Outgoing Dow Chief Executive Officer Jim Fitterling said clearing up the Strait of Hormuz disruption could take much longer than investors expected.
“The scenario planning that we did said that even if the Straits were to reopen today, just clearing the logistical logjam… it would take 275 days, it would take longer now,” he told Jim Cramer on CNBC’s “Mad Money” on Thursday.
The Strait of Hormuz was effectively closed in early March at the outbreak of the Iran war, causing a major bottleneck in global energy and petrochemical flows. Mr Fitterling said the path back to normalcy would be slow and complicated.
“We have to bring back the empty ships. We have to clear the Straits and the Arabian Gulf. We have to bring back the empty ships,” said Mr. Fitterling, who will retire as Dow’s chief executive on July 1 after eight years. “This is not going to be over in a month or two. It will take several quarters for things to return to normal.”
The first shock was significant for the petrochemical market, in which Dow is one of the leading players. “When the Strait of Hormuz closed, 20% of the world’s oil production capacity was shut down, but about 50% of the world’s ethylene and polyethylene production was affected,” Fitterling said, referring to two key inputs used to make plastic products used in everyday life.
He noted that around 40% of the naphtha used in production in Asia and Europe flows through the Strait, making supply tight almost immediately, adding that this chokepoint is critical to the petrochemical supply chain. Naphtha, obtained from crude oil, is an important ingredient for making plastics and other chemicals.
This imbalance caused prices to soar. “We’ll see a 10 cents a pound increase in March, another 30 cents in April and another 20 cents in May,” he said. “We haven’t seen price increases like this in over 10 years.”
Pricing tailwinds supported Dow’s latest results, as the company reported strong earnings and a smaller-than-expected loss in its first-quarter report released April 23. The stock is up about 65% this year.
