Huatai Securities: Over a month of control of the Strait of Hormuz has deepened supply disruptions in the Asian petrochemical chain

A Haitong Securities research report says that Holmak Strait has been under control for more than a month. The resulting disruption of oil supply has led to broadly reduced operating rates across Asia’s petrochemical industry chains, and rising costs and tighter supply have pushed product prices up across the board. The spreads between international diesel and marine fuel and jet fuel have surged; the ethylene/propylene chains have seen price increases blocked due to insufficient demand, while the aromatics chain has shown differentiation based on varying product demand resilience. Asian countries face different risks due to differences in their levels of strategic petroleum reserves and alternative energy sources; China’s risk of supply-chain disruption is relatively lower. Meanwhile, a contraction in industry capital expenditure and the “dual control over carbon” will drive optimization of the supply landscape. This supply disruption may accelerate the optimization of Asia’s petrochemical industry structure. As uncertainty in the situation declines afterward, downstream restocking demand is expected to be released, which could improve the profitability of chemical products. In the long run, this event is expected to accelerate China’s strategic steps toward energy self-reliance and controllability. It is expected that the development pace of oil-demand substitution routes such as modern coal-to-chemicals, green hydrogen, and new energy will speed up, thereby gradually reducing reliance on imported oil and gas.

Full text as follows

Haitong | Chemical Deep Dive: Strait controls for over a month lead to deeper supply disruption along Asia’s petrochemical chain

Holmak Strait has been under control for more than a month. The resulting disruption of oil supply has led to broadly reduced operating rates across Asia’s petrochemical industry chains, and rising costs and tighter supply have pushed product prices up across the board. The spreads between international diesel and marine fuel and jet fuel have surged. Price increases in the ethylene/propylene chains have been blocked due to insufficient demand, while the aromatics chain has differentiated performance according to varying product demand resilience. Asian countries face different risks due to differences in their levels of strategic petroleum reserves and alternative energy sources, with China’s risk of supply-chain disruption relatively lower. Meanwhile, a contraction in industry capital expenditure and the “dual control over carbon” will drive optimization of the supply landscape. This supply disruption may accelerate the optimization of Asia’s petrochemical industry structure. As uncertainty in the situation declines afterward, downstream restocking demand is expected to be released, which could improve the profitability of chemical products. In the long run, this event will accelerate China’s strategic steps toward energy self-reliance and controllability. It is expected that the development pace of oil-demand substitution routes such as modern coal-to-chemicals/green hydrogen/new energy will speed up rapidly, thereby gradually reducing reliance on imported oil and gas.

Key takeaways

Under the conflict between the US, Israel, and Iran, China’s risk of supply disruption is relatively controllable; long-term energy self-reliance and controllability may accelerate

According to Kpler, in 2025, about 31% of global crude oil seaborne volumes pass through the Strait of Hormuz, and the East Asia and South Asia regions have high reliance on this corridor for their crude oil and refined product exports. China is relatively controllable due to its high crude oil reserves and technical substitution options, whereas Japan, South Korea, and India, which are heavily import-dependent or have insufficient reserves, face the risk of supply disruption along their industry chains. If uncertainty in Iran’s situation declines further, combined with downstream inventories having been worked down to relatively low levels, global restocking demand for chemical products could drive a rebound in industry sentiment. On the supply side, since 2025, industry capital expenditure has declined, and the “anti-competition-internalized” / “dual control over carbon” policies have also accelerated the arrival of a supply turning point, so the chemicals sector could see a new round of market activity. Over the long term, this event may accelerate China’s strategy of energy self-reliance and controllability, and substitution routes such as modern coal-to-chemicals/green hydrogen/new energy are expected to develop rapidly.

Driven by costs, chemical products are likely to enter a period of broad price increases; there is a short supply risk for products such as sulfur/yetene/aromatics

According to Baichuan Yingfu and Longzhong Information, on March 27, the prices of sulfur/propylene/ethylene/pure benzene rose by 39%/37%/68%/43%, respectively, compared with the end of February; the cracking spread of Singapore diesel and jet fuel rose by 427%/398%. Due to the decline in crude oil refining load in major regions and tighter trading, international refined product cracking spreads increased sharply. Because the relevant countries implement “protect oil and reduce chemicals,” petrochemical products face an overall reduction in operating rates. In propylene terms, China’s PDH units, accounting for 35% of domestic capacity, have an import dependency on Middle East propane exceeding 60%; the coordinated shutdown of gas-based and oil-based propylene production leads the industry into shortage. The overall reduction in Asia’s ethylene plants’ output has significantly improved the profitability of coal-based and gas-based ethylene, and because China still has about 25% import dependency for ethylene in 2025, the risk of shortages along China’s ethylene chain increases. For pure benzene and PX, since China still relies on imports to the Japanese and Korean regions, the risk of shortages is expected to be relatively high. For sulfur, natural gas and crude oil processing volumes have declined due to the US-Israel-Iran conflict, and byproduct resources have decreased significantly.

Different from the market’s view

The market is concerned that China may face the risk of a disruption in raw material supply. We believe China has high crude oil reserves and technical substitution options, so the risk of raw material supply disruption is controllable. Some parts of the industrial chain may experience structural tightening of supply due to blocked import sources, but overall supply is guaranteed by the domestic production system. The market worries that high oil prices or suppression of global demand will occur. We believe that, affected by the highly changeable situation of the US-Israel-Iran earlier, downstream procurement demand has shifted toward a wait-and-see stance and contraction. With inventories continuing to be worked down, they will fall to relatively low levels. If uncertainty in the US-Israel-Iran situation gradually stabilizes afterward, the chemical industry could enter a new round of boom period led by restocking demand.

Investment conclusion

Substitution routes for coal-based and gas-based inputs are expected to benefit from improved spreads driven by rising oil prices. Under long- to medium-term energy self-reliance and controllability, new energy is expected to become an important lever to offset China’s external energy dependence, and upstream phosphorus resource supply is expected to continue to benefit. Overseas regions such as Japan, South Korea, and Europe face significant competitive pressure for related products due to high energy costs and shortages of oil and gas resources. Relying on leading companies in China that provide stable energy, they are expected to benefit. Bulk chemical sector profits may have already reached their bottom; the turning point for capacity expansion has arrived, and supply optimization along with restocking demand could help accelerate the narrowing-to-recovery of price spreads for bulk commodities.

Risk warning: risk of shortages of oil and gas resources; downstream demand falling short of expectations; substitution-route development falling short of expectations.

（Source: People’s Finance News）