The initial market reaction to the war in Iran was about petroleum. Now the market’s realizing it’s about petrochemicals.
After a brief bout of relief earlier this week, markets remained under duress yesterday as tankers were struck sailing through or near the Strait of Hormuz, where nearly a fifth of global oil supply flows daily. As a result, the impact on petrochemicals has been moving the worst-smelling and the best-smelling industries:
They’re not the most glamorous stocks in the market, but chemical-slash-fertilizer companies CF Industries, Mosaic Co., Dow Inc., and LyondellBassell were the belles of the ball in Thursday trading, topping the list of S&P 500 performers.
Natural gas is a crucial input for the chemical and fertilizer industries, and the closure of the strait is basically cutting off supply from the region, which European and Asian chemical companies depend on. That leaves these US giants — with access to abundant stateside gas supplies — able to produce and take advantage of pricing power in the absence of robust global competition.
Those are the sellers. The buyers are screwed. “Fragrance companies and chemicals names are heavily exposed via large purchases of petroleum product inputs for their businesses,” wrote Bespoke Investment Group, noting that Estée Lauder and International Flavors & Fragrances are among the 37 Russell 1000 stocks that have dropped 15% or more since February 27.
Perfume is composed in part by another P-word: petrochemicals. Of course, higher prices at the pump might also dent consumers’ willingness to pay up for a good musk.
Some of these companies, like Dow, Mosaic, and CF Industries, are also major suppliers of fertilizers, which influence food prices. And that suggests the world economy is experiencing growing inflationary pressures stemming from the less than 2-week-old war, which could eventually become a problem for the market.
The Takeaway
If the disruption continues, governments releasing oil from their strategic reserves will likely only be a temporary solution, with the International Energy Agency calling the Iran war the “largest supply disruption in history” for global oil markets — not to mention the hydrocarbon markets that flow from there, and all the other chemicals (like helium!) that flow from there.
How Tesla quietly wound up owning a small piece of SpaceXHow Tesla quietly wound up owning a small piece of SpaceX
TeslaTSLA $389.80 (-0.97%) is converting its recent $2 billion investment in Elon Musk’s AI company, xAI, into a small ownership stake in SpaceX — just months before the rocket maker’s highly anticipated IPO.
Here’s what happened: Tesla announced its xAI investment in late January, after a shareholder proposal to invest fell short last year. Several days later, xAI merged with SpaceX. All three companies are headed by Musk.
Now, regulatory filings with the Federal Trade Commission show Tesla converting that investment into a small stake in SpaceX, formalizing the financial link between the companies ahead of the rocket maker’s IPO. SpaceX is expected to go public this year at a valuation some speculate could top $1.75 trillion, potentially making it the biggest company to ever go public. (The current record holder, Saudi Aramco, went public at a more than $1.7 trillion valuation in 2020.)
While the size of Tesla’s stake wasn’t available, Bloomberg reports that the investment would equate to ownership of less than 1%.
While SpaceX and Tesla have engaged in related-party transactions over the years, Tesla had not previously disclosed an equity investment in SpaceX.