Introduction#
Citi has recently upgraded its ratings for two North American chemical producers, Dow Inc. and LyondellBasell Industries, to 'Buy'. This decision comes in response to supply disruptions caused by the ongoing conflict in Iran and the closure of the Strait of Hormuz, which have affected global energy prices and production capacities.
Dow Inc. Upgrade#
Citi upgraded Dow from 'Neutral' to 'Buy', highlighting the company's favorable position in the current geopolitical climate. The disruptions in the Middle East have led to increased feedstock costs for producers in Asia and Europe, while North American producers benefit from lower natural gas prices. Dow's recent fourth-quarter earnings before interest, taxes, depreciation, and amortization (EBITDA) surpassed market expectations, and the company has received positive ratings from several analysts, indicating potential for improved profit margins.
LyondellBasell Industries Upgrade#
Similarly, LyondellBasell was upgraded from 'Neutral' to 'Buy'. Citi emphasized the company's strength in producing olefins and polyolefins, which are key chemical products. The ongoing conflict has resulted in over 15% of methanol being trapped in the Middle East, creating supply constraints that favor LyondellBasell's market position. However, the company has announced a reduction in its first-quarter dividend due to a prolonged downturn in the chemicals industry.
Market Outlook#
Citi describes the current situation in the commodity chemicals sector as a shifting landscape. As the conflict continues, the bank is adjusting its outlook for the sector, considering the impact of supply disruptions and rising costs. While the duration of these challenges is uncertain, Citi believes that North American producers with advantageous feedstock positions could see price increases driven by supply constraints in Asia and Europe. This evolving narrative highlights the complexities of the global chemicals market amid geopolitical tensions.