N.A. Chems & Pkg’g "Price spike waning as the world adjusts to a new nor..."

Research evidence excerpt

N.A. Chems & Pkg’g "Price spike waning as the world adjusts to a new nor..."

; reduce LYB EBITDA estimates

gaurav-l.sharma@ubs.com

by -12%/-2%/-4%; and lower our WLK EBITDA forecast by -6%/-1%/-6%, +1-212-713 4312

respectively. Stock prices should continue to trade around the Strait of Hormuz

news flow, which creates upside and downside risk for these stocks. We maintain Nicole Grueneberg

Associate Analyst

Neutral ratings on DOW & LYB, where the market is debating and already pricing

nicole.grueneberg@ubs.com

in peak earnings levels in 2Q/3Q. We have a Buy rating on WLK, which has seen +1-212-713-2469

less benefit and therefore has less room for earnings to move down along with

potential margin expansion into 2H26/2027 in its downstream housing and

infrastructure segment. We also have a Buy rating on MEOH, which does benefit

from disruption, but we see tighter methanol markets and a bigger balance sheet

boost over the next 2 quarters as not fully priced in.

Stocks already pricing in the new normal

Petchem stocks have traded down with news of progress on a long-term

resolution in the Middle East. A month ago we thought stocks like DOW and LYB

were pricing in ~3-4 quarters of higher earnings. Now we see those stocks pricing

in ~2 quarters of higher earnings or about $1.5/sh and $3/sh per quarter

respectively (Figure 1). We still see some stocks like WLK and MEOH that are

pricing in lower duration, and in the case of WLK the stock is pricing in below our

base forecast. Our models are moving to a basis that we're at peak now, earnings

hold at a higher level into 3Q (though not as high we thought), and then decline in

4Q26 and 1H27. Our base case shown reflects ~$75/bbl oil, consistent with

forward curve pricing, but higher than levels in 2025 and we're saying this higher