Citi cautious on Dow and LyondellBasell: demand weakness caps polyethylene upside

Investing.com -- Citi downgraded Dow and LyondellBasell to Neutral from Buy on Wednesday, saying it no longer sees meaningful upside for polyethylene prices even with crude above $100 a barrel.

The bank cut its price target on Dow to $30 from $35 and on LyondellBasell to $63 from $72. Both are based on 7.3 times its 2027 EBITDA estimates.

"We no longer have conviction on asymmetric upside for PE prices, even at $100 crude," the analysts wrote.

Citi expects an October price increase of 5 cents per pound. However, it said weak demand will cap gains beyond that temporary boost, despite higher oil and global feedstock costs.

"Even with the oil-to-gas spread expansion, 3Q has proven that demand destruction overrules geopolitical feedstock support," the bank added.

Alternative production methods in China are helping offset feedstock disruption from the Middle East conflict. With Citi now forecasting Brent at about $66 a barrel in 2027, the bank sees more downside to its 2027 estimates for both companies.

Citi added that risk and reward now look balanced. Positives are said to include continued cost savings, cash generation and a modestly constructive outlook for MDI at Dow and oxyfuels at LyondellBasell. Its caution rests on the potential for margin erosion if oil prices fall.

The bank also lowered estimates for Westlake, citing lower polyethylene and PVC prices and higher energy and diesel costs. It sees a roughly $250 million sequential EBITDA decline.

Original Article

You May Also Be Interested In

• Why are oil futures still so high if Middle East exports have recovered?
• U.S. 10-year yields anchor near 2007 peaks, set for biggest monthly jump in 2 yrs
• Peoples Bancorp falls, Capital Bancorp rises amid all-stock deal