Dow flags higher costs, capacity risks from prolonged Middle East disruptions

By Pooja Menon

April 23 (Reuters) – Chemicals maker Dow said on Thursday it expects supply disruptions linked to the Middle East conflict to persist through 2026, warning of higher costs and potential delays to planned industry capacity additions.

Shares of the Michigan-based company were last down 2.2% in volatile trading.

Ongoing tensions in the region are likely to keep oil and naphtha prices elevated, steepening the global cost curve for producers, Dow said on a post-earnings call.

Dow added that the conflict could delay or cancel planned capacity expansions across the industry, while also increasing pressure for capacity rationalization, as companies reassess investments amid heightened uncertainty and supply-chain disruptions.

The closure of the Strait of Hormuz following heightened regional tensions has disrupted oil and petrochemical flows, tightening global chemical supply and pushing up prices for plastics and polymers.

“We anticipate that shutdowns, feedstock limitations and logistical constraints will continue to reshape polyethylene product availability across regions,” said COO Karen Carter, who will take over as the new CEO on July 1.

The tightening supply environment is already feeding through to pricing, helping Dow forecast second-quarter revenue and core profit above Wall Street expectations as higher prices and constrained supply begin to lift margins.

“The margin backdrop began to positively inflect in March following global supply constraints, as impacts from the conflict in the Middle East quickly became widespread,” said CEO Jim Fitterling.

Analysts say North American chemical producers are relatively advantaged, benefiting from ample feedstock availability.

Dow now expects second-quarter revenue of about $12 billion, above analysts’ average estimate of $11.3 billion, according to LSEG data, and core earnings of about $2 billion versus expectations of $1.6 billion.

The company also suspended recognizing losses from Sadara Chemical, its joint venture with Saudi Aramco, after liabilities reached existing obligations under accounting rules. Sadara recently shut down production at its Jubail complex, citing supply chain disruptions from the Iran war.

Dow reported an adjusted loss of 14 cents per share for the quarter ended March 31, compared with analysts’ average estimate of a loss of 29 cents per share.

(Reporting by Pooja Menon in Bengaluru; Editing by Tasim Zahid)