Petrochemical markets are expected to see further price corrections as supply recovers and demand remains subdued
Global petrochemical markets have entered a new phase following the easing of the sharp price increases driven by supply disruptions and geopolitical tensions during Q2 2026, with prices gradually returning to levels more closely aligned with underlying market fundamentals. 
Analysts and industry experts told Argaam that while GCC producers continue to benefit from their competitive advantage of lower feedstock costs, the sector is expected to remain under pressure from weaker profit margins in the coming period as production and exports gradually recover and the likelihood of a global supply increase rises amid weak demand.
Analysts believe GCC producers will remain in a stronger cost position than their peers in Europe and Asia. However, this advantage may not be sufficient to protect earnings if product prices continue to decline, alongside the liquidation of accumulated inventories and the full resumption of shipping activity.
Argaamreviewed the opinions of several industry experts on the key factors expected to shape the petrochemical sector over the coming months, including price and margin expectations, as well as the impact of global demand and inventory levels, as well as trade and shipping trends on companies’ performance during H2 2026.
Prices retreat after temporary spike
Joe Douaihy, economist at Coface
Joe Douaihy, sector economist at Coface, said petrochemical product prices surged sharply during March and April following the closure of the Strait of Hormuz, before coming under pressure as markets gradually returned to more normal conditions in line with movements in the oil market.
In an interview with Argaam, he said the impact of these developments on the sector’s Q2 performance would vary, noting that the main effect in late Q1 and early Q2 was temporary production losses, particularly in Asia, due to feedstock supply disruptions.
Douaihy added that the overall impact on producers was negative. However, companies that managed to maintain or increase production temporarily benefited from improved margins, as higher selling prices helped offset part of the decline in sales volumes.
James Wilson, an analyst at ICIS
James Wilson, an analyst at ICIS, said the market anticipated a severe supply shortage, but the actual impact proved to be less significant than expected. He noted that market conditions tightened during March and April, before gradually rebalancing from May onward, leading to a subsequent decline in prices.
Wilson told Argaamthat the decline in crude oil prices was one of the key factors behind lower petrochemical product prices, adding that the actual scale of supply disruptions was less severe than initially estimated.
According to ICIS data, updated on June 26, weekly benchmark prices for basic chemicals declined across major markets. The Northeast Asia index fell 7.3% to 114.2 points, the Northwest Europe index declined 1.3% to 147.6 points, and the US Gulf Coast index slipped 1% to 159.8 points.
Despite the recent declines, the indices remained higher on an annual basis, with Northeast Asia up 10.1%, Northwest Europe up 30.3%, and the US Gulf Coast up 31.4%. The data indicate that the recent pullback followed a strong rally during the crisis, with prices still above year-earlier levels, suggesting the market has given back part of its recent gains without erasing them entirely.
Analysts believe the decline is consistent with the fading impact of the temporary price surge triggered by geopolitical disruptions, as the market gradually returns to underlying fundamentals, namely oversupply and weak demand.
Asia and China at the center of the shift
Wilson said feedstock supply disruptions to Asian crackers resulted in the shutdown of around 45% of ethylene production capacity outside China, while operating rates within China declined by about 10%.
He noted that China’s production of ethylene and propylene fell by about 1 million tons in April, accompanied by a sharp decline in imports and an increase in exports. As a result, olefin availability in China dropped by nearly 3 million tons, although demand declined only modestly.
Wilson said China relied on its large inventories of products such as polyethylene and polypropylene to offset part of the supply shortage.
He added that the country also reduced imports and increased exports, helping ease supply shortages across Asian markets.
According to Wilson, China took advantage of the temporary market disruption to expand exports and establish new trade relationships.
However, he stressed that Chinese producers are unlikely to match the long-term cost competitiveness of Middle Eastern producers. He said these trade shifts were a temporary response to exceptional market conditions rather than a structural change in global trade.
Temporary improvement in Europe
Douaihy said Europe was less affected by feedstock availability, allowing producers to maintain output and slightly improve operating rates while benefiting from higher prices.
However, he noted that the improvement in margins is likely to be temporary, given persistently high naphtha and energy costs, as well as ongoing global oversupply.
The US benefited more from the disruptions, with North American producers increasing ethylene output and exports while taking advantage of higher global prices and relatively stable ethane feedstock costs, the analyst pointed out.
Within the GCC, he said the impact varied, with producers located on the Red Sea coast, such as Rabigh, being less exposed to disruptions in the Strait of Hormuz and better positioned to continue serving export markets.
He added that the crisis temporarily gave Red Sea producers an advantage over exporters relying on Gulf shipping routes, whose shipments faced greater logistical constraints.
Margins under pressure
Douaihy said profit margins are expected to come under greater pressure during Q3 2026, although GCC producers are likely to remain in a relatively stronger position than their peers in Europe and Asia.
He explained that access to low-cost ethane continues to provide GCC producers with a key structural advantage, limiting the impact of higher feedstock costs compared with naphtha-based producers.
However, he noted that this advantage does not insulate GCC producers from global market pressures, as their product portfolios remain heavily exposed to commodity chemicals, particularly polyolefins, which are expected to remain under pressure amid a medium-term supply surplus.
Douaihy highlighted that if the Strait of Hormuz remains open and GCC production quickly returns to higher levels, additional volumes could enter a market already facing temporary oversupply, putting further downward pressure on product prices and margins during the third quarter.
He stressed that the issue is not the loss of the GCC’s cost advantage, but rather the decline in product prices to levels that erode profitability despite that advantage.
Inventories and shipping recovery to add supply pressure
Wilson said several Middle Eastern producers continued operating during the disruption despite export constraints, increasing the likelihood of inventory accumulation.
He said the gradual normalization of shipping could prompt these producers to release accumulated inventories and regain market share, adding to global supply and weighing on prices.
Wilson added that Iranian products could also return to global markets if sanctions are lifted, further increasing supply.
He noted that demand has weakened compared to pre-crisis levels, warning that some producers may be forced to shut down plants if oversupply intensifies and prices and margins continue to decline.
Douaihy said inventory levels will be the key indicator to monitor in the near term.
He explained that export disruptions during H1 2026 led some GCC petrochemical producers, particularly those located within the Arabian Gulf, such as Jubail, to continue production despite limited export capacity.
As a result, some companies are likely to have accumulated finished-product inventories.
With shipping routes gradually reopening, those producers are expected to accelerate inventory sales to free up working capital, ease storage constraints, and restore normal production and export flows.
He added that this could temporarily increase supply from GCC producers, even if it places additional downward pressure on global petrochemical prices.
Shipping costs ease, supply reliability remains the bigger risk
Douaihy said shipping and logistics costs rose sharply during H1 2026 due to geopolitical risk premiums, including higher insurance costs, tanker freight rates, and uncertainty surrounding key maritime routes.
He noted that these pressures have eased in recent weeks but have not disappeared, as the situation remains fragile, particularly around the Strait of Hormuz, where any renewed escalation could push shipping and insurance costs higher again.
Douaihy noted that direct shipping costs are not the main concern for GCC petrochemical producers, as logistics still account for a relatively small share of total product costs and have a limited impact on end customers when disruptions are temporary.
Instead, he said the greater risk lies in supply reliability, warning that repeated disruptions to major shipping routes could prompt buyers to diversify their supplier base if they begin to view GCC supplies as less dependable.
He added that such a shift in purchasing behavior would be more damaging to GCC producers than any temporary increase in logistics costs.
Market faces temporary correction or deeper downturn
Wilson said petrochemical prices are likely to remain under pressure as oil prices decline and the market gradually returns to an oversupply environment, with further price weakness expected over the next 18 months, particularly in Europe.
Douaihy said it is still too early to determine whether the recent decline in petrochemical prices is merely a correction following a temporary rally or the beginning of a more prolonged downturn.
He noted that spot markets are currently pricing in a smooth reopening of the Strait of Hormuz, while oil-linked feedstocks such as naphtha remain relatively inexpensive.
Douaihy added that a rapid recovery in GCC production would likely restore the market to its pre-crisis conditions of global oversupply, weaker prices, and tighter margins.
However, he said any renewed disruption to the Strait of Hormuz or greater-than-expected damage could trigger another rally in petrochemical prices by tightening global supplies.
Petrochemical markets are expected to see further price corrections as supply recovers and demand remains subdued
Global petrochemical markets have entered a new phase following the easing of the sharp price increases driven by supply disruptions and geopolitical tensions during Q2 2026, with prices gradually returning to levels more closely aligned with underlying market fundamentals.
Analysts and industry experts told Argaam that while GCC producers continue to benefit from their competitive advantage of lower feedstock costs, the sector is expected to remain under pressure from weaker profit margins in the coming period as production and exports gradually recover and the likelihood of a global supply increase rises amid weak demand.
Analysts believe GCC producers will remain in a stronger cost position than their peers in Europe and Asia. However, this advantage may not be sufficient to protect earnings if product prices continue to decline, alongside the liquidation of accumulated inventories and the full resumption of shipping activity.
Argaamreviewed the opinions of several industry experts on the key factors expected to shape the petrochemical sector over the coming months, including price and margin expectations, as well as the impact of global demand and inventory levels, as well as trade and shipping trends on companies’ performance during H2 2026.
Prices retreat after temporary spike
Joe Douaihy, economist at Coface
Joe Douaihy, sector economist at Coface, said petrochemical product prices surged sharply during March and April following the closure of the Strait of Hormuz, before coming under pressure as markets gradually returned to more normal conditions in line with movements in the oil market.
In an interview with Argaam, he said the impact of these developments on the sector’s Q2 performance would vary, noting that the main effect in late Q1 and early Q2 was temporary production losses, particularly in Asia, due to feedstock supply disruptions.
Douaihy added that the overall impact on producers was negative. However, companies that managed to maintain or increase production temporarily benefited from improved margins, as higher selling prices helped offset part of the decline in sales volumes.
James Wilson, an analyst at ICIS
James Wilson, an analyst at ICIS, said the market anticipated a severe supply shortage, but the actual impact proved to be less significant than expected. He noted that market conditions tightened during March and April, before gradually rebalancing from May onward, leading to a subsequent decline in prices.
Wilson told Argaamthat the decline in crude oil prices was one of the key factors behind lower petrochemical product prices, adding that the actual scale of supply disruptions was less severe than initially estimated.
According to ICIS data, updated on June 26, weekly benchmark prices for basic chemicals declined across major markets. The Northeast Asia index fell 7.3% to 114.2 points, the Northwest Europe index declined 1.3% to 147.6 points, and the US Gulf Coast index slipped 1% to 159.8 points.
Despite the recent declines, the indices remained higher on an annual basis, with Northeast Asia up 10.1%, Northwest Europe up 30.3%, and the US Gulf Coast up 31.4%. The data indicate that the recent pullback followed a strong rally during the crisis, with prices still above year-earlier levels, suggesting the market has given back part of its recent gains without erasing them entirely.
Analysts believe the decline is consistent with the fading impact of the temporary price surge triggered by geopolitical disruptions, as the market gradually returns to underlying fundamentals, namely oversupply and weak demand.
Asia and China at the center of the shift
Wilson said feedstock supply disruptions to Asian crackers resulted in the shutdown of around 45% of ethylene production capacity outside China, while operating rates within China declined by about 10%.
He noted that China’s production of ethylene and propylene fell by about 1 million tons in April, accompanied by a sharp decline in imports and an increase in exports. As a result, olefin availability in China dropped by nearly 3 million tons, although demand declined only modestly.
Wilson said China relied on its large inventories of products such as polyethylene and polypropylene to offset part of the supply shortage.
He added that the country also reduced imports and increased exports, helping ease supply shortages across Asian markets.
According to Wilson, China took advantage of the temporary market disruption to expand exports and establish new trade relationships.
However, he stressed that Chinese producers are unlikely to match the long-term cost competitiveness of Middle Eastern producers. He said these trade shifts were a temporary response to exceptional market conditions rather than a structural change in global trade.
Temporary improvement in Europe
Douaihy said Europe was less affected by feedstock availability, allowing producers to maintain output and slightly improve operating rates while benefiting from higher prices.
However, he noted that the improvement in margins is likely to be temporary, given persistently high naphtha and energy costs, as well as ongoing global oversupply.
The US benefited more from the disruptions, with North American producers increasing ethylene output and exports while taking advantage of higher global prices and relatively stable ethane feedstock costs, the analyst pointed out.
Within the GCC, he said the impact varied, with producers located on the Red Sea coast, such as Rabigh, being less exposed to disruptions in the Strait of Hormuz and better positioned to continue serving export markets.
He added that the crisis temporarily gave Red Sea producers an advantage over exporters relying on Gulf shipping routes, whose shipments faced greater logistical constraints.
Margins under pressure
Douaihy said profit margins are expected to come under greater pressure during Q3 2026, although GCC producers are likely to remain in a relatively stronger position than their peers in Europe and Asia.
He explained that access to low-cost ethane continues to provide GCC producers with a key structural advantage, limiting the impact of higher feedstock costs compared with naphtha-based producers.
However, he noted that this advantage does not insulate GCC producers from global market pressures, as their product portfolios remain heavily exposed to commodity chemicals, particularly polyolefins, which are expected to remain under pressure amid a medium-term supply surplus.
Douaihy highlighted that if the Strait of Hormuz remains open and GCC production quickly returns to higher levels, additional volumes could enter a market already facing temporary oversupply, putting further downward pressure on product prices and margins during the third quarter.
He stressed that the issue is not the loss of the GCC’s cost advantage, but rather the decline in product prices to levels that erode profitability despite that advantage.
Inventories and shipping recovery to add supply pressure
Wilson said several Middle Eastern producers continued operating during the disruption despite export constraints, increasing the likelihood of inventory accumulation.
He said the gradual normalization of shipping could prompt these producers to release accumulated inventories and regain market share, adding to global supply and weighing on prices.
Wilson added that Iranian products could also return to global markets if sanctions are lifted, further increasing supply.
He noted that demand has weakened compared to pre-crisis levels, warning that some producers may be forced to shut down plants if oversupply intensifies and prices and margins continue to decline.
Douaihy said inventory levels will be the key indicator to monitor in the near term.
He explained that export disruptions during H1 2026 led some GCC petrochemical producers, particularly those located within the Arabian Gulf, such as Jubail, to continue production despite limited export capacity.
As a result, some companies are likely to have accumulated finished-product inventories.
With shipping routes gradually reopening, those producers are expected to accelerate inventory sales to free up working capital, ease storage constraints, and restore normal production and export flows.
He added that this could temporarily increase supply from GCC producers, even if it places additional downward pressure on global petrochemical prices.
Shipping costs ease, supply reliability remains the bigger risk
Douaihy said shipping and logistics costs rose sharply during H1 2026 due to geopolitical risk premiums, including higher insurance costs, tanker freight rates, and uncertainty surrounding key maritime routes.
He noted that these pressures have eased in recent weeks but have not disappeared, as the situation remains fragile, particularly around the Strait of Hormuz, where any renewed escalation could push shipping and insurance costs higher again.
Douaihy noted that direct shipping costs are not the main concern for GCC petrochemical producers, as logistics still account for a relatively small share of total product costs and have a limited impact on end customers when disruptions are temporary.
Instead, he said the greater risk lies in supply reliability, warning that repeated disruptions to major shipping routes could prompt buyers to diversify their supplier base if they begin to view GCC supplies as less dependable.
He added that such a shift in purchasing behavior would be more damaging to GCC producers than any temporary increase in logistics costs.
Market faces temporary correction or deeper downturn
Wilson said petrochemical prices are likely to remain under pressure as oil prices decline and the market gradually returns to an oversupply environment, with further price weakness expected over the next 18 months, particularly in Europe.
Douaihy said it is still too early to determine whether the recent decline in petrochemical prices is merely a correction following a temporary rally or the beginning of a more prolonged downturn.
He noted that spot markets are currently pricing in a smooth reopening of the Strait of Hormuz, while oil-linked feedstocks such as naphtha remain relatively inexpensive.
Douaihy added that a rapid recovery in GCC production would likely restore the market to its pre-crisis conditions of global oversupply, weaker prices, and tighter margins.
However, he said any renewed disruption to the Strait of Hormuz or greater-than-expected damage could trigger another rally in petrochemical prices by tightening global supplies.
