Stock Trader’s Guide to Navigating Supply Disruption by Iran War

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In India, officials have asked China to allow the sale of some urea cargoes as the war curtails the nation’s gas supplies, threatening fertilizer production in the agricultural powerhouse. Stocks including Rashtriya Chemicals & Fertilizers Ltd. have dropped. 

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Chemicals

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Around 15% of global ethylene and polyethylene supply is directly impacted by the conflict, according to KeyBanc Capital Markets analyst Aleksey Yefremov. As global supplies tighten, demand for US chemicals is rising and firms like Dow Inc. and LyondellBasell Industries NV are expected to see their margins benefit.

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Similarly, Chinese chemical stocks such as Hebei Jinniu Chemical Industry Co., have jumped about 80% since the war began, as a string of industry players announced steep price hikes.

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The closure of the Strait of Hormuz has disrupted the production of ethylene. As a result, ethylene prices are surging — impacting industries that rely on it, from plastics and detergents to polyester and paint. Cosmetics-tied stocks in Europe like L’Oreal SA and LVMH will likely be in focus due to their heavy reliance on plastic.

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The pain extends to the paint industry, where raw materials are largely oil-derived. ICICI Securities estimates that if oil stabilizes at $100 per barrel, firms like Asian Paints Ltd. would need to hike prices by a staggering 22% just to protect their margins.

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Alternative energy

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Alternative energy plays — from wind and solar to lithium batteries and energy storage systems — are drawing renewed interest, as the deepening oil crisis fuels demand. Shares of wind‑turbine maker Goldwind Science & Technology Co. have gained about 10% this month and those of battery giant Contemporary Amperex Technology Co. have risen 16%.

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Homebuilders

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US homebuilder stocks have come under pressure as expectations for rate cuts fade, which could push mortgage rates higher. 

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The key question is whether these impacts will be long term, according to Truist Securities analyst Keith Hughes. For example, a higher 10-year yield results in higher mortgage rates and “could negatively impact home buying and consumer confidence,” the analyst wrote in a note.

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Rising interest rates could hurt construction-focused companies such as TopBuild Corp. and Builders FirstSource, Inc., while higher crude and natural gas prices may raise costs for firms like Mohawk Industries, Inc. and Amrize Ltd.

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Sugar and Tires

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Indian sugar firms including Balrampur Chini Mills Ltd. and Shree Renuka Sugars Ltd. are potential beneficiaries on the expectation that surging oil prices will lift rates for ethanol supplied by mills for blending with state-run firms’ fuel. 

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Meanwhile, tire manufacturers use crude by-products for synthetic rubber and reinforcement fillers. And higher oil prices have seen stocks including Apollo Tyres Ltd. and MRF Ltd. come under pressure.

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Metals

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On top of the impact on energy supply, smelters in the Middle East see incoming raw materials and outbound sales of metals disrupted. The Persian Gulf is home to about 9% of global aluminum output, with prices for the metal hitting a four-year high before paring gains.

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European giant Norsk Hydro ASA finds itself at the center of this storm through its 50% stake in the Qatalum joint venture. After a controlled shutdown was initiated on March 3 due to the regional natural gas shortage, the stock saw a volatile recovery following news that Qatar Aluminum Ltd. no longer plans a total closure.

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The fallout from any closure will likely be felt even after the immediate risk of attacks fades because aluminum smelters take three to six months to fully ramp up again, Citigroup Inc. analyst Ephrem Ravi wrote in a note.

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Meanwhile, US aluminum firms like Alcoa Corp. have seen stock price gains as its smelting operations see limited disruption and its earnings stand to benefit from elevated metal prices.

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—With assistance from Julien Ponthus, Henry Ren, Isolde MacDonogh, Matthew Griffin, Arvelisse Bonilla Ramos, Jordan Fitzgerald, Annika Inampudi, Janet Freund, Peyton Forte, Lin Zhu, Eduard Gismatullin and Alex Gabriel Simon.

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