Israel and the United States launching a war against Iran will have a series of complex and far-reaching impacts on the prices of the plastic product manufacturing industry. We can understand these effects from six perspectives, each acting like a separate gear that interlocks with others, collectively driving the sharp fluctuations in plastic prices.
The primary sources of plastic are petroleum and natural gas. Imagine that plastic is "transformed" from crude oil through complex processing. Iran is one of the world's top oil-producing nations, and if it were to become embroiled in war, the first to be impacted would be the production and transportation of crude oil.
Imagine if shipping in the Strait of Hormuz were interrupted due to a military conflict, it would not only lead to a reduction in the transportation of some goods, but also directly cut off the "main road" for crude oil exports from the Middle East.
Direct impact: Millions of barrels of crude oil cannot be loaded onto international oil tankers every day, and these crude oils cannot be transported to refineries in Asia and Europe.
Chain panic: Major refineries will bid for existing crude oil inventories in the market at all costs due to concerns about future raw material supply shortages, leading to explosive growth in oil prices in the spot market. This growth is no longer a slow climb, but an instant jump.
This geopolitical raw material crisis will ultimately evolve into a brutal test for plastic processing companies.
The first layer of pressure: The rise in crude oil prices quickly transmits to basic chemical raw materials (such as monomer ethylene and propylene), leading to an increase in the ex factory price of plastic pellets.
The second layer of pressure: For downstream plastic product manufacturers (such as those producing 240L trash cans), they face the dilemma of ""flour is more expensive than bread"". Due to the high proportion of raw materials in the cost, they have almost no space for internal digestion.
The third layer of pressure: if the finished product is not raised in price, the enterprise will face losses; If prices are raised, it may also lead to the loss of price sensitive customers. This dilemma will put many small and medium-sized enterprises in a survival crisis, forcing them to struggle on the edge of low or even negative profits."
The rise in crude oil prices means that the cost of basic raw materials for producing plastics, such as naphtha, ethylene, propylene, etc., will also skyrocket. The price increase of these raw materials will eventually be like a relay baton, transmitted layer by layer to the production cost of plastic particles (such as commonly used HDPE, PP, PET, etc.). For enterprises producing plastic trash cans, plastic pallets, plastic boxes, and plastic bags, raw material costs usually account for 70% -80% of the total cost. Once the price rises at the source, if they don't raise it, they will have almost no profit and even lose money.
Modern manufacturing is globalized, and the parts of a product may come from all over the world. War will be like a pair of scissors, mercilessly cutting through these complex supply chain networks.
Iran itself is also an important producer of chemical products. War not only destroys petrochemical factories within its borders, but also forces neighboring countries such as the United Arab Emirates and Saudi Arabia to suspend or reduce production activities in high-risk areas for security reasons. The plastic raw material production capacity of these countries accounts for a considerable proportion of the world's total. Once production is stopped, there will suddenly be a major shortage in the global supply of plastic raw materials.
Ports in war zones will be closed, airports will be shut down, and major shipping routes will become dangerous. Even in plastic product factories in China or Europe, if they rely on a key additive, masterbatch, or special type of plastic particle that happens to be produced in or around war-torn areas, they will face the risk of supply disruption. Even if alternatives can be found elsewhere, it takes time and higher costs. During this period, factories may face the dilemma of "cooking without rice", further pushing up the prices of existing inventory.
For example, a mold factory producing high-end plastic trash can lids in Italy was forced to shut down due to a lack of an industrial gas imported from Iran. This will cause factories around the world that wait for this lid to complete the final product to also stop production. This phenomenon of 'missing one link, cutting off the whole picture' will make every link in the plastic industry chain tense, and people can only accept higher prices in order to rush to buy limited raw materials and accessories.
Even if plastic raw materials and products are produced, how to transport them to buyers will become a huge challenge.
After the outbreak of war, any merchant ship passing through the Middle East, especially near the Persian Gulf and the Strait of Hormuz, faces the risk of being accidentally hit by missiles, destroyed by mines, or detained. Shipping companies are not military, they won't take risks. Therefore, they will immediately impose a high "war risk surcharge" on all routes passing through the relevant waters. This cost is directly passed on to the shipper, which is the importer and exporter of plastic products, and ultimately reflected in the price of plastic finished products.
Like shipping costs, the cost of insuring goods and ships will also increase exponentially. Insurance companies will re evaluate rates based on war risks, and the premium for a valuable cargo ship and its cargo may increase several times or even dozens of times. This is also a cost, which will ultimately be added to the price of plastic products.
for safety reasons, shipping companies will make ships detour. For example, a ship that originally sailed through the Suez Canal may have to detour around the Cape of Good Hope in Africa. This round will increase the voyage and time by 10 days to two weeks. This not only means an increase in shipping costs (more fuel consumption, longer vessel occupancy time), but also a slower turnover cycle of funds. For buyers who need to deliver on time, time is money. In order to meet the deadline, they sometimes have to accept air freight, which is a more expensive method. For heavy plastic products, the cost of air freight is almost unbearable.
Speculators in the financial market are like sharks smelling the smell of blood, any major turbulence is an opportunity for them to speculate.
Both crude oil and plastic raw materials (such as polypropylene and polyethylene) have futures markets. When news of war comes, a large amount of speculative funds will flood into these markets, betting that prices will skyrocket in the future. Their buying orders will quickly push up futures prices. And futures prices can also affect the psychological expectations of the spot market. Spot suppliers will naturally raise their ex factory prices when they see a significant increase in futures prices, even if their actual production costs have not immediately changed.
In this atmosphere, downstream plastic product factories and traders will fall into panic. They are worried that if they don't buy today, it will be even more expensive tomorrow, and even if they have money, they won't be able to buy it. So, everyone rushed to the market in droves to buy raw materials, forming a "panic hoarding". This rapid increase in demand in the short term will further exacerbate the tight supply situation, forming a self fulfilling prophecy: because people expect price increases and rush to buy, the rush itself leads to a real surge in prices.
During war, information is chaotic and true or false. A fake news article about a large chemical plant being bombed could push prices up within minutes. When the clarification news comes out, it may be difficult for the price to completely fall back to its original position. This speculative behavior that exploits information asymmetry and emotional fluctuations can cause plastic prices to fluctuate dramatically, far deviating from their true fundamental value.
The impact of war on the economy is a double-edged sword. While it increases costs, it may also suppress demand in certain areas.
Large scale wars often come with increased uncertainty about the global economic outlook. Both businesses and consumers will become cautious. Enterprises will postpone their expansion plans and reduce their demand for new equipment and packaging. Consumers will tighten their wallets and reduce their purchases of non essential items. Plastic products are widely used in fields such as automobiles, home appliances, consumer electronics, toys, etc. If the sales of these terminal products decrease, the demand for plastic parts will naturally decrease. This shrinking demand side may gradually become apparent after the outbreak of war, forming a complex game with the skyrocketing upstream costs.
If countries such as the United States and Israel are caught in war, their government financial resources will be heavily tilted towards the military and defense sectors. The budget that could have been used for infrastructure construction and environmental projects (such as purchasing new waste sorting and recycling bins) will be compressed. For the boss of expanding the port warehousing industry, if the economic environment is not good and the government reduces support and assistance for port warehousing projects, his willingness and ability to purchase new logistics boxes and plastic pallets may also be affected.
When plastic prices become exceptionally expensive due to war, some downstream users will start looking for alternatives or find ways to save on usage. For example, packaging factories may make the thickness of plastic packaging bags thinner; Construction companies may consider using more metal or wood instead of plastic pipes. This kind of frugal behavior and substitution effect, although unable to reverse the price increase in the short term, will have a certain inhibitory effect on the total demand for plastics in the long run, thus to some extent restricting the unlimited rise in prices.
War will change the global political and economic landscape, and the trade flow and competition pattern of the plastic industry will also undergo profound changes as a result.
The United States is likely to impose more severe comprehensive sanctions on Iran, and even join forces with allies to jointly ban Iran's oil and chemical products. This is equivalent to erasing Iran, the original supplier country, from the global market. Who will fill the market gap left behind? It could be the United States itself (increasing shale oil and natural gas production), or other oil producing countries that are not affected by sanctions. For the plastic industry, this means that procurement channels need to undergo large-scale restructuring. The factories that originally imported raw materials from Iran must turn to the United States or other regions for procurement, which will change the global supply and demand balance and pricing system of plastic raw materials.
The risk of war will make many multinational corporations realize that excessive reliance on a distant and politically unstable single supply source is extremely dangerous. This will accelerate the trend of "China+1" or nearshore outsourcing. For example, our customers may be more inclined to purchase from China, which is relatively safe and has stable trade relations, and even hope that Chinese suppliers can establish some inventory or assembly points locally to avoid risks in the ocean going supply chain. This will strengthen China's advantageous position as the "world factory" in the field of plastic products.
Long term high oil and plastic prices will force plastic production companies to undergo technological innovation. On the one hand, they will work harder to develop lightweight technology and produce equally sturdy products with less plastic (such as thinner but constant strength trash cans). On the other hand, the economy of recycling plastics will be greatly improved. When the price of virgin plastics is high, using recycled materials (PCR) becomes very cost-effective. This will stimulate the development of the entire plastic recycling industry and promote the industry's transition to a circular economy. We have customers of recycling companies whose 'products' (recycled plastics) may see their value skyrocket as a result.
In summary
A large-scale war in the Middle East will strike the plastic production industry like a heavy blow from multiple dimensions such as cost, logistics, psychology, demand, and pattern, ultimately leading to a sharp rise in plastic product prices in the short term and potentially reshaping the entire industry's operating mode in the long term.
