aromatics grades are at multiyear lows in port inventories, while demand for toluene in gasoline blending diverts supply away from petrochemicals. With overcapacity already driving some petrochemical margins below zero, producers now face even greater pressure as oil and feedstock costs surge.
While higher prices may persist, China's abundant capacity could lead to oversupply in the long run.
Written by urgent.news from Straits Times Business's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
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