Chemicals: We See Positive and Negative Near-Term Implications from Middle East Shutdowns

US chemicals producer stocks ranged from down 1% to up 2% at the time of writing on March 2, following the closure of the Strait of Hormuz and the news that QatarEnergy is temporarily shutting down its natural gas production.

Why it matters: The Middle East is the largest exporter of commodity chemicals globally. Using ethylene as an example, roughly one-third of global exports come from the Middle East. A prolonged shutdown of the Strait of Hormuz could cause a supply shock from drastically lower exports.

• For US commodity chemicals producers, this would quickly alleviate the oversupply in the global market that is weighing on prices and producer profits. A supply shock could shift the market from oversupply to undersupply and increase demand for US exports. This would boost US producer profits.
• However, much of the Middle East’s natural gas and commodity chemicals exports go to Europe. For US chemicals companies with significant European operations, the supply shock is likely to increase input costs from higher raw material prices, which will likely reduce demand.

The bottom line: For now, we maintain our fair value estimates for the four narrow-moat US chemicals companies under our coverage: Celanese ($100 fair value estimate), Dow ($45), Eastman ($100), and LyondellBasell ($90). We view all four stocks as undervalued, trading in 4-star territory.

• However, if a supply shock occurs that boosts near-term demand for US chemicals, we see a net positive effect on 2026 results. Commodity chemicals volumes, prices, and profits should rise, partially offset by weaker downstream demand.
• In this scenario, we estimate we would raise our fair value estimates by 5%-20%, depending on the extent of the price movement and the longevity of the supply shock.