UBS China Chemical Sector: Impact of the Iran Situation on China's Oil and Chemical Sector
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UBS analyzes the potential impact of the Iran situation on China's petrochemical sector, noting that military conflict could push crude oil prices higher, particularly for near-month contracts. The primary risk centers on the Strait of Hormuz, a chokepoint for roughly 20% of global oil supply, alongside potential damage to Iranian infrastructure affecting 3.3 million barrels per day.
For chemicals, Iran remains a major global supplier. Its production capacity accounts for 10% of global methanol, 5% of urea, and 3% each for polyethylene (PE) and ethylene glycol (EG). In 2024, Iran supplied 65% of China's methanol imports, 10% of PE imports, and 4% of EG imports, representing 10%, 3%, and 1% of China's apparent consumption, respectively.
Rising geopolitical risk benefits upstream and oil service companies. UBS favors PetroChina, CNOOC, COSL, and Jereh. Restricted supply from Iran simultaneously supports domestic pricing for methanol, urea, PE, EG, and sulfur.
Within the chemical sector, UBS maintains Buy ratings on Baofeng Energy and Satellite Chemical as beneficiaries of higher oil prices. Hualu Hengsheng and Asia Potash International are also rated Buy for fertilizer exposure. OPEC+ may accelerate production to offset disruptions, but non-OPEC supply responses will require more time to materialize.