Shares of US chemical producers moved higher as investors assessed the impact of escalating tensions in the Middle East on global supply chains.
Companies with significant production along the US Gulf Coast, including Dow and LyondellBasell Industries, have emerged as potential beneficiaries of disruptions to petrochemical exports from the region.
Analysts at Citi upgraded both companies’ shares to Buy on Thursday, reversing an earlier Neutral stance as the conflict threatens the global supply of petrochemical products.
Dow shares rose after the bank raised its price target on the stock to $40, citing what it described as an increasingly attractive risk-reward profile if geopolitical tensions persist.
Shares of LyondellBasell also gained, rising around 7%.
The Middle East conflict has already reshaped energy markets and is beginning to ripple through global petrochemical supply chains.
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US producers gain cost advantage
Dow and LyondellBasell produce chemicals derived from oil and natural gas that are widely used in plastics manufacturing.
According to Citi, disruptions linked to the conflict — including the closure of the Strait of Hormuz — are affecting energy prices, shipping routes and feedstock availability for chemical producers in other regions.
The analysts said those changes could give North American chemical companies an advantage because they rely heavily on natural gas feedstocks, which tend to be cheaper than oil-based inputs used by many producers in Asia and Europe.
Citi noted that this cost advantage could allow US producers to expand margins while capturing additional export demand as supply chains adjust.
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Margin expansion expected
The brokerage expects the supply disruptions to support higher petrochemical prices for several months.
Citi’s base-case scenario assumes the disruptions could last for two to three quarters, though the ultimate duration will depend on how long the conflict persists.
North American producers could benefit from stronger export demand and wider margins across several chemical product chains, particularly olefins and polyolefins, where US cost advantages are most pronounced.
The bank also highlighted the potential for investor sentiment to shift toward Dow’s US operations, suggesting the market may currently be undervaluing the earnings power of the company’s North American assets.
Supply chain disruptions could persist
Even if geopolitical tensions ease relatively quickly, Citi said several factors could keep petrochemical prices elevated in the near term.
Logistics bottlenecks, higher shipping insurance premiums, rising freight costs and limited feedstock availability could all contribute to sustained supply tightness.
Additionally, petrochemical facilities in affected regions may require time to safely restart operations once conditions stabilise.
The bank noted that disruptions are occurring across multiple stages of the energy and petrochemical supply chain, ranging from upstream liquefied natural gas facilities to downstream cracking plants in Asia and Europe.
Polyethylene prices expected to rise
One key product likely to see price increases is polyethylene, a widely used plastic material.
Citi expects polyethylene prices to rise by approximately 12 cents per pound during the first half of the year before easing later as markets normalise.
Based on those assumptions, the bank forecasts that earnings before interest, taxes, depreciation and amortisation (EBITDA) in 2026 could increase significantly for both companies.
Citi estimates EBITDA could rise about 22% for Dow and 32% for LyondellBasell compared with its previous projections.
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