Global polyethylene supply tightens, KeyBanc bullish on US producers like Dow, Inc. as the biggest winners.

Notice that, according to the latest research report from KeyBanc Capital Markets, the conflict involving Iran may provide short-term assistance to US petrochemical producers, leading to global supply tightening and increasing profit margins in key chemical markets. KeyBanc Securities research analyst Aleksey Yefremov stated that supply interruptions related to the conflict could impact a significant portion of global capacity. This may result in higher prices for polyethylene and related products in the coming months. Yefremov wrote in a report on March 3rd, "Given that around 11%-15% of global ethylene/polyethylene (PE) capacity is directly affected by the US/Israel-Iran conflict, we are upgrading our rating on Dow, Inc. (DOW.US) and LyondellBasell (LYB.US) to 'hold'." The analyst mentioned that the rise in crude oil prices is also shifting the global cost curve in favor of US producers using natural gas feedstock. As oil prices rise, the production costs for Asian naphtha-based facilities become more expensive, expanding the cost advantage for US ethane-based facilities. Global supply tightening KeyBanc expects that interruptions related to the tense situation in the Middle East could temporarily reduce global polyethylene supply by around 5% to 10%. The generally lower inventory levels in the petrochemical industry could amplify this impact as buyers rebuild safety stocks. The basic forecasting scenario for the agency suggests that US polyethylene prices may rise by about $0.10 per pound in the coming months. In a tighter supply situation, the increase could exceed $0.15 per pound. The report shows that spot export prices have already risen, with recent increases of around $0.12 to $0.15 per pound. If the interruption continues for several weeks, the resulting supply tightness may persist for several quarters before additional capacity comes online. Winners and losers among chemical producers KeyBanc has upgraded its ratings for Dow, Inc. (DOW.US) and LyondellBasell (LYB.US) to "hold," citing their strong positions in the ethylene and polyethylene markets. The agency also raised profit forecasts for both companies. For LyondellBasell, analysts currently forecast an EBITDA of around $3.78 billion in 2026, up from the previous forecast of $2.57 billion. Under the revised forecast, Dow, Inc. is expected to generate approximately $4.09 billion in EBITDA in 2026, higher than the previous forecast of around $3.68 billion. Other companies may be affected in complex ways. Celanese Corporation (CE.US) may benefit from tightening methanol markets, while Olin (OLN.US) may profit from rising prices of caustic soda and related chemicals. Meanwhile, KeyBanc has downgraded its rating for Avantor (AVNT.US) to "neutral" in line with the industry. Analysts state that rising raw material costs may squeeze profit margins, as around 35% of the company's materials are based on hydrocarbons. Increasing pressures on energy and transportation costs Political conflicts, such as those involving GEO Group Inc, are also driving wider fluctuations in the energy market. Crude oil prices have surged in recent weeks. Rising oil prices tend to raise the global ethylene cost curve, benefiting US producers using cheaper natural gas feedstock. Meanwhile, transportation costs are rising due to insurance premiums and supply chain disruptions related to conflict. Container shipping prices have increased, with some carriers announcing increases of $900 to $1,400 per 40-foot container on key routes from Asia to Europe. If the conflict continues and shipping disruptions persist, freight costs may remain high, further tightening the supply flow of global petrochemical products. Demand outlook remains stable Despite price increases, KeyBanc expects petrochemical demand will not experience a sharp decline. Many applications, including packaging, are considered essential and are often less sensitive to price increases. On the contrary, analysts expect market dynamics in the short term to be primarily driven by supply constraints rather than demand growth. As Yefremov wrote, the tightness in the ethylene, polyethylene, and methanol markets currently seen is "supply-driven rather than demand-driven," reflecting production and logistical disruptions rather than a sudden increase in consumption.