27 Mar 2026 01:00:00 ET │ 35 pages Vi e w p o i n t | Global Chemicals Cracker Middle East disruption pushes Asian spreads higher CITI'S TAKE The closure of the Strait of Hormuz has tightened Asia supply, driving major spread expansion in March. European margins fell given contract timing. April will show whether Asian tightness also boosts Europe, as the data shows that the industrial recovery gains momentum. Biggest spread movers were BD, AA, PC, C2 and TDI in Asia, with BASF's weighted spread rising shar ...

Financial Data and Key Metrics Changes - In Q4 2025, the company generated revenues of $153 million, unchanged from the previous quarter and up 6% year-over-year, driven by an 8% increase in charter time charter equivalent rates, partially offset by lower utilization [3][12] - Adjusted EBITDA for Q4 was $73 million, down from $77 million in Q3, but similar to the same period last year [3][14] - The company reported a record annual net income of $100.2 million for 2025, with basic earnings per share of $0.28 and adjusted basic earnings per share of $0.32 [17][41] Business Line Data and Key Metrics Changes - Average time charter rates in Q4 were $30,647 per day, about $300 less than the ten-year high achieved in Q3, but 8% above the same period last year [4][13] - Utilization was 90% in Q4, slightly up from Q3 but down from 92% in Q4 2024 [14] - Throughput at the joint venture ethylene export terminal was approximately 192,000 tons, down from Q3 but up 20% year-over-year [5][43] Market Data and Key Metrics Changes - The company noted that European demand is driving U.S. ethylene exports, with signs of emerging demand from Asia [5][6] - The geopolitical situation in the Middle East has created uncertainty but also commercial opportunities, with expectations for TC rates and utilization to remain strong [6][29] Company Strategy and Development Direction - The company has increased its capital return to 30% of net income and raised the fixed dividend from $0.05 to $0.07 per share, reflecting a commitment to returning capital to shareholders [3][41] - The company is focusing on fleet renewal, having sold older vessels and engaging in second-hand vessel acquisitions while also upgrading vessels with energy-saving technologies [45][46] - The company expects to secure financing for the remaining new-build vessels within the first half of 2026, targeting to complete financing for two Ethylene Panda vessels by March or April 2026 [21][23] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's resilience amid geopolitical tensions, highlighting increased demand for U.S. exports and opportunities in Venezuela [48][49] - The company anticipates that the demand for ethylene and ammonia will remain strong, with expectations for record throughput at the ethylene export terminal in March 2026 [37][43] - Management noted that the aging handysize fleet could lead to negative fleet growth in the near to midterm, supporting a favorable supply-demand balance [6][38] Other Important Information - The company achieved attractive financing for new buildings at historically low margins of 150 basis points [4][21] - The company has a strong liquidity position, with total liquidity of $296 million as of March 11, 2026, despite significant capital expenditures and loan repayments [18][20] Q&A Session Summary Question: Impact of the Middle East situation on larger segments - Management indicated that while VLGCs may ballast to the U.S. due to the closure of the Strait of Hormuz, the impact on Navigator is limited as they do not operate in the same trades [51][52] Question: Landscape for ethylene exports amid disruptions - Management noted that despite some domestic production reductions, international demand remains strong, leading to increased U.S. prices and encouraging exports [54][55] Question: Chartering strategy in light of Middle East volatility - Management stated that they aim to maintain a balanced chartering strategy, operating between 30%-50% cover, and will pursue attractive rates when available [59][60] Question: Fleet renewal and potential sales of older vessels - Management acknowledged that while selling older vessels could free up capital, the market for such sales is not very liquid, and they expect it to take time [61][63] Question: Increased interest for ethylene exports since the war in Iran - Management confirmed increased interest for U.S. ethylene, with both contract and spot sales contributing positively to volumes in March [78][80]

Industry Overview - Demand for synthetic rubber in Western markets is declining due to a slowdown in automotive and tyre manufacturing, alongside increased global competition [1] - Global butadiene and synthetic rubber prices are experiencing a downward trend as a result of these market conditions [1] Price Trends - European butadiene contract price for December 2025 decreased to €720 per tonne ($837/t), down from €1,050 per tonne in March 2025, marking the ninth consecutive decline [2] - In the US, spot butadiene prices fell to $562 per tonne at the end of November 2025 [2] - In China, domestic butadiene prices averaged Yuan 7,021 per tonne ($988/t) in November, reflecting a 16% decrease from October and a 42% decline from January 2025 [2] - Global prices for Styrene-Butadiene Rubber (SBR) and Butadiene Rubber (BR) have also decreased in line with falling butadiene feedstock prices [2] Competitive Landscape - The synthetic rubber industry, particularly in the commodity segment, is facing intense competition from Chinese producers, which has negatively impacted profitability and led to plant closures [2] - Notable closures include Arlanxeo's Port Jerome facility in France and Lion Elastomers' facility in Texas, indicating a consolidation trend in Western synthetic rubber production [2] Demand Variability - Demand for advanced rubber grades remains strong, particularly supported by the automotive industry, while commodity rubber grades are experiencing sluggish demand [3] Trade Dynamics - In Europe, extra-regional EU27+UK SSBR exports increased by 30% in the first three quarters of 2025, driven by a 49% rise in shipments to China [4] - Conversely, extra-regional EU27+UK ESBR exports fell by 10% year-on-year, primarily due to significant losses to India [4] - Lower butadiene prices in Asia, combined with soft demand and uncertainty related to US tariffs, have made ESBR production in Asia more competitive, leading to reduced European exports [4] - China's synthetic rubber production is growing to meet higher demand from the automotive and tyre industries, resulting in increased exports to the ASEAN region [4]

Summary of Key Points from the Conference Call Industry Overview - The conference call primarily discusses the **Global Chemicals Cracker** industry, focusing on the dynamics of chemical demand and supply, particularly in relation to tariffs and manufacturing activity [1][2]. Core Insights and Arguments - **Chemical Demand Risks**: There is a potential downside to manufacturing as more supply is being shut down. The reversal of pre-emptive inventory builds due to tariffs could pose unexpected risks to chemical demand [1][2]. - **Supply Rationalization**: Despite announcements of supply rationalization, it appears insufficient to rebalance markets. The average spread in August remained flat, with a notable increase in EU TDI prices offset by declines in Asia [1][2]. - **Capacity Reductions**: Ten Korean companies are set to reduce naphtha cracking capacity by approximately 2.7-3.7 million tons, representing 18-25% of total capacity. Korea accounts for 6% of global ethylene/propylene capacity [2]. - **China's Supply Dynamics**: China's Ministry of Industry and Information Technology (MIIT) may phase out smaller refining and chemical facilities, but older crackers owned by Sinopec and PetroChina are expected to see upgrades, leading to net supply additions rather than closures [2]. - **Global Economic Indicators**: Citi's global economic surprise index increased in July but has since fallen in August, primarily due to China. Industrial production in China expanded by 6% YoY in July, but austerity measures are beginning to impact demand [2]. Margin and Performance Analysis - **Margin Trends**: The average spread was stable month-over-month in August, with lower spreads in Asia offset by TDI in Europe. BASF's average weighted spread decreased by approximately 1% month-over-month, indicating a potential EBITDA of around €7.3 billion, which is about 3% below consensus [3][10]. - **Sector Performance**: The chemical sector's weak performance in Q2 suggests that chemical demand has not significantly benefited from pre-buying. The outlook for September is critical to assess demand trends for the remainder of 2025 [2][3]. Company-Specific Developments - **BASF**: The company reported a marginal decline in its weighted average spread for chemicals and materials, translating to a negative net pricing impact of approximately €0.1 billion for the second half of the year [10]. - **Arkema**: European acrylic acid margins were flat month-over-month, but margins in China dropped by about 22% due to lower prices. Arkema is viewed positively for its long-term earnings resilience [10]. - **Clariant**: The company is favored for its defensive portfolio, which is less reliant on commodity pricing and more focused on higher quality end markets [10]. - **Dow Chemical**: Dow announced a 50% cut to its dividend due to a prolonged soft commodity cycle and missed Q2 earnings expectations [15]. - **LG Chem**: The company is focusing on high-value-added products amid industry oversupply, with a realistic outlook on cathode shipment guidance [14]. Additional Important Insights - **Market Sentiment**: The overall sentiment in the chemical industry remains cautious, with expectations of continued low margin conditions for the rest of the year [11][15]. - **Investment Recommendations**: Within diversified chemicals, companies such as AKE, CLN, EVK in Europe, and LG Chem, PChem, and Kumho in Asia are highlighted as favorable investment opportunities [4][10]. This summary encapsulates the key points discussed in the conference call, providing insights into the current state and future outlook of the global chemicals cracker industry.