Trump Blocks Strait of Hormuz as Mid-East Tensions Escalate; Crude Oil Surpasses $100 per Barrel
Following the collapse of U.S.-Iran negotiations, U.S. President Donald Trump has announced a blockade of the Strait of Hormuz. As tensions in the Middle East intensify, international oil prices have once again surged past the $100 per barrel mark. Formosa Plastics Corp. and Formosa Chemicals & Fibre Corp. (FCFC) evaluate that the shortage of petrochemical raw materials will persist until the end of the year, potentially accelerating the recovery of the Asian petrochemical industry.
Middle East Infrastructure Severely Damaged
Formosa Plastics stated that the conflict has significantly impacted energy production facilities. Notably, an Israeli airstrike on April 4 targeted Iran's largest petrochemical industrial park, causing a complete shutdown of plants with an annual capacity of 72 million tons. Additionally, the Bahrain refinery and petrochemical plants in the United Arab Emirates sustained damage from Iranian attacks. According to the International Energy Agency (IEA), approximately 72 energy-related facilities in the Middle East—including oil and gas fields, refineries, and natural gas plants—have been damaged, requiring substantial time and capital to restart.
Formosa Plastics analyzed that even if the U.S.-Iran conflict ends, the supply of energy and petrochemical raw materials will remain tight. This severe market supply disruption is expected to favor an early recovery for the Asian petrochemical sector.
FCFC: Supply Shortages to Last Until Year-End
Lu Wen-chin, President of FCFC, noted that the end date of the conflict remains unpredictable. With the Strait of Hormuz still blockaded and petrochemical industries across Persian Gulf nations damaged to varying degrees, supply capacity has been heavily compromised. FCFC anticipates that raw material shortages will last through the end of the year.
FCFC further stated that since the outbreak of the conflict in late February, the risk of supply chain disruptions became immediately apparent. Following a cautious assessment, the company issued a Force Majeure declaration on March 24, notifying customers of potential supply crises to coordinate subsequent logistics and minimize impact.
Strategic Shifts and Market Performance
Lu pointed out that FCFC will prioritize domestic demand, encouraging local clients to stockpile materials with the company's full support. Once domestic needs are met, any surplus capacity will be directed toward Japanese contract customers at market-driven prices. For the second quarter, the company will focus on securing alternative sources of raw materials and maintaining utilization rates. FCFC aims to operate with low inventory levels to avoid the risks associated with high-priced raw materials and potential price-drop losses, striving to maintain profitability.
Benefiting from short-term gains on low-cost raw materials and products in transit or inventory, the "Four Pillars" of the Formosa Plastics Group reported profitable first-quarter preliminary earnings last Friday. The combined net income attributable to the parent companies reached approximately NT$44.177 billion, representing a 10.8-fold increase year-on-year and a 5.4-fold increase from the fourth quarter of last year. Driven by rising oil prices due to the escalating Middle East situation, share prices for the four Formosa companies rose by more than 4% in early trading today.
