The Price of Plastic — The Full Research Note

In April 2026, the price of US polyethylene jumped 30¢/lb in a single month. LyondellBasell called it the largest increase on record.¹ Six months later, oil was trading above $125 a barrel and the same plastic barely moved.^2,3,4 Both moves follow the same rules, and once you know them, the plastics market makes a lot more sense.

Plastic sits where two markets meet: crude oil and natural gas. Which one matters more depends on where the plastic is made, what it is made from and how much spare capacity the world has. Over the past decade, China has changed that last factor more than anyone.

01 — The PuzzleOil Above $125, Plastic Going Nowhere

By mid-October 2026, North Sea Dated crude, the physical benchmark the IEA tracks, was trading around $134 a barrel, almost twice its 2025 average.^2,5 The EIA’s daily Brent spot price was lower, at about $126 on 13–15 October, before easing to about $115 by 20 October.³ The two differ because they come from different price reporters taking readings at different moments, and in a market this tight, physical cargo prices can move several dollars within days.^2,3,6 The climb had been steep. Renewed fighting in the Middle East and a rush of buying by Asian refiners lifted the September average to $116.89, about $26 more than in August. The bombing of Saudi Arabia’s East-West pipeline on 11 September added to the rally.²

You might expect plastic prices to have soared as well. They didn’t. In the US, polyethylene was expected to rise in September by a modest 3¢/lb or a little more, and polypropylene fell. Polymer-grade propylene, the raw material for polypropylene, “did not respond to the surge in crude oil prices” at all. Heading into 2027 contract talks, David Barry of Dow Jones Energy saw a buyer’s market.⁴

Six months earlier, the reverse had happened. US polyethylene contracts rose 30¢/lb in April,⁷ even though the ethane American plants use to make it had hardly changed in price.^8,9 In the spring, plastic rose much faster than its raw material. In the autumn, it ignored a far bigger oil spike.

Three things explain both moves: how plastic is priced, what breaks its link with oil, and how China has reshaped the market. This note takes them one at a time.

02 — The BasicsFrom Oil Well to Plastic Pellet

Plastic matters far beyond the plastics industry. The IEA expects petrochemicals to account for about one in every six barrels of oil produced by 2030.¹⁰ In China, petrochemical feedstocks drove almost all of the growth in oil demand in 2025, while demand for gasoline and diesel barely moved.¹¹ China now makes about 34.5% of the world’s plastics. Europe’s share has fallen to 12%, from 22% in 2006.¹²

Nearly every everyday plastic starts as one of two simple molecules, ethylene or propylene. Ethylene becomes polyethylene (PE), the world’s most widely used plastic, and also goes into PVC, PET and polystyrene. Propylene becomes polypropylene (PP). What it costs to make these two molecules is what ties plastic to energy.

Both are made in a steam cracker, a plant that heats hydrocarbons until they split into smaller molecules. What goes into the cracker depends on where it is. In Asia and Europe, most crackers run on naphtha, a liquid refined from crude oil. In the US and the Middle East, most run on ethane, which is separated from natural gas. There are other routes as well. Propane dehydrogenation (PDH) turns propane into propylene, and China also makes both molecules from coal.

The feedstock matters more than it first appears, because each one gives a different mix of products.

For every tonne of ethylene, a naphtha cracker makes about 0.43 tonnes of propylene. A propane cracker makes about 0.33 tonnes, and an ethane cracker only about 0.025.¹³ Naphtha also yields other valuable by-products, such as butadiene and benzene. So an ethane cracker is close to a one-product plant, while a naphtha cracker sells a whole basket, and its profits depend on what everything in that basket fetches.

The finished plastic is sold as small pellets to converters. They melt the pellets down and shape them into film, bottles, pipes and car parts for brand owners. Converters are squeezed from both sides: their raw-material costs swing with the market, but their customers often refuse to pay more. The key point from this section is simple. Ethane is priced off natural gas. Naphtha is priced off crude oil.

03 — The RuleOil Sets the Ceiling, Gas Sets the Floor

Picture every plastics plant in the world lined up from the cheapest to run to the most expensive. Demand is met by starting with the cheapest and working up the line. The last plant needed sets the market price, and every plant below it makes money. Economists call this line-up the cost curve.

For years, that last plant, the marginal producer, has usually been a naphtha cracker in Asia or Europe. Naphtha comes from crude, so oil sets the ceiling for plastic prices worldwide.

This leads somewhere surprising. A US plant that makes plastic from cheap gas does not sell it at a cheap “gas price.” It sells close to the global price, which is tied to oil, and keeps the difference. The US Energy Information Administration puts it plainly: in the United States, cracking ethane “has a higher profit margin than cracking naphtha.”¹⁴ Jim Teague, then chief operating officer of Enterprise Products, made the same point in 2012. The real advantage of cheap ethane, he said, is “the price spread to naphtha.” His company’s models put ethane-based ethylene about 20¢ a pound cheaper to make than the naphtha-based kind.¹⁵

That spread moves with the gap between oil and gas prices. When oil rises faster than gas, American producers earn more. When it falls, their edge shrinks. The EIA expects Brent to average about $96 a barrel in 2026 and $84 in 2027, and US natural gas around $3.48 and $3.16 per MMBtu over the same years.⁵ On those forecasts, the gap stays wide.

How prices are set in each region

The link to oil works differently around the world, which is why one shock can hit regions in different ways.

North America runs on monthly contract prices. Producers announce increases, and buyers push back using spot and export prices. According to Argus, exports now take 45–50% of US polyethylene output, and spot deals heavily shape the monthly contract.¹⁷ In practice, US prices are set by what producers could earn abroad, against rivals that run on naphtha.

Europe also uses monthly contracts, but they are tied to monthly ethylene and propylene prices, which follow naphtha. A move in naphtha usually reaches plastic within a month or two.

Asia trades mostly on spot prices for cargoes into China and Southeast Asia. Naphtha still matters there, but Chinese supply now matters just as much.

Prices also tend to go up faster than they come down. After US polyethylene had risen 45¢/lb in the first months of 2026, Michael Greenberg of Resintel expected suppliers to give the gains back “as slowly as possible.”¹⁸ Unless the market is clearly oversupplied, buyers should expect increases to arrive quickly and cuts to arrive slowly.

04 — The ExceptionsSix Ways Plastic Breaks From Oil

The cost curve explains the long-run link between plastic and oil. In any given month, though, something else is often in charge. Six forces come up again and again.

1. Different feedstocks. The price is usually set by a naphtha producer, but many low-cost producers use ethane. When oil moves, the gap between the two changes. That is how US plastic can rise on an oil spike while US costs stay put, as it did in the spring of 2026.

2. Supply shocks. Storms, outages and force majeure declarations, where a supplier says events beyond its control stop it from delivering, can push prices up even when energy is cheap. In those moments, scarcity sets the price, not cost.

3. By-products. A naphtha cracker sells propylene, butadiene and other chemicals alongside ethylene. When those get cheaper, the plant earns less, which raises its effective cost. Fitch made this point during the 2015 oil slump, noting that weaker by-product prices were “effectively putting pressure on cash margins.”¹⁹

4. Buying behavior. Converters stock up when they expect prices to rise and run their stocks down once prices peak. These swings can move monthly prices more than feedstock costs do.

5. Overcapacity. When there are more plants than the market needs, prices sink toward the running costs of the cheaper plants and stay there, whatever oil does. Wood Mackenzie says integrated polyethylene margins “have largely been negative since mid-2022.”²⁰

6. Trade policy. Tariffs, export licenses, anti-dumping duties and freight costs can pull apart regional prices that would otherwise move together.

Two episodes that show the pattern

The oil collapse of 2014–16 shows the first force at work. As crude fell, naphtha followed, and the US cost advantage shrank. The gap between US gas and oil prices narrowed from about $15 per MMBtu in July 2014 to less than $5. KPMG’s Paul Harnick said cheaper crude had “eroded but not completely removed the massive cost advantage.”¹⁶ Europe’s naphtha-based producers did well out of it. INEOS said margins had “come back into naphtha crackers big time.”²¹

Winter Storm Uri, in February 2021, shows the second. A deep freeze on the Gulf Coast knocked out an estimated 80–85% of US polyethylene and polypropylene production, and petrochemical companies in the US and Mexico issued nearly 70 force majeure declarations.²² US polyethylene prices climbed to near seven-year highs, and polypropylene reached its highest level since at least 2005.²³ The storm also exposed a hidden risk. So much US export capacity sits on one stretch of coast that a single freeze or hurricane can take out a large slice of the world’s export supply at once.

The pattern is consistent. Oil moves plastic prices most when supply is tight, because that is when the most expensive plant really does set the price. When supply is plentiful, higher costs pass through weakly and briefly. Producers may push through an increase, but stockpiles and competing supply usually wear it away within months.

05 — The China ShiftFrom Biggest Buyer to Swing Supplier

Of those six forces, overcapacity has mattered most in recent years, and China has done more than anyone to create it. It passed the US as the world’s largest ethylene producer in 2022, with 46.75 million tonnes a year of capacity.²⁴ By the end of 2025 it had more than 62 Mt, up 19% in a single year and roughly a quarter of the world total.²⁵ A Sinopec executive has said China will add about 40 Mt more by 2028, taking it to around 100 Mt.²⁶

Plastics capacity grew just as quickly. SunSirs puts China’s polyethylene capacity at 14.9 Mt in 2015 and 39.5 Mt in 2025, and its polypropylene capacity at 17.4 Mt and 49.0 Mt. That is growth of more than 10% a year for a decade. Another 7.3 Mt of polyethylene and 5.5 Mt of polypropylene are due in 2026, most of it in the second half.²⁷

Many feedstocks, not one

What sets China apart is not only the size of its industry but its mix of feedstocks. Plenty of its plants run on naphtha, but large parts of the industry run on something else, and that loosens the link between Chinese plastic prices and oil.

Plants making olefins from coal or methanol grew from about 1% of China’s capacity to 17% by the end of 2016, according to Wood Mackenzie.²⁸ More than 30% of China’s propylene now comes from propane dehydrogenation.²⁹ Six ethane-cracking projects, running on ethane shipped from the US, held about 6.2 Mt a year of ethylene capacity at the end of 2024, around 11% of the national total.³⁰ When naphtha spiked in 2026, coal-based and ethane-based plants were less exposed than those running on naphtha.²⁹

That mix carries its own risks. China had been taking more than half of the ethane the US ships by sea.³⁰ At the end of May 2025, Washington suddenly required licenses for ethane exports to China.^30,31 It lifted the requirement in early July.³² For a few weeks, the feedstock for about a tenth of China’s ethylene capacity was in doubt.

Beijing is slowing the build, not reversing it

Beijing has noticed. In July 2025, its top economic policymakers made the fight against “involution,” meaning destructive price wars and excess capacity, a priority, and petrochemicals are among the industries in their sights.³⁴ A national survey launched in June 2025 targeted plants more than 20 years old, which make up about 30% of China’s refining capacity.³⁵

Few analysts expect this to shrink the industry. ADI Analytics thinks the policy is more likely to “slow the pace of new additions” than to cut capacity.³⁶ Fitch does not expect “a substantial short-term impact on chemicals production.”³⁷ ICIS’s John Richardson goes further, arguing that any small, old plants that close will be more than replaced by large new ones.³⁸

From buyer to seller

The effect on trade has been dramatic, above all in polypropylene. China’s net imports, meaning imports minus exports, peaked at 6.1 Mt in 2020. By 2024 they had dropped to 1.3 Mt, while exports climbed from about 0.4 Mt to 2.4 Mt.³⁸ In 2025, net imports fell to around 0.3 Mt and exports reached 3.1 Mt.³⁹

Polyethylene is heading the same way, only more slowly. China already made 68% of the polyethylene it used in 2023.⁴⁰ It still imported more than 14 Mt in 2025, but it also exported a record 1.1 Mt. In April 2026, exports jumped to just over 550,000 tonnes, almost six times the level a year earlier, while imports fell to about 730,000 tonnes. ChemOrbis says the gap between the two was the smallest in records going back to 2000.⁴¹

Some reports in 2026 called China a net exporter of polyethylene. It isn’t yet. Customs data show it still imports more than it exports, although the gap is closing fast.⁴¹

Exporters lost their biggest customer

As China needed less from abroad, the countries that used to supply it had to look elsewhere. Southeast Asia’s polyethylene and polypropylene exports fell by 1.8 Mt, or 37%, over five years, and the region now imports more of both than it exports.⁴² China’s polypropylene imports from South Korea dropped from 1.3 Mt in 2021 to 550,000 tonnes in 2025. Chinese polypropylene now regularly reaches Africa, Latin America and South Asia, which spreads the pressure well beyond Asia.³⁹

Margins collapse, and Europe pays the most

The result has been the industry’s deepest profit slump in at least a decade. ICIS says 2022–25 was the longest stretch of depressed Chinese polypropylene spreads since it began assessing prices in 2003, and it does not see spreads returning to boom-time levels before 2028 at the earliest.³³ In North America, LyondellBasell said 2025 polyethylene margins averaged about $580 a tonne, against a long-run average of $830. Polypropylene margins were just $40 a tonne, against $290. Across the industry, chief executive Peter Vanacker said, margins were “approximately 45pc below historical averages.”⁴³

Europe has been hit hardest. Its energy is expensive and its naphtha crackers are old, which puts them at the top of the cost curve. A study for Cefic, the European chemical industry body, counts about 37 Mt of chemical capacity closed since 2022, around 9% of the region’s total, along with some 20,000 direct jobs.⁴⁴ Wood Mackenzie expects more closures over the next 12 to 18 months, including about a quarter of South Korea’s petrochemical capacity under a government-backed restructuring.²⁰

06 — The Stress Test2026: Everything at Once

The 2026 crisis in the Strait of Hormuz tested almost every force in this note within a single year. First, a supply shock pushed plastic prices up faster than their raw materials. Then oversupply dragged them back down and held them there, even when oil spiked again in the autumn.

The shock

Fighting between the US and Israel on one side and Iran on the other began at the end of February and lasted 39 days before a ceasefire.⁴⁵ Traffic through the Strait of Hormuz was badly disrupted. Before the conflict, close to 1.2 million barrels a day of naphtha passed through the strait, meeting 60–70% of Asia’s import needs. In March, Middle Eastern naphtha exports fell to less than a fifth of their February level. By 31 March, the benchmark naphtha price in Japan had hit a record $1,207.50 a tonne, up almost 90% in just over a month.⁴⁶

Asian plants felt it at once. More than ten crackers that relied on Middle Eastern naphtha cut output or declared force majeure. In South Korea, ethylene plants were expected to run at 67% of capacity in March, down from about 80% in February.²⁹ The Middle East also supplies nearly a quarter of the world’s polyethylene and polypropylene exports, so plastic itself became scarce. Asian ethylene reached $1,500 a tonne by 30 March, and polyethylene film delivered to the Far East hit $1,310 a tonne on 7 April.⁴⁶

Who felt it, and why

In Europe, which relies on naphtha, the shock passed straight through. The April ethylene contract rose by €450 a tonne and propylene by a record €465. By April, polyethylene cost €1,000–1,200 a tonne more than in February, and polypropylene had risen by up to €1,200. Converters rushed to buy ahead. Then, before the end of April, buying eased off as their own customers “had reached their financial limits and scaled back orders.”⁴⁷

The United States is the most revealing case. American plants run on ethane, and ethane barely moved. It traded at about 23¢ a gallon at Mont Belvieu in early March and averaged about 20¢ in May.^8,9 Brent, meanwhile, averaged $103 a barrel in March, $32 more than in February.⁴⁸ By mid-March, RBN Energy reckoned crude was up about 60% since early February, with ethane essentially flat.⁴⁹ Even so, US polyethylene contracts rose 30¢/lb in April alone.⁷ The reason is the one from section 03: US prices are set against naphtha-based rivals abroad, not by US costs. American plants ran flat out, and March production hit a record 5.91 billion pounds at a 98% operating rate.⁵⁰ LyondellBasell’s Americas olefins and polyolefins business earned about $1.3 billion in second-quarter EBITDA, excluding one-off items, roughly four times the $318 million it made a year earlier.^1,51 Kevin Mekaru of RTi called the April increase “certainly more of a margin expansion” than a response to costs.⁷

The unwind

The panic did not last. A two-week ceasefire was agreed on 7 April,⁴⁵ and in mid-June the two sides agreed a framework to extend it and reopen the strait.⁵² Plastic prices then gave back much of their gain, for the reasons covered in section 04. Converters stopped buying ahead. China stepped in with extra supply, and its April polyethylene exports were almost six times higher than a year earlier.⁴¹ As stocks rebuilt, US polyethylene contracts fell 15¢/lb in June⁵³ and another 10¢/lb in July. That left them 20¢/lb higher for the year, and 15¢/lb higher than before the war.⁵⁴

Propylene fell further still. The US polymer-grade propylene contract dropped 7¢/lb to 52¢/lb in May, its steepest fall in two years, and spot prices were down 40% from their April peak.⁵⁶ By September, with US propane dehydrogenation plants running well, propylene ignored the new rise in crude altogether.⁴

That solves the puzzle this note began with. By the autumn the shortage was over and oversupply was back in charge, so even oil above $125 could not lift plastic prices. The IEA’s outlook points the same way. It expects world oil demand to fall by 2.6 million barrels a day in 2026, as high prices weigh on economies, and on demand for plastic with them.²

07 — The PlaybookWhat Leaders Should Watch

The working rule is this: use oil to judge where plastic prices want to go, and use supply, trade flows and China to judge whether they can get there.

For plastic producers

Cheap feedstock is no longer enough on its own. Even low-cost producers posted their weakest margins in a decade in 2025.⁴³ LyondellBasell now says 80% of its global ethylene capacity runs on cost-advantaged feedstocks,¹ and in the second quarter of 2026 it completed the sale of four European assets.⁵⁷ Producers should also plan for short windfalls. In 2026, a supply shock lifted margins for a quarter or so before stockpiles and Chinese exports eroded the gain. And new capacity keeps coming. CPChem and QatarEnergy’s $8.5 billion Golden Triangle Polymers complex in Orange, Texas, entered commissioning in 2026 and is expected to be fully running in 2027. It pairs a 2.08 Mt-a-year ethane cracker with two high-density polyethylene units of 1 Mt a year each.⁵⁸

For converters and buyers

Use transparent price benchmarks, and watch the gap between contract and spot prices. In May 2026, Mike Burns of Plastic Resin Market Advisors warned that “the price delta between the contract and secondary market continues to grow,” a sign that contract prices had run ahead of the real market.⁷ Expect shorter contracts, too. In Europe, PVC producers have been replacing quarterly contracts with monthly ones so they can pass on costs faster.⁴⁷ Don’t panic-buy in a spike. Buying ahead in March and April 2026 made the rise worse and left behind the stockpiles that deepened the summer fall. And know where your supply comes from, because buyers who lean heavily on the Middle East or China face different risks.

For brand owners

Price shocks push buyers toward other materials. In April 2026, some European users of packaging and pipes looked at replacing plastic altogether, and some polypropylene buyers weighed a switch to engineering plastics. Recycled plastic is not an automatic hedge either. As demand for recyclate grew, its price rose too, and the gap with new plastic was expected to narrow.⁴⁷

Five signals worth tracking

Brent crude and Asian naphtha show the cost of the most expensive producer, and so the ceiling for prices. US ethane, and its price relative to gas, shows the size of the American cost advantage. US export prices compared with domestic contracts are the best early guide to North American settlements. Chinese plant run rates, stock levels and net imports show whether China will cap a rally. And trade measures, from tariffs to export licenses, are what cause sudden breaks between regional prices.

08 — The OutlookWhat Could Change the Picture

Some forces could tighten the market. LyondellBasell estimates that about 6 million tons of Middle Eastern polyethylene capacity, around 20–25% of the region’s supply, was damaged in the conflict and will not restart until at least 2027.¹ That is a company estimate, so it is worth checking against later data. Closures in Europe and Northeast Asia are also continuing,^20,44 and China’s campaign against overcapacity could, in principle, shut plants for good.

Other forces point the other way. China has 7.3 Mt of polyethylene and 5.5 Mt of polypropylene due in 2026,²⁷ and it is heading for around 100 Mt of ethylene capacity by 2028.²⁶ New US export capacity is on the way,⁵⁸ and oil above $100 is already eating into demand.² On balance, the market looks set to stay oversupplied through 2027 and 2028, with occasional price spikes that fade faster than the oil moves behind them.