By: Frank Esposito
November 2, 2012
MIDLAND, MICH. (Nov. 2, 4:40 p.m. ET) — Plastics materials plants in Belgium and Japan are among the 20 plants that Dow Chemical Co. will close worldwide, as part of a restructuring program that will eliminate 2,400 jobs.
Plastics operations set to be closed include a high density polyethylene facility in Tessenderlo, Belgium, and an epoxy resins facility in Kina Ura, Japan.
Pointing the finger at sluggish markets, particularly Europe, the Midland, Mich.-based company said the restructuring program is “designed to accelerate cost-reduction actions and advance the next stage of the company’s transformation in the midst of persistently slow macroeconomic growth.”
The job losses amount to 5 percent of the company’s total workforce and the site closings are designed to cut annual operating costs by around $500 million by 2014, Dow said.
Dow added that it will cut capital spending and investment plans in non-core areas amounting to a additional $500 million.
“The reality is we are operating in a slow-growth environment in the near-term and, while these actions are difficult, they demonstrate our resolve to tightly manage operations — particularly in Europe — and mitigate the impact of current market dynamics,” Andrew Liveris, Dow’s chairman and CEO, said in an Oct. 23 news release.
Industry analyst Roger Young said the plastics plants being closed in Belgium and Japan are older plants. The Belgian plant also “wasn’t using key Dow technology,” he added.
Longer-term, Young said Dow “could be under some real pressure in Europe” since it uses feedstocks for ethylene-based products from naphtha, which is derived from crude oil. Plants in North America increasingly are using lower-priced ethane feedstocks from abundant natural gas supplies.
“As long as shale gas is around, Europe could be hurting,” he said.
The group made the restructuring announcement as it revealed a 10 percent fall in third-quarter sales to $13.6 billion — led, it said, by the downturn in Europe, where revenues were down by 10 percent, driven by “adverse currency conditions.” Dow’s third-quarter profit fell almost 35 percent to $591 million. Through the first nine months of 2012, Dow’s sales fell almost 7 percent to $42.9 billion, while profit slid almost 32 percent to less than $1.9 billion.
Dow said its Performance Plastics business, including polyethylene, generated third-quarter sales of $3.5 billion, down 15 percent, though volumes were up 5 percent. These gains were offset by a 10 percent decline in price, it added. The unit’s third-quarter pretax profit fell almost 12 percent to $737 million. Nine-month sales in Performance Plastics dropped 14 percent to $10.8 billion, while pretax profit sank 20 percent to $2.2 billion.
The group’s Performance Materials operation — including polyurethane, epoxies, plastic additives and automotive systems — saw sales down 8 percent at $3.4 billion. Volumes rose 4 percent, while prices fell 11 percent on an adjusted basis. The unit’s third-quarter pretax profit actually increased almost 3 percent to $491 million. Nine-month sales in Performance Materials dipped almost 8 percent to $10.3 billion, while pretax profit slumped almost 23 percent to less than $1.2 billion.
Dow said prices were down 9 percent, with double-digit decreases “in most businesses,” with Europe and China taking the lead at 12 percent and 11 percent, respectively.
Liveris said market conditions required an “agile and efficient response” from the company.
“The task before us is straightforward. We must deliver value to our shareholders by a continuing focus on improving return on capital, increasing cash flow and growing earnings.
“And with our new, streamlined operating model and management structure, our entire organization is focused on delivering against these three objectives,” he said in the company’s third-quarter earnings statement.
News of the job cuts and third-quarter slide sent Dow’s per-share stock price Oct. 23 down 4 percent to $28.55. But the price recovered and stood at $30.10 in late trading Nov. 1.
The announcement marks the second round of job cuts announced by Dow this year. In March, the firm said it was cutting 900 jobs worldwide and closing at least four plants making expanded polystyrene foam and polyurethane feedstocks. Officials said at the time that those job cuts and closings are the result of continued weakness in the European economy.
In April, Dow announced it had chosen Freeport, Texas, as the site of a new 3.3 billion-pound-capacity ethylene cracker. The cracker is slated to open in 2017 and is part of an overall investment of $4 billion in new ethylene and propylene capacity in the U.S. Gulf Coast. Those investments are being made possible by new supplies of natural gas found throughout North America by use of hydraulic fracturing, known as “fracking,” and horizontal drilling.