Key Takeaways:
The Iran war has triggered a sharp reversal for U.S. chemical producers, with stock prices for companies like Dow Inc. and LyondellBasell Industries NV soaring after a prolonged slump. The conflict has choked off critical raw materials for their global competitors, allowing U.S. firms to raise prices and ramp up production of key plastics like polyethylene.
"In my career of almost 30 years of covering chemicals, I have never, ever seen price hikes this steep and this quick,” said Hassan Ahmed, a partner at Alembic Global Advisors.
The war has severely hampered Middle Eastern producers, who supply 20% of the world's polyethylene, and has also constrained Asian and European manufacturers reliant on Persian Gulf crude oil. This has left a major gap in the market that U.S. companies, which use cheaper and abundant natural gas as a feedstock, are rushing to fill. Dow is now running its ethane crackers at close to full capacity to meet the demand.
The improved fortunes are reflected in the companies' stock performance. After a steady decline since 2022, Dow’s stock is up 77% year-to-date, while LyondellBasell has seen an 84% rise. This boom extends to other commodity producers like Chemours and Tronox, which make titanium dioxide, and Celanese, a producer of acetic acid. However, downstream companies are feeling the pressure. Packaging manufacturers Amcor and Magnera have seen their share prices decline, and toy maker Basic Fun! expects consumer prices to be affected by the surging cost of plastic.
Analysts believe the advantage for U.S. producers may persist even after the conflict ends. Steve Lewandowski of Chemical Market Analytics by OPIS noted it could take eight or nine months for shipping and chemical plants in the Persian Gulf to return to normal. However, he also cautioned that the current high margins might only last a year or two as more foreign producers convert to using ethane, eroding the current U.S. advantage.
This article is for informational purposes only and does not constitute investment advice.
