Suez Canal Crisis: Impact On Global Chemical Market

April 11, 2021

On the morning of 23rd March 2021, an unthinkable event happened that sent shockwaves through the global supply lines—the Suez Canal was obstructed after an accidental grounding of a container ship. The mammoth cargo ship was set free after almost a week, raising hopes of a quick rebound that would limit the repercussions of a disruption that had paralyzed billions of dollars in global trade. The Canal is one of the world's busiest trading routes, and the blockage has a significant negative impact on trade between Europe, North America, Asia, and the Middle East. 

Although the long-term impacts of the grounding are not clear yet, there are some early forecasts regarding its immediate consequences. Maritime and logistics experts have warned that the event will likely result in shipping delays of everyday items for customers worldwide. Delays in shipments caused by the blockage could aggravate the existing supply crunch in some markets. Chemical distribution will be severely affected by the blockage. The disruption could ripple through the arteries of the global economy, affecting the flow of oil, chemicals, semiconductors, plastics, etc.

Without a doubt, the petrochemical industry is going to take a serious hit. The Suez Canal is an important route for crude oil, chemicals, and refined products traveling from the Middle East and the Asia Pacific to Europe and North America. Even a minor disruption would result in a significant choke point to trade at a time when shipping routes are already substantially disarrayed. About one-tenth of the world’s seaborne oil trade flows through the canal and the associated Sumed—or Suez-Mediterranean—pipeline, according to the U.S. Energy Information Administration. The logistic shock that issued from the blockage is bound to increase the prices of oil and derivatives elsewhere. Crude oil prices had jumped 6% overnight on concerns over Suez Canal disruptions but fell by around 2% as demand concerns re-emerged amid fresh lockdowns in Europe and slow vaccine roll-outs. 

The blow could not have come at a worse time for the plastics industry, barely recovering from a slew of hurdles, including pandemic-induced supply shortages and the Texas winter storm. The blockage is predicted to result in a deficiency of raw materials of plastics, particularly polyethylene (PE), polypropylene (PP), and mono ethylene (MEG). This might lead to an increase in production costs and delays in other dependent industries. Plastics find use in almost all consumer goods imaginable, so it is evident that a supply shock will have a negative impact on the market, which is already witnessing heightened demand. 

Meanwhile, semiconductors are another segment that is estimated to be affected by the fallouts of the obstruction. The chips that are usually seen as the “brain” of most electronic consumer goods are at present facing huge supply shortages, according to various reports. The subsequent increase in demand will put pressure on chip-manufacturing industries and push the prices further up.

On the whole, the crisis has highlighted the problematic dependency of the chemical supply chain on the Suez Canal, and it is imperative for the industries to explore alternate trade routes. It also becomes important to invest in cutting-edge R&D like blockchain-based logistic management tools and AI-enabled algorithms to forecast optimal supply chains that consider potential events such as the blockage in the Suez. Global chemical suppliers must take note of the lessons that the crisis teaches us and work in harmony to strengthen the resilience of trade.

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