Iran war may disrupt chemical supply chains; stay stock selective: Emkay

Iran-Israel-US war may disrupt chemical supply chains and raise prices, says Emkay Global. Brokerage advises investors to pick chemical stocks with lower Middle East exposure

Iran-Israel-US war impact on chemical sector

A prolonged war in West Asia may expose the Indian specialty chemical sector to supply disruption in the near-term, along with demand erosion in the medium-term, according to a report by Emkay Global Financial Services. 

The war involving Iran, Israel, and the United States (US) has already pushed the entire Middle Eastern (ME) region into a crisis, leading to global supply chain disruptions and affecting the movement of crude, liquified natural gas (LNG), and key petrochemical feedstocks.

  “India remains highly exposed to this conflict due to its dependency on ME for its crude oil, LNG (~50-55 per cent of consumption), fertilisers, and various petrochemicals like polymers, methanol, ethylene glycol, styrene, etc. Also, the supply glut has increased due to various plant shutdowns, announced force majeures, and reduced production,” the brokerage noted.

  With the conflict-led supply shock triggering a price surge across value chains, especially petrochemicals and fertilisers, Emkay Global recommends that investors adopt a selective approach within the specialty chemicals space, focusing on companies with relatively lower exposure to Middle East supply chains.

  “We prefer companies with lower dependence on the Middle East supply chain and reasonable valuations,” the report said.

  It picked Navin Fluorine International, Gujarat Fluorochemicals, Atul, GHCL, and Epigral as its preferred stock bets in the chemical sector. These stocks, the brokerage said, may remain relatively resilient despite the ingoing Iran war.  CHECK Stock Market LIVE Updates 

Supply disruptions push up chemical prices

Assessing the current supply chain disruption in the Middle East, Emkay Global said the conflict has led to disruptions in shipments through the Strait of Hormuz (SoH), a key shipping corridor that handles a significant portion of global oil and LNG trade. 

As per the brokerage’s estimates, India imports around 50–55 per cent of its crude oil and LNG from the Middle East, making the domestic chemical industry sensitive to supply shocks.

  A prolonged disruption to the trade route could tighten availability of several raw materials such as propylene, methanol, styrene, and polymers, all of which are widely used in the petrochemical value chain, the brokerage said. A scenario of limited inventories and supply constraints could push prices higher, it cautioned.

  “We believe tightened supply and limited inventories in the chemical sector will lead to sharp price increases of around 10-20 per cent in the interim,” the report said.

  Specifically, analysts at Emkay Global noted that petrochemical chains are already facing constraints amid an increase in crude oil (~20 per cent) and LNG (~150 per cent) prices and reduction in refinery production.

  “With RIL already hiking polymer (PE, PP, and PVC) prices by approximately 6-8 per cent in March 2026, prices should continue escalating if the conflict continues,” it said.

  The brokerage expects petrochemical firms like Chemplast Sanmar, DN, Styrenix, and Laxmi to benefit due to rising PVC/Phenol-Acetone/ABS/Ethyle Acetate prices on their current inventory.

  Similarly, the fertilizer industry faces risk of a “double whammy” of tightening of ammonia, DAP, and urea imports from the ME and suspension of QE’s LNG production.

  “Thus, production of ammonia - a key feedstock for fertilisers - will be hit, impacting agrochemical companies like Chambal Fertilisers, DF, GNFC, etc,” it said.

 

Uneven impact on specialty chemical companies

That said, the brokerage predicts an uneven impact on chemical companies. While the related companies, holding inventories of key products, could benefit from higher prices in the short term, their gains could be constrained by their direct/indirect dependency on the ME for key feedstock like VCM/Propylene and Benzene/Styrene/Methanol, whose supply may be hit if the conflict prolongs. 

At the same time, logistical disruptions and higher freight costs could also slow exports to the region.

  As of financial year 2024-25 (FY25), Indian chemical exporters earned around 0-9 per cent of their revenue from the Middle East, with the highest being for Fine Organics at 9 per cent and 6 per cent each for Aarti Industries and Navin Fluorine.

  This revenue could also come under pressure if shipments to the region are temporarily halted if the conflict intensifies.

  “We believe exports to ME should be majorly impacted due to increased freight rates and closure of SoH amid the conflict. A prolonged conflict may lead to demand erosion in certain parts of the world due to inflation,” Emkay said.

 

Pent-up demand possible after conflict

Despite the near-term disruptions, Emkay believes the conflict may eventually lead to a recovery cycle for the chemical sector once supply chains stabilise. 

“A de-escalation followed by normalcy may trigger a pent-up demand-led upcycle in chemicals,” the brokerage said.

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