Geopolitical conflict is redefining feedstock competition in the global chemical industry

For decades, the industry's competitive logic was straightforward. Companies pursued the lowest-cost feedstocks, optimized global supply chains and expanded production scale to improve efficiency. However, as geopolitical tensions, trade disputes and supply-chain disruptions become more frequent, competitiveness is increasingly being determined by a broader set of factors. During China's 15th Five-Year Plan period, policymakers have elevated the balance between development and security into a strategic priority, making feedstock security a core consideration rather than simply a procurement issue.

The recent disruption highlights a structural shift in the chemical industry's competitive landscape. Production routes, sourcing models and product strategies are increasingly being differentiated by their resilience to geopolitical volatility, alongside traditional cost considerations. This evolving dynamic is redefining how competitiveness is assessed across global value chains.

Feedstock Security Is Emerging as the Industry's New Competitive Foundation

The latest disruption highlights differing levels of risk exposure across key chemical feedstocks.

Among China's major petrochemical feedstocks, ethane currently exhibits the highest level of external dependency, with imports almost entirely sourced from the United States. LPG ranks second, with supply heavily concentrated in the United States and the Middle East. Naphtha appears less vulnerable at first glance, but its supply chain remains indirectly exposed through China's high dependence on imported crude oil. By comparison, methanol benefits from a largely domestic supply chain supported by China's coal resources, making it the least vulnerable to external disruptions.

The Middle East conflict highlighted how these differences can translate into operational consequences. Disruptions to shipping routes sharply reduced naphtha and LPG arrivals into China, while ethane imports remained relatively stable and China's domestic methanol production continued operating normally. As a result, feedstock security has moved beyond a cost issue and become a strategic factor affecting production stability.

In an era of heightened geopolitical uncertainty, the most competitive feedstocks may no longer be those offering the lowest prices, but those capable of ensuring reliable and uninterrupted supply.

Production Routes Are Facing a Triple Test of Cost, Security and Sustainability

Differences in feedstock security quickly translated into diverging performance across production routes.

Within China's chemical industry, PDH-based propylene production was among the most affected segments, as it relies heavily on imported propane. Rising feedstock costs and supply disruptions pushed profit margins sharply lower, triggering widespread maintenance shutdowns and operating-rate reductions. Traditional naphtha cracking also came under pressure as both imported and domestic naphtha availability tightened.

By contrast, ethane-based production and coal-based methanol-to-olefins routes demonstrated greater resilience. Stable feedstock availability helped maintain relatively high operating rates despite broader market disruptions.

More importantly, the stress test revealed that future competitiveness can no longer be measured solely by production costs. Instead, chemical production routes are increasingly being evaluated across three dimensions: cost efficiency, supply security and sustainability.

This shift is already reshaping the global industry landscape. In Europe, aging crackers face mounting pressure from high costs, decarbonization requirements and feedstock dependence. Several operators have accelerated closure plans as profitability deteriorates. Japan and South Korea, both heavily reliant on Middle Eastern feedstocks, also experienced significant operating-rate declines during the disruption.

Meanwhile, producers benefiting from structural advantages continue to strengthen their position. US ethane crackers enjoy access to abundant domestic shale-gas resources and remain among the world's most competitive assets. China has pursued a different path, developing a diversified feedstock structure built around integrated refining-petrochemical projects, coal chemicals and light-hydrocarbon utilization. This diversification provides greater resilience against external shocks while preserving flexibility across different market environments.

The result is a gradual shift in competitive advantage toward regions capable of combining cost competitiveness with feedstock security.

Sourcing Strategy Is Becoming as Important as Production Technology

Even within the same production route, sourcing models can produce significantly different outcomes during periods of disruption.

Highly integrated refiners typically benefit from greater control over feedstock supply and cost visibility. Integrated refining-petrochemical models enable refiners to partially buffer external price fluctuations while reducing exposure to physical supply disruptions. Historically, such integration was primarily viewed as a way to improve efficiency. Today, it is increasingly valued as a source of resilience.

However, integrated models are not the only viable solution. Independent procurement models retain important advantages, particularly in terms of flexibility. Companies capable of sourcing feedstocks globally, switching among multiple feedstock options and actively managing price risks can often respond more quickly to changing market conditions.

Product Strategy Will Ultimately Determine Profitability

While feedstock security and sourcing resilience determine operational stability, product strategy remains the most important driver of long-term profitability.

The latest industry cycle has revealed a widening divide between commodity chemicals and higher-value specialty products. Across many commodity segments, oversupply, homogenized competition and weak demand have significantly compressed profit margins. Producers focused on general-purpose polyolefins, ethylene glycol and other bulk chemicals have struggled to generate acceptable returns despite improvements in scale and efficiency.

In contrast, companies with exposure to specialty chemicals, advanced materials and emerging technology sectors have demonstrated considerably stronger performance. Products serving new energy, electronics, advanced manufacturing and high-performance material applications continue to benefit from stronger pricing power, higher technical barriers and more resilient demand growth.

The divergence is increasingly visible at the corporate level. Traditional commodity-oriented producers have experienced persistent profitability challenges, while companies that successfully expanded into higher-value materials have maintained healthy earnings, strong cash flow and continued investment capacity. This reflects the growing role of product mix in shaping profitability across the chemical industry.

The above content is the major conclusions and highlights extracted from the 'Chemical Industry Stress Test Under Geopolitical Conflict' section of the latest China (Energy Transition) Policy Perspective (produced by GL Consulting) report.

The full report examines how geopolitical risks, supply-security priorities and industrial upgrading are reshaping China's energy, chemical and green-fuel sectors during the 15th Five-Year Plan period. It highlights a broader shift in the global chemical industry from cost-driven competition toward a framework increasingly defined by resilience, supply-chain security and value creation. The analysis focuses on chemical feedstock security, refining and petrochemical competitiveness, high-value-added materials, and the commercialization outlook for green fuels including green methanol, SAF, hydrogen and ammonia.

For the full report, please contact glconsulting@mysteel.com.