Orion S. A.: Western Chemical Industry Benefiting from the Supply Chain Disruption

… We have no unique insights into how long the Iranian conflict may persist, or where energy prices may ultimately settle once a definitive conclusion is reached. But Western chemical industry constituents are clearly experiencing tangible benefits from the supply chain disruptions that have ensued since the conflict was initiated.

With global commodity chemicals, the beneficial thesis is fairly straightforward. In certain sectors, the supply disruption of certain low-cost feedstocks coupled with higher regional logistical costs have tightened Western utilization rates, transferred advantage to Western producers, precipitated sharp and widespread pricing momentum, and expanded margins. Despite debate about the duration of the current benefit, it is generally agreed that any « normalization » timeline is likely to be measured in quarters – not weeks or months – once the hostilities subside and more normal maritime trade resumes.

One of numerous uncertainties is the potential for demand destruction in the wake of the energy market’s shock, resulting from the conflict.

In the immediate near-term, nevertheless, major commodity players are

running Western plants at maximum rates, simply in an effort to make up for curtailments in regions where chemical industry plants have been dependent on Middle Eastern feedstocks.

The current situation is hyper dynamic but we believe the carbon black industry, particularly the Western carbon black industry, stands to benefit directly and indirectly from the tumult. The likely implications of the conflict outlined below should work in our favor, notwithstanding a stiff near-term working capital headwind from higher oil prices…

Source: Orion S.A.