The U.S. Plastics Industry Was in the Doldrums. Then the Iran War Began.

The Iran war has caused a lucrative reversal of fortune for U.S. chemical makers, leading to steep price hikes for products like polyethylene. About two weeks after the start of the Iran war, Dow Chief Executive Jim Fitterling told investors something they hadn't heard in a while about one of the company's most important products. "We're seeing prices go up everywhere," he said, referring to polyethylene, a plastic that goes into detergent bottles, food packaging and many other goods. Fitterling said Dow DOW 1.74%increase; green up pointing triangle was going to raise the commodity's North American price by 15 cents per pound in April after boosting it by 10 cents in March. Six days later, the company said the April price hike would actually be 30 cents. Polyethylene had been in a post-Covid slump due to overproduction and ebbing demand, but the Iran war changed that equation almost overnight. The conflict's geopolitical ripples have brought a lucrative reversal of fortune to U.S.-based chemical makers, which in recent years have been some of America's most downtrodden companies. Their share prices have rocketed up, reflecting the advantage they gained after bombs began to fall in the Middle East and Iran blocked the Strait of Hormuz. "In my career of almost 30 years of covering chemicals, I have never, ever seen price hikes this steep and this quick," said Hassan Ahmed, a partner at Alembic Global Advisors. The war has affected every corner of the world's polyethylene industry. Middle Eastern producers, which account for 20% of the global supply, have cut production. Plastic makers in Asia and Europe curbed their own output when Persian Gulf crude oil, the raw material they rely upon, became inaccessible. That left U.S. chemical companies, which use cheap and abundant natural gas to make their plastic products, to boost production and raise prices at furious rates. Heavy demand is prompting Dow to run some facilities at close to full capacity. Those include its "crackers," which heat ethane, a component of natural gas, to more than 1,700 degrees Fahrenheit. That causes the molecule to crack into hydrogen and ethylene, the basic building block of plastics such as polyethylene. "Everything that we've got running is going to be flat out for the rest of the year," Fitterling said. Dow's share price reflects its improved circumstances. The stock had been trending steadily downward since 2022, and last year, Dow cut its dividend in half. But since the start of the year, its stock is up 77%, vastly outperforming the S&P 500. Fellow chemical maker LyondellBasell LYB 3.77%increase; green up pointing triangle is enjoying a similar ride, with its stock up 84% so far this year after two years of decline. Chief Financial Officer Agustin Izquierdo recently told investors that the company's "sleeping giant" of a product -- polypropylene, a plastic derived from propane and used in everything from food containers to car parts -- is having a moment. "The material from the Middle East is trapped in the region, so this gives an opportunity for North America to actually start exporting polypropylene," he said. "It can be quite leveraging for us." Other U.S. commodity producers are sharing in the boom as their global rivals face higher costs, inaccessible raw materials or transportation obstacles, said John McNulty, a chemicals analyst at BMO Capital Markets. They include companies like Chemours and Tronox, which make titanium dioxide, a pigment used in paint and wallpaper, and Celanese, which produces acetic acid, a key ingredient in many industrial products. Companies that buy those commodities are on the flip side of the boom. Packaging manufacturers Amcor and Magnera, which are major purchasers of plastic resin, have seen sharp declines in their share prices over the last month. Wells Fargo recently downgraded the companies' shares, partly because of their exposure to the rising cost of plastic. Toy maker Basic Fun!, which makes products ranging from Tonka trucks to Stretch Armstrong action figures, does most of its production in Asia. CEO Jay Foreman said surging plastic costs have cut into the company's margins just as tariffs did last year. "In the short run we'll take the hit, but no doubt, at some point it will affect consumers," he said. Analysts said an end to the conflict in Iran -- which President Trump has said could take several weeks -- won't immediately erase U.S. chemical producers' edge. It could take eight or nine months for shipping and chemical plants in the Persian Gulf to get back to normal after peace is declared, they said, and the first customers in line for the raw materials likely will be in critical industries like fertilizer production. Steve Lewandowski of market research firm Chemical Market Analytics by OPIS, which is owned by the same parent company as The Wall Street Journal, said U.S. chemical companies also face global competition for the ethane that feeds their crackers. Foreign plastic makers are increasingly converting their plants to use ethane rather than crude oil derivatives, he said, thanks to the lower price and greater availability of natural gas. Over time, he said, more U.S.-produced ethane likely will be exported, eroding the advantage now enjoyed by American plastic makers. "Maybe they'll have a year or two of nice margins, then people will start pulling the ethane again and it will disappear," he said.