Dow CEO says clearing the Strait of Hormuz logjam will take almost a year
extrovert Dow CEO Jim Fitterling said it could take much longer to fix the disruption in the Strait of Hormuz than investors expected.
“Some of the scenario planning we did said that even if the straits were reopened today to clear the logistics congestion … it would take 275 days, maybe even longer,” he told Jim Cramer on CNBC’s “Mad Money” on Thursday.
The Strait of Hormuz effectively closed in early March at the start of the Iran war, triggering a major bottleneck in global energy and petrochemical flows. Fitterling said the path back to normal will be slow and operationally complex.
Fitterling, who retired as Dow’s general manager on July 1 after eight years of work, said, “You must take back the empty ships. We must clean the Strait and the Persian Gulf. We must bring back the empty ships.” “That’s not going to happen in a month or two. It’s going to be a few quarters before you see things get back to normal.”
The initial shock was significant for the petrochemical market, where the Dow is a leading player. “When the Strait of Hormuz was closed, 20% of global oil capacity was closed, but approximately 50% of global ethylene and polyethylene production was affected,” Fitterling said, referring to two key inputs used in the production of plastic products used in daily life. he said.
He noted that the choke point is critical for petrochemical supply chains, with about 40% of naphtha used in Asian and European production flowing through the strait, causing an almost immediate contraction in supply. Naphtha, derived from crude oil, is an important component in the production of plastics and other chemicals.
This imbalance caused a sharp price increase. “We saw a 10 cent per pound increase in March, another 30 cents per pound in April, and another 20 cents in May,” he said. “We haven’t seen this kind of increase in prices in over a decade.”
A price tailwind helped support the Dow’s recent results; The company reported solid revenue and a smaller-than-expected loss in its first-quarter report released April 23. Shares are up nearly 65% this year.
