In June, hope abounded that a preliminary U.S. ceasefire with Iran and the Strait of Hormuz reopening would renormalize plastics markets following war-related supply chain disruptions and price spikes. But in July, the conflict again escalated, causing disturbances and uncertainty, and pushed some converters further toward swapping out virgin materials for recycled resins.
Experts believe one thing is clear for both virgin and recycled markets: Impacts will now last into 2027 regardless of when the conflict potentially ends.
Global petrochemical and polyolefin movement aligns with overall ship activity through the Strait of Hormuz, which dropped off precipitously during the war’s early days in March. Activity remained depressed for months but showed signs of life in late June following the peace deal announcement. That quickly fizzled when bombing resumed in July. Today, ship movement is closer to the low levels observed in early spring, according to the latest data from PortWatch.
Strait of Hormuz ship activity dropped sharply in early March and remained low until a brief uptick in early July
The strait is a leading trade route for polyolefins and their raw material supplies, and volumes can’t be quickly rerouted when it closes, said Jim Owen, senior packaging and logistics analyst at Rabobank. Even U.S. packaging converters that source material domestically have felt the pinch, he said, considering resin is a global commodity.
Virgin resin vulnerabilities didn’t materialize overnight or come from just one place. Rather, 30 years of investments in cheap resin production concentrated in the Middle East, U.S. and China led to a structural oversupply of polyolefins and the Strait of Hormuz becoming a choke point, according to Owen.
The overabundance of low-cost supply enticed cost-conscious procurement officers, prompting many to overlook the risks. “Procurement’s memory is short,” Owen said.
It takes time for supply chains to restabilize after a shock like the Strait of Hormuz closing, and the rapid switches from war to peace and back again have resulted in a “stop-start recovery,” Owen said. Post-war virgin resin renormalization should be a process best measured in quarters, not weeks, he said, stating expectations for resin prices to remain high through the rest of the year and into next year.
“The reality is, there’s boats that still haven’t left, there’s ports that haven’t cleared, there’s stockpiles of resin that haven’t moved — and now potentially a longer-term closure ahead,” Owen said.
Supply-and-demand stress rapidly drove virgin plastics prices to sky-high levels in the spring, but prices declined briefly during the promise of peace in June, said Esteban Sagel, principal and CEO at Chemical and Polymer Market Consultants. The grades most affected are used in flexible packaging, but those used in rigids also are under pressure.
Crude oil prices have leaped again, including Thursday’s surge to the highest point in two months. Polyolefin prices are expected to follow, experts say.
In fact, in Dow's second-quarter earnings release Thursday, the company noted a 30% year-over-year local price boost in its Packaging & Specialty Plastics division, driven by higher PE prices in all regions, despite a 4% year-over-year drop in volumes. And during the company’s earnings call, executives touted indirect benefits from the Middle East conflict, flagging the likelihood of the company again raising prices for both polyolefins and packaging.
Middle Eastern petroleum infrastructure has been damaged during fighting, and petroleum-derived naphtha is a key feedstock for global polyethylene production; however, North America — the second largest global PE exporter — is more reliant on ethane made domestically from natural gas. In addition, roughly 18 large-scale PE plants either fully or partially shut down early in the conflict, resulting in a loss of more than 9.1 million metric tons of material, Sagel said. The situation is similar, but less severe, for polypropylene, which lost about 3 million metric tons of production.
“That’s a lot of material that was, poof, gone,” he said. Businesses along those supply chains broadly recognized that “it would take some time for the infrastructure that was damaged, and production facilities that were impacted by the conflict, to come back to normal production levels” once the war ended.
Experts generally no longer point to 2026 for market renormalization, regardless of when the war ends. Sagel noted that the elimination of so much polyolefin material from production eventually could end the ongoing oversupply and take global markets closer to a supply and demand balance.
“That will give pricing power back to producers and would help them improve their margins,” he said, adding that polyolefins buyers should expect prices similar to 2024 and early 2025.
Recycled vs. virgin price gap narrows
Price spikes and more challenging logistics for virgin resins this year have opened doors for recycled grades, making their traditionally higher prices more competitive for customers, including packaging converters.
The Iran conflict highlighted the vulnerability of virgin supply chains and “demonstrated that recycled plastics can serve as a regional supply source during periods of market uncertainty,” said Corbin Olson, senior analyst and researcher for plastics recycling at commodity intelligence firm ICIS.
Virgin to recycled substitution has varied by region. Customers were more inclined to switch to recycled material in Europe and Asia, where virgin resin supply chains faced greater disruption from the Middle East conflict than those in the United States, Olson said. Demand for recycled resins in the U.S. has remained relatively flat despite the narrow price premium during the war.
“This is mostly due to many converters in the U.S. continuing to prioritize material consistency and supply reliability over cost alone,” Olson said. “The U.S. also continues to face structural challenges around collection of recycled materials, along with sorting and processing infrastructure.”
Skyrocketing virgin polyolefin prices showed a relatively quick dip upon a peace deal announcement in June, and most recycled resin prices followed to varying degrees — despite a tradition for recycled market movement to lag that of virgin. But different resins are experiencing different effects.
Recycled PET markets are more mature and better supported than polyolefin markets, plus they involve greater volumes of imported material. “Whereas the polyolefin market might have a little bit more exposure to these broader supply chain challenges like we've seen in this war, and it is a little bit more directly influenced by the virgin market,” Olson said.
Renormalization: A matter of when
The buyer’s market that had accompanied resin oversupply will likely shift soon to a seller’s market, experts say. But there are questions about just how much demand will return after the war ends, considering some businesses that consume the material, including for packaging, reworked their sourcing to varying degrees during the price peaks.
“The prices were really demand destructive, and I think that there was a lot of pushback from converters,” said Sagel of Chemical and Polymer Market Consultants.
Experts also don’t expect the recycled resin market to renormalize swiftly. While early thoughts were for a three to six month period of stabilization after fighting ceased, putting the early side of “normal” in Q4 2026 if the war ended by June, this year is no longer on experts' radars for any grades.
“2027 is looking to be the more expected normalization timeline,” Olson said. “We do expect a gradual price decrease for many markets, but we expect the new price floors, you could call them, to be higher than pre-conflict price floors.”
