THE IMPACT

As with the toilet-paper frenzy at the start of the COVID-19 pandemic, and drivers pre-emptively filling their tanks on reports of the US-Israel attacks on the Middle East, the first sign of a supply shock is often panic buying.

So far, that’s been good news for some of the petrochemical companies that supply the fashion trade. 

Tongkun Group, which produces about 18 per cent of the world’s polyester yarn, expects net income to triple from a year earlier in the six months through June. That’s likely because apparel firms, fearful of disruption, are bidding up the cost of its products, even as it works through raw materials purchased when oil prices were lower. Polyester futures in China rose 25 per cent in March to their highest level in nearly four years.

Others are doing worse. Shares in Hengli Petrochemical have fallen nearly a third so far this year. The company refines crude oil into polymer resins and fibres, supplying other companies such as Tongkun, and has been idling production as supplies have dwindled. Chinese output of synthetic fibres in April fell 11 per cent from the previous month to its lowest level since 2024. Even Tongkun is skating on thin ice. Using short-term bank loans and quick payments from customers to finance its working capital, it counts on a flawlessly smooth supply chain to avoid a cash crunch. The conflict in Iran risks throwing a spanner in that mechanism.

These issues are likely to get worse before they get better. Compared to gasoline and diesel, primary plastics are relatively easy to store, in warehouses, spools and sacks. That means there’s slack in the system to absorb shocks, at least in the short term. A retrenchment of Chinese polymer production has been one of the main levers by which the global economy managed to survive the loss of roughly 20 per cent of crude supplies. But with shipments through the strait still at low levels and releases from government petroleum reserves running down, that respite won’t last forever.