Geopolitical conflicts ignite chemical market trends. Who gets sold off after the panic?

Geopolitical conflicts continue, and after a collective surge in the domestic chemical sector, a “watershed” has arrived.

On March 4th, the market closed with the chemical sector showing mixed performance after opening higher in the morning. Among individual stocks, Beihua Shares (002246.SZ) hit the daily limit during trading and closed at 24.11 yuan, up 9.64%. Several methanol concept stocks, which had hit the daily limit the previous trading day, showed mixed gains on the 4th, with Luzhou Tianhua (000912.SZ) and Jinniu Chemical (600227.SH) closing up 5.19% and 5.5%, respectively; Chitianhua (600227.SH) fell 3.6%; Guanghui Energy (600256.SH), after two consecutive limit-ups, closed down 3.37%.

From the futures market data, the main styrene futures closed at 8,213 yuan/ton, up 2.27%; PTA main futures closed at 5,694 yuan/ton, with a cumulative increase of over 8% in the past week; methanol futures closed at 2,553 yuan/ton, with a weekly increase of over 17%, though several longer-term contracts declined.

“This disruption in the supply chain caused by the escalation of US-Iran conflicts and the blockade of the Strait of Hormuz has led to a surge in energy prices such as oil and natural gas, significantly catalyzing oil, gas, and coal chemical companies,” a trader told reporters. Regarding the domestic chemical industry, specific varieties like PTA, styrene, and methanol, due to their different fundamental patterns, have shown very different resilience in rising. It is expected that as market sentiment gradually cools, the chemical sector will transition from a broad rally to a phase of fundamental validation.

Supply disruptions lead to repeated activity in the chemical sector

The halt in shipping through the Strait of Hormuz has suddenly broken the nerves of the global chemical supply chain.

This week, the domestic chemical futures market experienced a rare collective surge. Methanol main contracts hit the daily limit for two consecutive days, followed closely by plastics and polypropylene hitting the limit.

In the A-share market, the chemical sector has followed the rise of oil and gas stocks this week. PetroChina, Sinopec, and CNOOC all hit the daily limit. The chemical price index jumped 4.8% in two days, breaking through 4,219 points and reaching a new high since late 2025.

CITIC Construction Investment’s research report pointed out that, based on cheap oil and gas resources and government subsidies, Iran has become the second-largest methanol producer globally after China and the largest urea exporter in the Middle East, with an annual capacity of 8-9 million tons, accounting for 12% of global trade. If the Strait of Hormuz remains blocked, it will directly impact energy security in Asia and put cost pressure on high-energy-consuming industries such as ceramics, glass, non-ferrous metal products, and chemicals. However, it is worth noting that China’s energy self-sufficiency rate is up to 85%, with oil dependence at about 72% in 2024, natural gas dependence at 43%, and overall risk resistance better than Europe (less than 40%).

Caitong Fund’s analysis for First Financial suggests that the escalation of US-Iran conflicts has become a short-term core disturbance to the market. On the first day after the event escalated, risk appetite in the A-share market declined, with oil and gas, oil services, shipping, military, and gold becoming reflexive bullish sectors. However, reviewing history, geopolitical conflicts are often short-term shocks. Currently, panic levels are high, but unless a global systemic financial or energy crisis is triggered, the marginal impact will quickly diminish.

Differentiation has arrived: who relies on sentiment, who relies on fundamentals?

As panic emotions gradually subside, market differentiation has begun to emerge.

By the close on March 4th, the CSI Petrochemical Industry Index fell 1.86%. Among constituent stocks, some gained while others declined: Chuanfa Longmang (002312.SZ) led with a 3.21% increase; Tongkun Shares (601233.SH) fell 9.54%, Hengli Petrochemical (600346.SH) dropped 8.65%, and Xinfengming (603225.SH) declined 7.15%.

Market analysts believe that under the high volatility of geopolitics, funds are more willing to take profits on high-valuation stocks. Different varieties, due to their own fundamentals, have responded very differently under the same geopolitical shocks, with some major funds choosing to retreat to avoid risks.

Specifically, methanol has led the recent surge among chemical products. “But once geopolitical conflicts ease, energy chemical sectors are likely to see a correction, and domestic capacity reserves also have room for replenishment, so long-term pressure is limited,” said Zheng Xiyu, an analyst at Guoxin Futures. He noted that by 2025, China’s apparent methanol consumption will reach 106.4484 million tons, with domestic production at 92.3355 million tons and imports at 14.4309 million tons, accounting for about 13.5% of total consumption. Iran’s share of China’s methanol consumption is less than 8%. Even if Iran’s supply is completely cut off, the direct impact on national supply and demand would not be “fatal.”

Additionally, domestic inventory data shows substantial stock levels. According to Zhuochuang Information, as of the end of February, coastal methanol inventory was 1.3987 million tons. Although in a destocking phase, the pace is slow, and inventory levels are still about 35% higher than the same period last year.

Zheng Xiyu pointed out that high port inventories provide a relatively ample window for industry participants to observe and adjust. Meanwhile, downstream MTO companies also hold raw material inventories at historically high levels. “Even if March imports do not recover as expected, coastal enterprises can maintain normal production by consuming inventories, and short-term supply shortages are unlikely,” he said.

Furthermore, the production costs of basic chemicals like olefins and aromatics are closely linked to crude oil prices, with rising oil prices directly pushing up production costs. For example, styrene, an important basic chemical raw material produced from benzene and ethylene, has prices closely tied to oil. Rising geopolitical risks in the Middle East have driven up crude oil prices, thereby increasing costs across the petrochemical industry chain.

Regarding styrene, CITIC Futures believes that from a cost perspective, the supply-demand balance of pure benzene remains stable, and inventory reduction is unlikely in the short term. In terms of supply, March is expected to see plant maintenance, leading to a decrease in styrene operating rates. Overall, although there is no strong cost-driven support currently, improved supply-demand structure should push styrene back into inventory in March, with the near-term fundamentals remaining decent. Future focus should be on crude oil trends, actual maintenance progress, and post-holiday demand recovery.

“Ethylene glycol shows strong expectations but weak reality,” a futures trader told reporters. Currently, polyester demand has slightly increased, but the pace of terminal weaving restart is slow, and the sustainability of demand remains to be verified.

The trader also warned that, from a fundamental perspective, the recent limit-up streaks of chemicals like methanol and styrene, driven by high geopolitical premiums, entail greater risks. Investors chasing chemical hotspots should carefully examine whether they are paying for geopolitical panic or if there are genuine supply-demand reversal fundamentals.

(Article source: First Financial)