USA | Chemicals Equity Research March 19, 2026 The Bullwhip: Two Scenarios For The Iran War Oil Shock Two of the most common investor scenarios--the short war with quick normalization and the extended conflict with a structural surge in energy costs-- imply very different bullwhip effects both in the near-term and into 2027-2028. Q1 earnings calls should give a sense for the degree to which companies are favoring one scenario, with implications for both volume and FCF conversion dynamics. An Extended Shock ...

Summary of Eastman Chemical Company Conference Call Company Overview - **Company**: Eastman Chemical Company (NYSE: EMN) - **Date of Conference**: March 18, 2026 - **Key Speakers**: Willie McLain (CFO), Jeff Zekauskas (J.P. Morgan Analyst) Key Points Industry Context - The chemical industry is currently facing challenges due to geopolitical tensions, particularly the conflict in Iran, which has implications for oil prices and supply chains [1][5][7] - Eastman has a history of managing through high oil prices, with playbooks in place to navigate these challenges [7][58] Financial Position - Eastman is financially sound, having taken steps to mitigate refinancing risks and extend its credit facilities [7][8] - The company is focused on cash flow generation, aiming for approximately $1 billion in cash flow for the year [41][43] Market Dynamics - The company is experiencing price increases in its specialty products, particularly in Additives & Functional Products and Advanced Materials, due to rising crude and feedstock prices [10][14] - Demand in the durable goods sector is showing signs of improvement, with PMIs over 50 for January and February, indicating a potential recovery from previous destocking trends [26][31] Segment Performance - **Chemical Intermediates**: Expected to face margin pressure due to cost increases, but also sees potential for improved demand as cracker turnarounds occur [21][25] - **Advanced Materials**: Price increases are planned for April 1, with expectations of improved margins as the market stabilizes [85][90] - **Fibers Business**: The company anticipates stable commitments similar to last year, with modest headwinds in pricing [161][162] Strategic Initiatives - Eastman is investing in methanolysis technology to convert waste into valuable feedstock, with a focus on sustainability and circular economy solutions [106][120] - The company is adapting its capital expenditures, projecting them to be below depreciation levels, allowing for flexibility in debt management and potential shareholder returns [143][147] Challenges and Risks - The geopolitical landscape, particularly the ongoing conflict in the Middle East, poses risks to consumer demand and overall market stability [181][186] - Price pressures from raw materials like paraxylene could offset benefits from rising ethylene and propylene prices [89][90] Future Outlook - Eastman is cautiously optimistic about its prospects for 2026, with potential for stronger performance in its intermediates business due to current market conditions [182][184] - The company is committed to balancing cash returns to shareholders with prudent debt management, adapting to market conditions as they evolve [153][154] Additional Insights - The company is exploring opportunities for lower capital investments in future projects, particularly in the circular economy space, to enhance operational efficiency [123][128] - Eastman is focused on maintaining reliable supply chains and managing costs effectively to support its specialty products [68][83]

Summary of Eastman Chemical Company Conference Call Company Overview - **Company**: Eastman Chemical Company (NYSE: EMN) - **Date of Conference**: March 18, 2026 - **Key Speakers**: William T. McLain (CFO), Jeffrey Zekauskas (J.P. Morgan Analyst) Key Points Industry Context - The chemical industry is currently facing challenges due to geopolitical tensions, particularly the conflict in Iran, which has implications for oil prices and supply chains [4][50][178]. - Eastman has historically managed well during periods of high oil prices, with playbooks in place to navigate such scenarios [4][50]. Financial Position - Eastman is financially sound, having taken steps to mitigate refinancing risks and extend its credit facilities [4][10]. - The company is focused on delivering cash flow, with expectations to generate approximately $1 billion in cash flow for the year [35][36]. Market Dynamics - The company is experiencing price increases in its specialty products, particularly in Additives & Functional Products and Advanced Materials, due to rising crude and feedstock prices [10][18]. - Demand in certain sectors, such as automotive, is showing signs of weakness, which may impact overall performance [14][18]. Operational Insights - Eastman has a significant domestic asset base, with over 75% of its assets located in the U.S., providing a competitive advantage in cost management [4][10]. - The company is actively managing price-cost dynamics in its Chemical Intermediates and specialty businesses to maintain margins [18][75]. Challenges and Opportunities - The company anticipates additional pressure on margins in Chemical Intermediates due to fluctuating demand and input costs [18][80]. - Eastman is adapting its strategies in response to changing market conditions, including potential benefits from higher crude prices [50][56]. Future Outlook - The company is optimistic about its position in the market, citing improved order books and demand momentum as critical indicators for Q1 and beyond [32][182]. - Eastman is exploring opportunities in its Methanolysis initiative and circular economy projects, with expectations for revenue growth driven by partnerships with consumer packaged goods companies [97][115][132]. Segment Performance - The Advanced Materials segment is facing challenges but is expected to recover through optimization and new product introductions [170][176]. - The Fibers business, particularly Acetate tow, is projected to maintain similar volume levels as the previous year, with modest pricing headwinds anticipated [161][163]. Strategic Focus - Eastman is committed to balancing cash returns to shareholders with debt management, maintaining a target of approximately 2.5x net debt to EBITDA [145][151]. - The company is also focused on capital efficiency, with reduced capital expenditures expected in the near term [140][141]. Conclusion - Overall, Eastman Chemical Company is navigating a complex market environment with a focus on cash flow generation, strategic pricing, and operational efficiency, while remaining adaptable to geopolitical and economic changes [182].

Core Viewpoint - LyondellBasell Industries is facing pressure on its shares due to rising naphtha prices and production cuts in Asia, which are impacting the petrochemical industry [1][3][4]. Naphtha Supply and Pricing - Naphtha supply has tightened significantly due to Iranian attacks disrupting shipping through the Strait of Hormuz, a crucial route for global oil and refined products [2]. - Prices for naphtha have surged approximately 50% since last month, reaching around $875 per tonne, which poses challenges for petrochemical producers like LyondellBasell [3]. Industry Response - Petrochemical plants in Asia have begun cutting output in response to the naphtha shortage, indicating a widespread operational adjustment across the industry [4]. - Limited naphtha storage capacity is noted, as refineries prioritize higher-value fuels such as jet fuel, diesel, and heating oil [4]. Company Operations - South Korea is a significant market for LyondellBasell, with operations through a joint venture, PolyMirae, serving various sectors including packaging, consumer goods, textiles, electronics, and automotive [5]. Technical Analysis - LyondellBasell shares are trading 21.7% above their 20-day simple moving average (SMA) and 48.4% above their 100-day SMA, indicating strong trend separation [6]. - The stock has increased by 1.34% over the past 12 months and is closer to its 52-week high than its low [6]. Momentum Indicators - The Relative Strength Index (RSI) is at 81.62, indicating an overbought condition and potential pullback risk, while the Moving Average Convergence Divergence (MACD) remains bullish [7]. - The combination of an overbought RSI and bullish MACD suggests mixed momentum for the stock [7]. Analyst Consensus - The stock carries a Hold rating with an average price target of $62.43, with recent analyst actions including upgrades and target raises from various firms [8][10]. - Benzinga's Edge scorecard indicates a "trend vs. durability" setup, highlighting moderate momentum but weak quality characteristics, suggesting tighter risk controls may be necessary [8]. Price Action - LyondellBasell shares were down 0.42% at $74.02, approaching a 52-week high of $75.62 [9]. - Key resistance is identified at $75.50, while key support is at $61.50 [10].

Summary of Key Points from the Conference Call Industry Overview - The conference call focuses on the **Chemicals** industry in **North America**, particularly the impact of force majeure events on various chemical capacities and market dynamics related to the ongoing geopolitical conflict in the Middle East [1][3]. Core Insights and Arguments - **Force Majeure Impact**: - Ethylene capacity under force majeure accounts for **3.9%** of global capacity, with significant regional impacts: **5.7%** in Northeast Asia, **20.4%** in Southeast Asia, **2.5%** in Western Europe, and **60.2%** in Central Europe [2]. - Propylene capacity under force majeure is **3.2%** of global capacity, with **3.8%** in Northeast Asia, **13.3%** in Southeast Asia, **1.5%** in Western Europe, and **30.0%** in Central Europe [2]. - Global ethylene and propylene capacities under force majeure have increased by approximately **1.7%** since the last report on March 6, 2026 [2]. - **Market Reactions**: - Spot prices for ethylene in North America have risen by **24.0%** compared to the last week of February, while propylene prices increased by **12.8%** [8][9]. - Northeast Asian propylene spot prices increased by **10.8%** during the same period [9]. - **Specific Company Updates**: - **Formosa Petrochemical Corp** declared force majeure on its olefins division due to naphtha supply disruptions, affecting **2.93 million tonnes/year** of ethylene capacity and **2.43 million tonnes/year** of propylene capacity [6]. - **OMV** in Germany declared force majeure on **485,000 tonnes/year** of ethylene and **225,000 tonnes/year** of propylene due to technical issues [6]. - **Orlen** in Poland declared force majeure on **700,000 tonnes/year** of ethylene and **385,000 tonnes/year** of propylene due to unspecified causes [7]. - **Aster Chemicals and Energy** in Singapore declared force majeure on **1,150,000 tonnes/year** of ethylene and **500,000 tonnes/year** of propylene due to disruptions in maritime transport [8]. - **Broader Implications**: - The ongoing conflict in the Middle East is causing significant disruptions in feedstock availability, which is expected to impact operating rates across the Middle East and Asia [5]. - The blockade of the Strait of Hormuz is a critical factor affecting logistics and supply chains for various chemical products [5][18]. Additional Important Information - **Polyethylene and Polypropylene**: - Global polyethylene capacity under force majeure is **1.4%**, while polypropylene capacity is **1.0%**, with increases of **0.8%** and **1.0%** respectively since the last report [14]. - North American polyethylene spot prices increased by **15.1%**, and polypropylene prices rose by **25.0%** compared to the last week of February [20]. - **Chlor Alkali & Vinyls**: - Caustic soda capacity under force majeure is **1.4%**, PVC capacity is **5.2%**, and VCM capacity is **5.4%**, indicating a significant increase in disruptions [29]. - **Other Products**: - Various companies, including **Dairen Chemical** and **Sadara Chemical Company**, have declared force majeure on different products due to supply chain disruptions linked to the geopolitical situation [40][44]. This summary encapsulates the critical developments and insights from the conference call, highlighting the significant impact of geopolitical events on the chemicals industry and specific companies within it.

Core Viewpoint - Asahi Kasei, Mitsui Chemicals, and Mitsubishi Chemical are collaborating to decarbonise and optimise ethylene production in western Japan, supported by the Ministry of Economy, Trade and Industry's HtA Support Programme [1][5]. Group 1: Collaboration and Transition - The companies will establish a joint operating entity to manage ethylene production, leading to the closure of the AMEC facility at the Mizushima Plant by fiscal year 2030 [2]. - Operations will be consolidated at the Osaka Petrochemical Industries facility in Takaishi, Osaka [2]. - Equipment modifications will be made at OPC's Senboku Factory and other sites, with plans to dismantle AMEC's equipment and explore uses for the vacated site aligned with carbon neutrality [3]. Group 2: Investment and Technology - An investment of Y21.2 billion ($139 million) is allocated for the transition, including a subsidy application of up to Y10.4 billion [4]. - The investment will focus on transitioning ethylene production facilities and establishing an initial production facility using Asahi Kasei's Revolefin technology [4][6]. Group 3: Industry Impact - Ethylene production is crucial for the petrochemical industry, serving as a foundation for various products [5]. - The cooperative strategy aims to reduce greenhouse gas emissions by sharing technology and implementing carbon-neutral measures [5][7]. - The HtA Support Programme is expected to facilitate a transition towards competitive decarbonised basic chemicals, supporting market expansion and sustainable business models [7].

Core Insights - BASF SE has commenced operations at its steam cracker in the new Verbund complex in Zhanjiang, China, representing a significant investment in the region and one of the largest projects in its global network for Asia-Pacific [1][3] Group 1: Facility and Production - The steam cracker has an annual ethylene capacity of approximately 1 million metric tons and is the first globally to operate its main compressors entirely on renewable energy, showcasing BASF's commitment to sustainable chemical production [2][7] - This facility will supply multiple downstream units and enhance BASF's local value chain to cater to the rapidly growing chemical market in China [3][7] Group 2: Market Position and Performance - Zhanjiang is positioned to be BASF's third largest Verbund site globally, following Ludwigshafen and Antwerp, further solidifying its presence in the chemical industry [3] - BASF's shares have increased by 0.5% over the past six months, contrasting with a 13% decline in the industry [4]

Core Viewpoint - The article discusses the impact of Venezuela's oil exports on China's oil import structure, highlighting a significant decline in the share of Venezuelan oil in China's total imports due to U.S. sanctions, with projections indicating it will remain below 1% in the coming years [1][4]. Group 1: Import Data and Trends - Before 2019, Venezuelan oil accounted for over 5% of China's total oil imports, but from 2020 to 2023, imports ceased due to U.S. sanctions [1]. - In the first eleven months of 2024 and 2025, China imported 1.4983 million tons and 0.3417 million tons of oil from Venezuela, representing only 0.27% and 0.07% of total imports, respectively [1]. Group 2: Characteristics of Venezuelan Oil - Venezuelan oil is primarily heavy, high-sulfur crude, which requires specific refining equipment due to its high density and viscosity [2]. - This type of oil is a crucial low-cost raw material for many domestic refineries and integrated companies capable of deep processing, such as CNOOC and Guangdong Petrochemical [3]. Group 3: Implications for the Industry - The small percentage of Venezuelan oil imports is vital for maintaining the stability of certain low-cost refining routes and specific chemical product chains in China [4]. - The U.S. blockade on Venezuelan oil exports has heightened the risk of trade disruptions, but a full-blown crisis in China's oil supply is unlikely due to several factors, including a currently ample global oil supply and diversified import sources [4]. Group 4: Mid-term Challenges for the Chemical Industry - The reliance on Venezuelan heavy oil will force local refineries and downstream chemical enterprises to seek alternative raw materials, which are typically more expensive, thereby increasing production costs and squeezing profits [5]. - Refining facilities may need to undergo technical modifications or adjust production plans to accommodate new oil types, leading to additional investment and operational costs [5]. - Market volatility for related chemical products, such as propylene and asphalt, may increase, necessitating enhanced supply chain and price risk management for midstream and downstream enterprises [5].

Core Insights - Petrobras and Braskem have signed long-term feedstock supply contracts valued at $17.8 billion, marking a significant milestone in the Brazilian petrochemical industry [1][2][18] Group 1: Overview of the Agreements - The agreements consist of two major contracts: one for petrochemical naphtha worth $11.3 billion and another for natural gas liquids (NGLs) worth $5.6 billion, set to commence in January 2026 [3][4] - The naphtha supply deal will provide 4.116 million tons in 2026, increasing to 4.316 million tons by 2030, ensuring a stable supply for Braskem's operations [5][6] Group 2: Strategic Shift and Expansion - Braskem is transitioning from naphtha to more competitive NGLs like ethane, aiming to enhance Brazil's position in global petrochemical production [2][11] - The $5.6 billion contract for ethane, propane, and hydrogen is crucial for expanding Braskem's Duque de Caxias facilities, expected to run for 11 years starting in 2026 [6][7] Group 3: Long-term Supply Commitments - From 2026 to 2028, Petrobras will supply 580,000 tons of ethylene equivalent annually, increasing to 725,000 tons per year starting in 2029, supporting Braskem's expansion plans [10][11] - Additional propylene supply agreements valued at approximately $940 million will further support Braskem's diverse production lines, ensuring access to necessary feedstocks [14][15] Group 4: Strategic Influence and Future Outlook - Petrobras is increasing its influence over Braskem as Novonor plans to divest its stake, indicating a trend of state-controlled entities shaping Brazil's petrochemical sector [12][13] - The collaboration between Petrobras and Braskem is expected to unlock nearly $800 million in investments, driving growth and modernization in the Brazilian petrochemical industry [7][18]

Core Viewpoint - ExxonMobil plans to permanently shut down one of its two steam crackers at its Singapore refining and petrochemical complex due to global overcapacity in the petrochemical industry, which has negatively impacted profitability [1][3]. Company Overview - ExxonMobil operates a 592,000-barrel-per-day refinery in Jurong, Singapore, which is integrated with the Singapore Chemical Plant (SCP) that has an ethylene production capacity of 1.9 million tonnes per year [2]. Industry Context - The petrochemical industry is facing challenges with razor-thin margins and losses, primarily due to overcapacity, particularly from China, which has led to a global glut affecting profitability [3][4]. - South Korea's government has urged its petrochemical sector to restructure and reduce excess capacity, with the ten largest domestic companies agreeing to cut naphtha-cracking capacity by up to 25% [5]. Future Plans - The closure of the steam cracker is expected to be completed by June 2026, and ExxonMobil plans to reduce its workforce by 10-15% by 2027 as part of a global restructuring effort [6].