War boosts U.S. plastics after prolonged industry downturn

Plastic plants, petroleum pipelines and a bustling seaport converge in an industrial corridor in Pasadena, Texas. Rail cars move petrochemical products like plastic pellets to the Port of Houston, where they can be loaded onto ships and exported around the world to make everything from plastic milk jugs to kayaks.

This industry has been in a prolonged downturn. But attacks on Iran suddenly disrupted flows of plastic and the fuel used in plastic production. In the U.S. Gulf Coast, producers are benefiting from this extended crisis, making their products with cheap and abundant natural gas, while producers in other parts of the world are paying more for crude oil, a key feedstock.

“There's this thing called the petrochemical crescent, and it runs more or less from Corpus Christi all the way over towards New Orleans,” said Jesse Thompson, a Houston-based senior business economist with the Federal Reserve Bank of Dallas.

It’s roughly a 500-mile stretch.

“Then there's just this massive slew of interconnected chemical facilities that make a huge portion of the basic chemicals and chemical compounds that are then processed further in the United States to make plastics of every stripe,” Thompson said.

This part of the U.S. became a major plastics producer in part because of cheap and abundant natural gas — much of it piped down from the Permian Basin. Natural gas contains ethane, which is used to make the plastic polyethylene.

“And that's like the bread-and-butter thing of Houston, is those … bags of plastic pellets that are in containers, and then they go on rail cars, and they either are railed to a facility for processing,” Thompson said. “Or, in the case of Houston, more often [they are] just moved over to the port and loaded on a boat.”

But those plastic pellets don’t always yield high margins.

“2025 was another exceptionally challenging year,” Peter Vanacker, CEO of Houston-based plastics company LyondellBasell, said just six months ago, during an earnings call. “Industry margins were approximately 45% below historical averages.”

Then war broke out. And in the most recent earnings call, a couple of weeks ago, he was singing a different tune.

“The global disruption in the petrochemical markets from the conflict in the Middle East impacted production,” Vanacker said. “It also led to substantially improved earnings performance for LYB (LyondellBasell) in the second quarter.”

The company reported high margins in part because of its polyethylene operations.

“Polyethylene is a polymer. It is widely used globally in packaging applications,” said Harrison Jacoby, director of polyethylene at ICIS.

Jacoby said before the war, China had been ramping up its polyethylene production, leading to an oversupplied market. Lower oil prices also dragged down prices.

“Margins got very narrow, very thin in Q4 because of those really low oil prices,” he said. “And that was the outlook up until late February of this year when the U.S.-Iran conflict started and we saw oil prices move markedly higher.”

When the Strait of Hormuz closed, polyethylene prices soared. A lot of that plastic was held up in the Middle East, while crude oil prices also went up — the feedstock many other producers use to make polyethylene. But in the U.S., polyethylene is made from natural gas.

“Because of this phenomenon called shale gas,” said Jesse Tijerina, executive director of chemical consulting with S&P Global Energy, “the U.S. producers are really blessed with some of the lowest feedstock costs in the world.”

Producers in the U.S. were able to buy their feedstock for cheap and sell high.

And while prices have come down since the initial polyethylene price spike, they’re still elevated.

And because there is still no permanent resolution to the conflict, Tijerina said, “We still expect the market to tighten up and for prices to increase from where they are.”

That increased activity does boost economic activity in petrochemical hubs like Houston, especially in services.

“High utilization rates mean there's more maintenance, there's more work to be done, there's more parts to replace, there's more logistics to handle,” said Thompson.