Skyrocketed 90%, Up 5000! The Product That Once Piled Up Due to Concerns About Unsold Inventory Now Sells Better as Prices Rise

(Source: Chief Business Think Tank)

Author | Zeng Youwei

No one expected that a gunshot in the Middle East would trigger a “butterfly effect” causing Guangdong’s small town to experience days of heavy traffic congestion.

This month, many traders involved in plastic raw material trading have become hesitant to check their phone for price quotes.

Since the outbreak of conflict in the Middle East, influenced by fluctuations in crude oil prices, the impact of the Middle East turmoil is spreading rapidly through the global trade network like a butterfly effect.

This ripple effect has even extended along the global supply chain, reaching China’s manufacturing heartland.

Business owners in Zhangmutou engaged in plastic trade have firsthand experience of this spreading impact.

As the largest domestic spot trading market for plastics, this small town has seen scenes of frantic buying that industry insiders, with 15 years of experience, have never witnessed before.

Even CCTV has reported on this, describing the scene as “prices soaring, rising and rising again.”

Before CCTV’s coverage, the “price surge” miracle in this market had already been circulating online. The prices of related plastic raw materials were even rumored to change “every hour.”

Over the past week, prices of some plastic raw materials have surged by 40%, with certain engineering plastics increasing by as much as 90%.

Take ABS as an example: a ton of material that used to cost around 8,000 yuan could now be sold at 13,000 yuan per ton during the buying frenzy, a jump of over 5,000 yuan and an increase of more than 60%.

Plastic is known as the “mother of industrial materials.” Will this rising cost pressure from the buying frenzy eventually be transmitted to downstream manufacturers, who already operate with thin profit margins, and ultimately influence market prices of related products?

Once piled up in mountains, afraid of not selling

Now, prices keep rising, and people keep buying

Actually, before the Spring Festival, many plastic industry practitioners had already anticipated that prices would rise after the holiday.

Their early conclusions weren’t because someone successfully predicted the current international situation, but because industry tradition suggests that “March and April are golden months” — a period when the industry typically sees price increases after the Spring Festival each year.

Although there was an expectation of price hikes, no one expected this year’s market to explode so dramatically once the holiday ended.

The magnitude of the price increase even far exceeded the expectations of the general manager of Pulasi Network, South China’s largest plastic-themed e-commerce platform.

On the morning of March 4th, this major industry platform experienced a temporary shutdown due to a surge in online traffic.

Online, the traffic spike was matched by “warehouse explosions” in the physical market.

On the roads around Zhangmutou’s plastic market, traffic congestion unprecedented in twenty years appeared. Truck drivers arrived at 7 a.m. to buy goods but waited three hours without entering the warehouse.

Inside the market, scenes like this unfolded: plastic traders closely monitored fluctuating crude oil futures prices on their computers, constantly updating their price lists based on the latest price adjustment notices from major petrochemical plants.

Meanwhile, they kept their phones ringing non-stop, replying to inquiries from customers and clarifying that current quotes are only valid for the day, with payment required before shipment, and no verbal reservations accepted.

Over the past three years, the plastic market has been in a relatively sluggish environment, with the entire industry operating at a low level and downstream demand decreasing.

This market situation led many manufacturers and traders to adopt a “just-in-time” procurement approach.

But now, due to the international dispute in the Middle East, this traditional pattern has been disrupted. The unprecedented traffic congestion and frantic buying scenes in Zhangmutou have emerged.

How long will this buying frenzy last? Who will profit from it?

The frenzy of plastic buying is mighty

Is it a false prosperity or a profitable opportunity?

Since March, how vigorous has the “plastic buying frenzy” in Zhangmutou been?

Some online comments say they’ve seen people rush to buy rice and noodles, but never plastic — until now, in Zhangmutou.

Others joke online that if the battle continues, Zhangmutou might even come to blows.

What is the real story behind this buying frenzy? Or is the offline market really that hot?

On March 9th, a reporter from Daily Economic News personally visited Zhangmutou Market.

According to interviews, the prices of some plastic products indeed increased by 40% to 60% over the past week.

As this buying frenzy persisted, the underlying logic gradually became clear. Over the past few years, the plastic industry has experienced “one-day tours” of market rallies after the Spring Festival.

Therefore, many warehouses, based on past experience, did not stock up fully before the holiday. Unexpectedly, shortly after the holiday, tensions in the Middle East escalated, triggering a “butterfly effect.”

Many buyers, worried about future supply, started placing additional orders with upstream manufacturers. As this behavior increased, many in the industry followed suit, and market inventory surged.

But that’s not all. Under this situation, some distributors began hoarding and raising prices, leading to multiple price changes within a single day.

Uncertain prices and geopolitical risks made many traders afraid of missing out — fearing prices would rise even further if they didn’t buy now — so they rushed to stockpile.

This behavior also prompted downstream customers to worry that rising raw material costs would impact production, leading them to rush into the market to buy materials.

With multiple parties involved, raw material prices soared further, exceeding industry expectations.

However, during on-site interviews, some industry insiders pointed out a stark truth: this buying frenzy is, to some extent, a false market prosperity.

Much of the goods being bought and sold are being repeatedly speculated upon by traders, shifting between warehouses without reaching end-users or satisfying actual demand. Downstream demand has not genuinely increased.

After all, profit margins in the plastic industry are thin. Even if traders offer higher prices to downstream clients, they might hesitate to buy due to profit concerns.

For some traders with insufficient stock, this so-called “buying frenzy” — seen by outsiders as a sign of upstream wealth — isn’t necessarily profitable for them.

When downstream clients can’t support such high raw material prices, traders often have to cover the difference themselves to fulfill orders, maintaining customer relationships.

Currently, this “plastic buying frenzy” is mainly among traders, but as upstream raw material prices continue to fluctuate, this storm could spill over, passing the price pressure downstream.

Upstream traders manipulate hoarding and price hikes

How should downstream manufacturers respond?

Since March 1st, notices of price increases caused by crude oil fluctuations have been sent to relevant companies.

Among them, global chemical giant BASF announced on March 4th a worldwide adjustment of prices for antioxidants and processing aids used in plastics, with increases up to 20%.

As upstream raw material prices continue to rise, and with market doubts about the Middle East situation, some customers who had been hesitant might finally jump into the buying rush.

This could accelerate the transmission of raw material price increases into downstream industries.

On the evening of March 7th, Asia’s leading modified plastics company, Jinhui Technology, issued an open letter to customers.

Due to the impact of crude oil price fluctuations increasing industry costs, the company will absorb some of the pressure through various measures, but the remaining costs will need to be shared with downstream clients.

In this “buying frenzy” triggered by crude oil price hikes, factories are among the biggest losers.

For example, ABS, a commonly used material in production, has seen costs increase by over 60% in some channels.

Downstream factories operate with slim margins; they don’t know if they can profit from such a cost increase.

If these rising raw materials reach factories, the big question is: to produce or not? If they produce, how to sell? These are serious challenges for manufacturers.

Overall, the risk of transmission downward remains relatively small. The sudden escalation of the Middle East conflict has only temporarily disturbed the plastic raw material prices in Zhangmutou.

In Dongguan’s plastic raw material supply structure, the main sources are the Middle East (excluding Iran), Southeast Asia, and domestic refining, with Iran’s share being small.

Therefore, there is no significant supply disruption at present, only minor disturbances in some grades.

More importantly, current plastic market inventories remain high, and downstream demand has not surged dramatically. Under these circumstances, the market is expected to stabilize in the near future.

Final thoughts

According to local industry associations in Dongguan, the driving force behind this “plastic buying frenzy” is mainly upstream sentiment.

Currently, logistics are smooth, and market supply is relatively stable. But that doesn’t mean this fluctuation will end soon.

In this chaotic mix of upstream excitement and downstream anxiety, some downstream manufacturers have already received notices of a 30% raw material price increase from upstream traders.

For downstream companies, in the short term, they can only negotiate price adjustments through communication.

In the long run, this “buying frenzy” might also be an opportunity for some downstream firms to enhance their independence and develop new products.

After all, only by leveraging their technological advantages and reducing costs can companies truly eliminate the anxiety caused by raw material price hikes.