The outgoing CEO of Dow Chemical (DOW.US), Jim Fitterling, has indicated that disruptions to traffic through the Strait of Hormuz may take significantly longer to resolve than investors anticipate. Speaking on Thursday, Fitterling stated, "We have conducted scenario planning. Even if the strait were to reopen today, just clearing the logistical backlog... would take 275 days, and it now appears it could take even longer." The Strait of Hormuz was effectively closed following the outbreak of conflict involving Iran in early March, creating a major bottleneck for the global flow of energy and petrochemical products.
Fitterling emphasized that the path to normalization will be slow and operationally complex. "You have to get empty vessels back. We have to clear the strait and the Arabian Gulf. This isn't something that will happen in a month or two. It will take several quarters before you see everything return to normal," he explained.
The initial shock had a profound impact on the petrochemical market, where Dow Chemical is a leading player. "When the Strait of Hormuz closed, 20% of global oil capacity was affected, but so was about 50% of global ethylene and polyethylene production," Fitterling said, referring to two key feedstocks used to manufacture plastic products for everyday life. He added that the strait is critical for the petrochemical supply chain, noting that approximately 40% of the naphtha used in production in Asia and Europe transits the waterway, leading to almost immediate supply tightness. Naphtha, derived from crude oil, is a vital raw material for producing plastics and other chemicals.
This supply-demand imbalance has triggered a sharp rise in prices. "In March, we saw an increase of 10 cents per pound, another 30 cents in April, and we expect a further 20-cent increase in May," Fitterling pointed out. "We haven't seen price increases of this magnitude in over a decade."
The positive effect of these price increases supported Dow Chemical's recent financial performance. The company's first-quarter earnings report, released on April 23, showed resilient revenue and a smaller-than-expected loss. So far this year, Dow's stock price has accumulated a gain of approximately 65%. Fitterling is set to step down as CEO of Dow Chemical on July 1, concluding his eight-year tenure.
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