Stocks staged a stunning rally on Friday, but you wouldn’t know it looking at Dow Inc. (DOW) stock.
Chemical commodity stocks joined energy stocks as the day’s worst performers after Iran said the Strait of Hormuz was open, raising the prospect of a lasting ceasefire that could alleviate supply disruptions.
Dow Inc. shares fell about 10% in afternoon trading, while those in LyondellBasell Industries (LYB) and CF Industries (CF) fell 12% and 9%, respectively.
The Middle East is the largest exporter of commodity chemicals worldwide, and many chemicals and plastics are derived from crude oil.
Chemical commodity prices have risen since late February, with prices of polyethylene, the most commonly produced type of plastic, having risen 24% since the war began, according to Trading Economics.
Even if the US and Iran reach a ceasefire and the Strait of Hormuz opens to shipping traffic, analysts expect prices to remain elevated for some time.
Read more: How oil price shocks ripple through your wallet, from gas to groceries
“The reopening of the Strait of Hormuz should partially alleviate the supply shock as inventory at ports in the Persian Gulf should be able to leave,” Morningstar analyst Seth Goldstein wrote in a note last week.
“Yet, we still think a lot of production capacity in the Middle East will remain offline over the near term as liquid natural gas production, the feedstock for the building blocks ethylene and propylene, remains down. This should leave the global market undersupplied and near-term prices higher.”
However, Dow and LyondellBasell were seen as having an advantage during the energy shock because they rely more on lower-cost natural gas liquids in North America to make their products.
And changes in supply-and-demand dynamics are no small thing for Dow, as plastics make up over half of its business.
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