Oil supply shortage chokes China's plastic town as Iran war persists

Rising oil-linked costs driven by tensions in the Middle East have sent plastic prices sharply higher in southern China, squeezing margins, disrupting logistics and fuelling panic buying across the supply chain in Zhangmutou, the country’s largest plastics trading hub.

"Since March, prices have been surging, up about 60%, and there is no sign of them stopping," said Peng Xin, general manager of Guangdong Rongsu New Materials Co., Ltd.

Peng said his factory's safety stocks had been depleted and new raw materials were now being bought at elevated market prices, pressure that would soon be passed on to downstream customers.

Zheng Bin, marketing manager at Plas Business Net, an online trading and pricing platform for plastic raw materials widely used by traders and manufacturers in Zhangmutou, explains that fears the Middle East situation would not ease in the next month or two had prompted firms to stock up.

Upstream petrochemical plants, facing crude and feedstock shortages, had also been forced to raise prices, he said.

The rush to secure supplies has also clogged warehouses and roads.

“At the peak, Zhangmutou was gridlocked for nearly a week," said Han Bing, who has been managing a warehouse since 2018, and this year was the busiest he had ever seen, with daily turnover doubling to about 1,000 tons from around 500 tons previously.

“Traffic jams stretched about 10 to 15 kilometres, every warehouse was packed to capacity,” Han added.

Xiao Zejia, a vendor at Zhangmutou plastic market, said some upstream chemical plants had refused to deliver previously signed low-priced contracts while still supplying higher-priced orders.

"Personally, I cannot accept force majeure as the reason," he told Reuters.

China is the world's largest plastics producer, consumer and exporter of final plastic products, according to a report published by The Organization for Economic Co-operation and Development in 2025.

Production: Chenxi Yang, Xihao Jiang/Reuters