Behind the Sharp Volatility of the Chemical Sector: Traders' Sentiments Being Pulled Back and Forth

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Source: Futures Daily

In March 2026, Middle East geopolitical conflicts continued to escalate, nearly halting shipping through the Strait of Hormuz. International oil prices repeatedly broke through $100 per barrel, with Brent crude reaching over $110 per barrel. The chemical market overall saw a significant rise in price levels. During this period, market sentiment fluctuated, especially on March 20, when the crude oil and chemical sectors in the domestic futures market shifted again, leading to adjustments in related A-share sectors and stocks. “Where will the chemical market go next?” “How are traders responding to market fluctuations?” “What are everyone’s feelings about recent market changes?” To address these concerns, Futures Daily reporters interviewed industry insiders.

Traders’ Sentiment Torn Between Fluctuations

The conflict in the Middle East is causing concern among global chemical traders over the situation in the Strait of Hormuz. Recently, from leading companies to small and medium traders, their mindsets have been repeatedly tested amid extreme market conditions.

Shao Shiping, Vice Chairman of Zhejiang Tomorrow Holdings Group, has been working tirelessly with her team these days. She told Futures Daily that this conflict is unlike any previous one, with her mood swinging like a roller coaster, divided into three stages.

Initially, when the conflict broke out, everyone felt a jolt. Shao recalled, “The biggest fear was a ‘black swan’ suddenly appearing—prices soaring wildly without knowing when it would end. The whole team was tense, just trying to defend against risks and not making reckless moves.”

A few days later, the Red Sea route was blocked, and upstream suppliers issued force majeure notices. At this point, everyone shifted from panic to calm calculation. Shao said, “We stopped guessing prices blindly and started checking risks on purchase and sales orders one by one, discussing with clients slowly, making sure every step was calculated, avoiding impulsive decisions.”

Now, the market has entered a state of “high volatility and low liquidity.” Shao and her team have become more stable. “Now we are just watching and waiting—no reckless buying or selling. Clients are also cautious—they fear prices rising and locking in high costs, but also worry about supply disruptions affecting production. This conflicting emotion has shifted trading from ‘speculative trading’ to ‘ensuring supply chain stability,’” Shao explained.

Chen Tao, General Manager of Guomao Chemical, has been relatively steady in recent days. He stated that his team has not lost composure. “When the situation was unclear at first, we focused on monitoring the situation, shipping, and prices. We didn’t operate recklessly, but carefully checked all orders and sources, identifying potential risks one by one.”

As tensions in the Middle East intensify, with potential supply disruptions, logistics issues, and volatile prices, Chen remains calm. “We strictly control procurement scale, review every contract, and safeguard our core operations. Relying on our established supply channels and risk management systems, we continue to push forward without delay. Our team’s mindset has remained steady.”

Yun Yun Que, founder of CommoPlast in Malaysia, with 14 years of experience in chemical consulting and spot trading, has seen many ups and downs. She said that the market sentiment during this wave of volatility is particularly evident.

“Initially, everyone was surprised—didn’t expect a conflict to break out so suddenly; then disbelief set in, thinking it would end quickly; once realizing the risks to chemical supply from the Strait of Hormuz, everyone woke up and flooded the market with inquiries; finally, they calmed down, but still kept their nerves. Some clients were panicked due to canceled orders or force majeure notices from suppliers. This panic is normal—beyond expectations. Recently, emotions have eased slightly, but the situation will likely fluctuate again, depending on how the Middle East situation develops,” she said.

In her view, small and medium traders should stick to their capabilities. “Don’t follow reckless speculation. When the market is good, use futures to lock in profits and options to hedge against sudden risks. The longer you’re in this industry, the more you realize that respecting the market for ten years or more is essential. Stay humble, evaluate the market carefully, and make decisions—only then can you avoid big losses,” she advised.

Hao Xiaoyu, Director of Chemical Research at Zhongji Group, described this wave of market fluctuations vividly: “When the conflict first started, everyone was watching, thinking it would pass quickly, so there was no rush to adjust strategies. But no one expected the risks in the Strait of Hormuz to be so severe, disrupting the global supply chain. Prices then surged unpredictably and suddenly plummeted, with the market fluctuating wildly.”

“Now, traders are both eager and cautious—short trading cycles dominate, and no one dares to sign long-term contracts. Price negotiations are difficult, as expectations between buyers and sellers are too divergent, and a single misstatement can cause negotiations to collapse,” Hao said. His advice to small and medium traders: “First, survive! Ensure sufficient cash flow, monitor client credit, shorten payment terms if possible, and seek prepayments to avoid bad debts. Don’t expect to make huge profits—prioritize risk control and survival over everything else.”

Ultimately, the chemical trade turmoil triggered by Middle East tensions is a test for both large enterprises and small traders. Some rely on risk management to stabilize, others respect the market to avoid detours. The core principle remains: avoid blindly following trends, don’t overreach, and embed stability into every step of operation.

The Greater the Storm, the More Steady the Pace and Principles

Chen Tao has been deeply involved in the chemical trade industry for 25 years and is now General Manager of Guomao Chemical, overseeing three core sectors—oil & gas, aromatics, and olefins.

Having weathered many storms, he recognizes that this recent escalation in Middle East geopolitics is unlike any previous crisis. “In 2022, when the Russia-Ukraine conflict erupted, the market was mainly driven by fears of shortages—energy and chemical prices surged rapidly, but goods still circulated. This time, it’s different—physical supply chains are being cut off. The Strait of Hormuz blockade directly severs the core logistics channel for global energy and chemicals. The Middle East, once a ‘granary’ of raw materials, now faces supply disruptions. Freight and insurance costs have soared, and the impact has spread quickly across the entire industry chain, with unprecedented speed and intensity.”

According to Futures Daily, during that period, Chen’s phone was almost constantly ringing. The most common questions from clients concerned crude oil, LPG, ethylene glycol, methanol, and other basic raw materials. Several Middle Eastern chemical plants announced force majeure due to capacity uncertainties, some facilities were attacked or restricted, and normal operations were disrupted. Shipping was hindered, insurance costs increased, and routes were interrupted, making it difficult to deliver goods. Upstream suppliers held back supplies, further increasing the difficulty of sourcing and matching supply with client expectations.

More troubling than supply shortages was the breakdown of price locking mechanisms. Many industry players faced a dilemma: fulfilling contracts at a loss or breaching agreements. Rapid price increases, physical supply disruptions, and soaring freight costs rendered traditional long-term pricing models ineffective.

The recent high volatility in the chemical sector has posed serious challenges to production, operations, and risk management.

However, Guomao Chemical, under Chen’s leadership, has worked hard to stabilize operations amid rapid market swings. Following established risk control frameworks, actively adjusting strategies based on real-time market data, the company strives to keep risks within manageable limits.

Chen and his team have taken multiple measures: strengthening upstream and downstream coordination, diversifying sources across regions, promptly updating clients on market expectations and supply schedules, and using futures hedging tools to manage price and supply risks—balancing customer needs with supply security.

They employ derivatives like futures and options for full-process risk hedging, manage inventory and in-transit goods with proper hedging, strictly control price exposure, and ensure stable profits.

At CommoPlast Malaysia, founder Que Yun Yun is closely monitoring shipping data and chemical inventory curves on her screen. Her fingers fly across the keyboard as she handles inquiries, records demand, and coordinates resources—so busy she rarely even takes a sip of water. This is the busiest she has been in her 14 years of chemical consulting, spot trading, and futures analysis.

Since the escalation of Middle East tensions, market inquiries have surged. Clients’ demands are clear: supply, shipping schedules, and prices. Que Yun Yun finds that spot inventory has become the most sought-after resource—compared to forward-delivered goods, spot inventory can be shipped immediately, providing a tangible and reliable guarantee. Recently, petrochemical plants have frequently suspended operations, and inquiries have peaked, with expectations of further price increases.

“An influx of inquiries and tight supply are not contradictory. The main reason is limited supply, not intentional hoarding or suspensions,” she explained. Her team enforces strict buyer and seller reviews, building high-quality trading channels, verifying sources, shipping schedules, and prices, creating a trust-based market environment amid volatility. She emphasizes that consulting and matching require both market understanding and integrity—guiding clients correctly through turbulent times.

In East China, trader Chen Qiang also feels the market’s “restlessness” after the Middle East escalation. Spot transactions have improved significantly, with daily inquiries tripling or quadrupling compared to before the conflict. Products like plastics, styrene, butadiene, propylene, and methanol are hot topics. But behind the lively scene lies a harsh reality: supply-demand imbalances, with some factories suspending operations due to capacity uncertainties and shipping disruptions, making supply tight.

“More inquiries don’t mean reckless orders,” Chen Qiang said cautiously, a principle honed over 30 years in trade. He keeps a close eye on his spot resources, carefully considers hedging strategies for forward contracts, and avoids taking on long-term orders to ensure stable downstream sales.

His core management principles remain unchanged: manage positions prudently, sell spot cautiously, hedge risks with futures, cooperate only with reliable clients, and control credit risk. He also uses “point pricing + basis” instead of fixed prices to avoid losses from price swings. Additionally, he has added force majeure clauses related to geopolitical risks in contracts for extra protection.

“Trade is about finding balance amid volatility and maintaining bottom lines in risks,” Chen Qiang said firmly. “The bigger the storm, the more we need to stay steady and stick to principles.”

Industry Experts: Be Wary of High Volatility Risks

On March 20, the domestic chemical futures sector collectively retreated, with oil and chemical products leading the decline—bottled products, crude oil, and fuel oil fell sharply; the A-share chemical sector also came under pressure. The chemical fiber market was weak due to cost and demand pressures, while coal chemicals showed resilience thanks to cost independence, with clear sector differentiation.

Most analysts agree that this sharp correction in the chemical sector is a rational adjustment following the rapid decline of geopolitical premiums, triggered mainly by sharp cost fluctuations.

Wu Zhiqiao, head of Petrochemical Futures at Green Great Wall Futures, said that the sudden “change” in the sector is closely related to developments in Middle East geopolitics. Although the Strait of Hormuz remains nearly closed, the U.S. has released strategic oil reserves and announced plans to lift sanctions on Iranian oil exports, which has cooled oil prices. Coupled with the Federal Reserve’s March policy stance turning hawkish—keeping interest rates steady and projecting only one rate cut in 2026, with some officials expecting no cuts at all—markets began to price in global inflation expectations, leading to a rapid decline in risk appetite and further sector adjustments.

“Oil and chemical industries are highly correlated with international crude oil prices. Previously, crude surged due to Middle East tensions, boosting costs across the sector. As tensions eased, crude prices fell sharply, weakening cost support for oil chemicals, and profit-taking surged, causing prices to plummet,” said Li Sijin, senior analyst at CITIC Construction Investment Futures.

She believes that the overall decline in the chemical sector exceeded that of crude oil, breaking usual correlation logic. The main reason is that domestic chemical fundamentals lack rigid support, and market sentiment was overly optimistic. Despite some refineries reducing capacity due to raw material concerns, domestic chemical plant operation rates remained high—up to the same period last year—indicating sufficient supply and no shortage expectations before contract expiration in May. The premium caused by geopolitical risks lacked fundamental backing, and once sentiment shifted, premiums receded rapidly, dragging prices down.

Li Sijin added that sector differentiation stems from cost and supply logic. For example, methanol and ethylene glycol, which rely heavily on imports, are somewhat supported by reduced imports due to Strait disruptions, so their price declines are controlled. Coal chemicals benefit from cost advantages of coal-based routes and domestic coal pricing mechanisms, making their prices more stable and less affected by international oil prices, thus showing a resilient, independent decline.

Analyst Chen Dong from Baocheng Futures pointed out that weak downstream demand and increased capital pressure further amplified price adjustments. The recovery in sectors like real estate, infrastructure, and industrial manufacturing has been slower than expected. Mainstream products like methanol, urea, and PVC are experiencing weak demand. Downstream companies tend to purchase on demand, passively digesting inventories, leading to accumulation and a shift toward a supply surplus, which further suppresses prices and valuations.

Most industry insiders believe this correction is a rational adjustment after an overheated market, not a trend reversal. High volatility is expected to continue. On the international front, on March 20, WTI and Brent crude oil prices reversed their previous decline, both rising over 2%.

Chen Dong said that short-term market sentiment recovery will take time, and future trends depend on crude oil prices, domestic demand recovery, and supply-side adjustments.

“Currently, Brent crude trades between $100 and $120 per barrel. Domestic refineries still have raw material inventories, so cost transmission won’t be immediate. The focus will be on whether upstream companies cut actual output, which could reduce supply and accelerate inventory depletion. The unresolved Strait of Hormuz issue, U.S. troop deployments in the Middle East, and geopolitical risks still exist, leaving room for oil prices to rise. Cost support for chemical products may strengthen, but we need to closely monitor signals of domestic supply and external geopolitical resonance,” Li Sijin concluded.

For traders, Wu Zhiqiao offered advice: “Avoid blindly chasing prices or panic selling. Rationally view event-driven markets, proactively hedge high-volatility risks; chemical companies facing sustained high volatility should diversify risk management tools—combine futures, options, and other derivatives—to build a layered risk control system, lock in costs and profits, and ensure stable operations.”