Citi has moved Dow Inc. and LyondellBasell Industries from Neutral to Buy, citing a supply shock that the firm says could raise global chemical prices and improve margins for North American producers.
The brokerage links the shift to disruptions related to the conflict involving Iran and the closure of the Strait of Hormuz, which it says are influencing energy markets, shipments out of the Middle East and feedstock costs for producers in Asia and Europe. Citi argues that the evolving supply-and-cost dynamics should favor U.S. chemical companies that rely on natural gas-based feedstocks.
In its view, North American manufacturers are positioned to capture increased export demand and enjoy margin expansion across several chemical chains. Citi highlights olefins and polyolefins as the areas where U.S. cost advantages are most pronounced and therefore most likely to translate into improved profitability.
The brokerage assessed the disruption as potentially supporting supply-driven price increases over a multi-month horizon. Its base case assumes two to three quarters of disruption, though it emphasized the duration of the conflict is uncertain. Citi also noted that even if tensions abate relatively quickly, several factors could keep prices higher for a time - logistical bottlenecks, elevated insurance and freight costs, constrained feedstock availability and the lead time required to restart petrochemical plants safely.
Quantifying near-term effects, Citi expects polyethylene prices to climb by roughly $0.12 per pound in the first half of the year before easing as markets normalize later. Using those assumptions, the brokerage forecasts 2026 EBITDA to increase by about 22% for Dow and about 32% for LyondellBasell versus its prior estimates.
On the methanol front, Citi flagged that more than 15% of global methanol supply could remain trapped in the Middle East, a development it says would tighten markets for methanol-linked products such as acetyls and MTBE. Against that backdrop, Citi left Celanese as its top sector pick, citing expected price strength in acetyl products as supply tightens.
Context for markets and manufacturers
The brokerage's analysis centers on how disruption at multiple points in the energy and petrochemical value chain - from upstream LNG facilities to downstream crackers in Asia and Europe - can create supply-driven price support. U.S. producers that use natural gas feedstocks could see competitive gains relative to producers more exposed to disrupted feedstock flows.
While Citi provides a base-case timeline, it underscores uncertainty in conflict duration and notes several transmission mechanisms - logistics, insurance and restart timelines - that could sustain elevated prices even if direct disruptions diminish.