Amid escalating hostilities between the US and Iran, the chemical market-after a sharp end-of-month slump-has resumed an aggressive upward trend following its August gains.
In August, the US-Iran standoff reached an impasse, casting doubt on the prospects of reopening the Strait of Hormuz. On the cost side, international crude oil and coking coal prices surged simultaneously, while upstream spot inventories remained low; these factors drove both chemical futures and spot prices steadily upward. By August 26, however, news that Iran had reached an agreement with Oman regarding revenue sharing from the Strait led to expectations that the geopolitical risk premium would dissipate. Consequently, chemical markets plummeted in tandem with crude oil; on August 26, ethylene glycol and methanol futures-most sensitive to Middle East geopolitical developments-hit their daily downside limits. Yet, the situation took another dramatic turn.
On August 31 and September 1, the US-Iran conflict escalated sharply with repeated exchanges of fire, causing international crude oil prices to skyrocket. The rapid deterioration of safe passage conditions in the Strait of Hormuz drove a surge in global oil prices; by intraday trading on September 2, WTI had risen to around $84–$85 per barrel, and Brent to approximately $89–$90 per barrel.
Triggered by these sudden events, the geopolitical risk premium for chemical futures and spot prices staged a strong comeback. As shown in the chart above, multiple chemical futures hit their daily upside limits on August 31 and September 2; notably, methanol and ethylene glycol led the market rally, hitting the daily limit twice within three days. The domestic chemical market's upward momentum was steeper than that of international crude oil. By September 2, futures prices for methanol, ethylene glycol, pure benzene, styrene, and propylene had surpassed the highs recorded on April 8 (prior to the US-Iran ceasefire), whereas international crude oil prices had not breached the $100-per-barrel mark. Currently, the primary contracts for most liquid chemicals are the near-term October and November contracts, and inventories in the liquid chemical market are at five-year lows. With the "Golden September" peak season approaching, these factors are effectively fueling an aggressive rally in the chemical market.
The magnitude and duration of the market rally remain uncertain; however, the outlook remains positive for commodities characterized by low inventory bases and significant exposure to import dynamics.
Looking ahead, in addition to the uncertainty surrounding Middle East geopolitics, the question of whether the Federal Reserve will proceed with a scheduled interest rate hike on September 16 remains a major variable. A hawkish speech delivered by Fed Chair Warsh at the Jackson Hole symposium on August 28 raised the probability of a September rate hike to 60.4%. Speaking at the Jackson Hole global central banking symposium, Warsh shifted away from the vague dovish stance seen at the July FOMC meeting to signal a clearly hawkish position; subsequently, global stock markets and precious metals (gold and silver) experienced a continuous decline. Two critical data releases remain before September 16-the U.S. seasonally adjusted non-farm payrolls for August (due September 4) and the U.S. Consumer Price Index (CPI) for August (due September 11)-which will be pivotal in determining the Federal Reserve's interest rate trajectory. Overall, the impact of a Fed rate hike on the domestic chemical market represents the materialization of a bearish factor.
There is no short-term resolution to the U.S.-Iran standoff, and the likelihood of a prolonged conflict is increasing; while the Strait of Hormuz remains open under U.S. naval escort, passage is far from smooth, and international oil prices are highly likely to remain volatile at elevated levels. The chemical spot market is underpinned by three factors: supply contraction, inventory destocking, and strengthening futures prices. Methanol, ethylene glycol, pure benzene, and styrene-characterized by low inventory bases and significant import exposure-remain promising; however, the magnitude and duration of this market trend remain uncertain, necessitating a wait-and-see approach regarding geopolitical developments, the status of shipping through the strait, the Fed's rate hike schedule, and downstream market feedback.
