Mid-March saw a fresh escalation in US-Iran tensions, with military action targeting Iran’s Kharg Island — a critical oil export hub. The event sent crude oil briefly surging above $100 per barrel in early trading, reigniting volatility across global energy and chemical markets.
The Middle East situation continues to dominate price formation, particularly as navigation through the Strait of Hormuz remains obstructed. With approximately one-fifth of global oil flows passing through the strait, even partial disruption embeds a significant geopolitical risk premium into crude.
Although discussions around potential strategic reserve releases have emerged, the physical constraint on maritime transport cannot be easily offset. In the near term, oil prices are expected to remain structurally elevated.
For the MDI market, the transmission channel is clear: crude → benzene → MDI production costs.
China Polymeric MDI Market: Surge, Correction, Then Rebound
Against this backdrop, China’s polymeric MDI market experienced sharp intraday volatility.
On March 9, domestic offers surged to CNY 17,500–18,000/tonne, reflecting heightened geopolitical anxiety and cost-push expectations. However, by the afternoon of March 10, prices corrected as holders of lower-cost inventory took profits, creating temporary downward pressure.
The correction phase triggered increased two-way trading. Buyers entered at perceived low levels, expanding transaction ranges to CNY 15,500–16,900/tonne at one point.
Subsequent rebounds in international oil prices restored bullish sentiment. By March 13, the polymeric MDI market had stabilized, and as of March 16, mainstream drummed polymeric MDI reference prices stood at CNY 16,800–17,000/tonne.
Compared with levels prior to the late-February escalation, prices have risen approximately CNY 2,800/tonne — a cumulative increase of around 20%.
The rapid price movement underscores that the current MDI market is being driven more by external macro risk than by domestic demand fundamentals.
Cost-Side Support: Benzene Outpaces MDI Gains
The most critical driver remains the cost side.
MDI production relies heavily on benzene, whose pricing is closely linked to crude oil movements. Since early March, domestic benzene prices have climbed sharply, reaching CNY 8,300–8,400/tonne by mid-month.
Compared to late February levels near CNY 6,000/tonne, this represents a cumulative increase of roughly 37% — significantly outpacing the 20% rise in polymeric MDI prices.
This differential suggests that MDI margins have not expanded excessively; instead, producers are still catching up to upstream cost inflation. As long as crude oil retains a geopolitical premium and shipping risks remain unresolved, benzene will continue to provide strong cost-floor support for MDI.
Supply-Side Tightening: Domestic Hikes and Limited Imports
On the supply side, major producers have responded swiftly to rising upstream costs.
Domestic and multinational suppliers have successively raised mid-March and March list prices, with weekly increases in some cases reaching CNY 2,000/tonne. The coordinated upward adjustments reinforce market expectations of sustained firmness.
Import availability is also constrained:
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Certain Korean and Japanese producers have suspended fresh offers.
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Maintenance shutdowns are scheduled for April–May.
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Middle East supply disruptions are limiting export flows to Asia.
The result is limited incremental cargo availability from key overseas sources. Import supplementation remains weak, further tightening domestic supply expectations.
Demand-Side Resistance Meets Preventive Stockpiling
Despite strong cost support, high prices are beginning to test downstream tolerance.
Since early March, rapid increases across multiple raw materials have compressed margins for polyurethane processors. Some downstream manufacturers are hesitant to purchase aggressively at elevated levels.
However, the fear of further escalation is also triggering preventive stockpiling among buyers with rigid demand. This creates a paradox: resistance to high prices coexists with precautionary purchasing, sustaining turnover even during corrections.
If crude remains elevated and geopolitical tensions persist, downstream profitability could face further pressure, potentially moderating operating rates. Yet in the near term, supply anxiety is preventing any sharp downward correction.
Market Sentiment: War Premium Dominates
Global commodity markets are currently operating in what traders describe as “war premium” mode. Any development affecting shipping security in the Persian Gulf immediately translates into speculative activity and rapid repricing.
For China’s polymeric MDI market, this means:
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High volatility
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Strong cost-floor support
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Limited downside space
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Sentiment-driven short-term swings
Even if geopolitical tensions ease temporarily, the average cost of circulating inventory has already shifted higher. This raises the probability that the market will consolidate at elevated levels rather than revert to pre-conflict pricing.
Outlook: Break Above CNY 18,000 or High-Level Consolidation?
Looking ahead, two scenarios dominate:
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Continued escalation
If Middle East tensions persist and crude remains above $100, polymeric MDI prices may attempt another upward breakthrough toward or beyond CNY 18,000/tonne. -
Partial easing
If risk premiums gradually recede, prices are more likely to consolidate in a high-level range of CNY 17,000–17,500/tonne, supported by elevated benzene costs and limited imports.
In either scenario, the probability of a sharp collapse appears low in the near term.
The MDI market has entered a phase of high-level oscillation, characterized by strong cost support, tight external supply, and persistent geopolitical uncertainty.
Until navigation security through the Strait of Hormuz is fully restored and crude oil risk premiums dissipate, polymeric MDI pricing will remain structurally biased upward.
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