Middle East Conflict Threatens Global Plastic Supply Chains, Eastman Chemical Offers Alternative

The ongoing conflict in the Middle East has drawn global market attention to oil prices and potential disruptions in the Strait of Hormuz, with significant ripple effects on the production of plastics and the broader petrochemical supply chain.

There are 193 active petrochemical complexes across the Middle East, with the top 10 alone accounting for 22% of the world’s supply of key materials. Disruptions to these facilities could impact a wide range of everyday goods, including food packaging, cleaning product containers, auto interiors, cosmetics, and trillions of dollars worth of other products through higher component prices.

Eastman Chemical, based in Tennessee, is positioned to help address potential shortages. The company specializes in technologies that break down hard-to-recycle plastics and convert them into new usable material.

In an interview, Eastman Chemical CEO Mark Costa described the Middle East situation as a severe issue for the manufacturing of chemicals and plastics derived from oil or natural gas. He noted that the constraints create a net opportunity for earnings growth for the company, both in its technology offerings and core business.

Costa pointed out that while much discussion focuses on oil price increases, there is also a risk of volume shocks and shortages in materials. Eastman’s advanced recycling technology offers a significant advantage, achieving approximately 90% yield back to food-grade quality compared to about 30% for traditional recycling methods. This helps keep material out of landfills and provides a local raw material resource less tied to oil price volatility.

Approximately 80% of Eastman’s production occurs in the United States, benefiting from a cost structure based on relatively low local natural gas and natural gas liquids. In contrast, competitors in Europe and Asia face higher prices. Costa confirmed the company is seeing new customers in products experiencing shortages, particularly as European, Japanese, Korean, and Chinese facilities reliant on naphtha feedstock are affected.

He cautioned that even if the Strait of Hormuz reopens quickly, full recovery—including restarting refineries, chemical plants, logistics, and repairing port damage—could extend into next year before stable conditions return.

Eastman has raised prices, adding about $500 million in revenue on a $9 billion base this quarter to offset higher raw material, specialty, distribution, and other costs. The commodity portion of the portfolio, about 15% of the business, has also seen price increases that are expected to improve margins in the current quarter and into the second half of the year.

Costa reported minimal pushback from customers, as the industry is experiencing broad and rapid price increases—the fastest in his 20 years in the sector—amid challenges of weak demand since 2022 driven by higher interest rates and inflation.

On broader inflation, Costa indicated that impacts from petrochemical price rises would take months to fully work through the supply chain to reach final consumer products. He expressed greater concern about potential volume shocks that could constrain manufacturers’ ability to produce goods, similar to past semiconductor shortages. Eastman’s secure North American supply chains position it as a reliable supplier with reasonable price adjustments focused on covering costs.

This marks the third major supply chain shock in five years, following disruptions linked to COVID lockdowns and other events in 2021. Costa expressed pride in his team’s agility in adjusting production and supporting customers, noting close collaboration with the board during this dynamic period.

Regarding the company’s stock performance, Costa acknowledged investor confusion but highlighted strong fundamentals: the ability to maintain prices and margins despite raw material cost increases, volume retention, upside from the commodity portfolio, and robust cash flow. He believes the market has not fully appreciated the company’s positioning as a winner in the current environment, as outlined in its first-quarter earnings plans.