In an early indication about how the war in Iran will affect the petrochemical industry, Dow, the first major chemical company to report earnings since the conflict began, says it expects sales and profits to surge in the second quarter as prices escalate and it is able to ramp up production in North America and other regions that are relatively insulated from the war.
Dow’s first-quarter results reflect an industry that was still mired in overcapacity. Its sales declined 6% to $9.8 billion from the year-earlier quarter. Prices dropped 7% and volumes slipped 2% over the same period.
Operating earnings before taxes declined 8% to $873 million, despite an assist from $193 million in cost-cutting measures during the quarter.
But looking ahead, Dow forecasts about $12 billion in revenue and $2 billion in earnings before taxes during the second quarter, largely because of a war-related surge in chemical prices and production.
“We delivered solid results in January and February, and then dynamics in the Middle East quickly impacted industry supply-demand conditions,” Karen S. Carter, Dow’s chief operating officer and incoming CEO, told analysts on an April 23 conference call. “In fact, our operations outside the region experienced the largest percent sales gain from February to March that we’ve seen in our company’s history.”
About half the global supply of the building-block chemical ethylene is either offline, constrained, or impacted by the war, Carter said. “These are unparalleled numbers,” she noted.
Chemical production capacity along the Persian Gulf is offline, either because of logistical constraints or direct impacts from the war, Carter said. For example, Dow and Saudi Aramco took their Sadara Chemical joint venture in Jubail, Saudi Arabia, offline in March due to supply chain disruptions. It subsequently suffered from a “little bit of damage” from Iranian attacks, current Dow CEO Jim Fitterling told analysts.
Asian petrochemical producers are reducing output at their facilities because they depend on feedstock from the Middle East. Fitterling noted that refiners in China are placing emphasis on producing fuels over naphtha petrochemical feedstocks.
In Europe, Fitterling said, ethylene producers have alternative sources of feedstock and are also getting a lift from higher prices for ethylene coproducts. Carter said Dow has increased production in the region, and she expects profits to increase there in the second quarter.
The Americas, where Dow cracks natural gas–derived feedstocks into ethylene, will be the company’s main strength. “Dow operates a large portion of our light-cracking capacity in the cost-advantaged Americas, with assets in the US, Canada, and Argentina, all of which continue to operate at high rates,” Carter said. “Our consistent focus on investing in the Americas gives us reliability, feedstock security, and cost stability at a time when global supply chains are strained.”
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