High Grade Basic Materials Quarterly: Impacts of US-Iran conflicts diverge for Chems while Metals remain stable

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High Grade Basic Materials Quarterly: Impacts of US-Iran conflicts diverge for Chems while Metals remain stable

Iran impacts diverge for chems

With quarterly earnings complete, we assess 4Q25 results and provide our outlook for

the Chemicals and Metals, Mining & Steel sectors as well as update recommendations

on the names we cover. We also discuss the macro landscape given the Basic Materials

sector’s correlation to global growth trends and an outlook for chemical products and

mined commodities (plus steel).

In chems, we see diverging implications amongst subsectors within the Chemicals space

as the duration of the US-Iran conflict and consequently, the closure of the Strait of

Hormuz (SoH), extends. We continue to view commodity chemical names (such DOW and

LYB) as beneficiaries of the ongoing Middle East conflict given (i) elevated Brent /

declining Henry Hub prices improving margins for US petchem producers given a higher

oil to gas ratio, (ii) reduced PE and PP capacity coming out of the Middle East, and (iii)

the extended timeline to achieve full flows for crude oil, naphtha, and commodity

chemicals out of the SoH. While we wait to see how names under our coverage use their

increased cash flows in 2Q26, we expect most names in the commodity chems space to

repair balance sheets given the exceeding ratings pressure in the space. Conversely, we

believe downstream and coatings names are more at risk of margin compression given

steadily increasing feedstock costs and challenged demand. Regarding agchems, our

view diverges based on end market exposure. We continue to favor names with more

nitrogen or potash exposure vs those more heavily exposed to phosphates. We

downgrade our rec on SHW to UW from MW, though remain MW the notes due 2047