By: Frank Esposito
March 19, 2014
Dow Chemical Co. is moving ahead with plans to add capacity for polyethylene and related feedstocks in the U.S. Gulf Coast and in Saudi Arabia.
“We’re the only company to have two projects in the two lowest-cost areas simultaneously,” Dow Chairman and CEO Andrew Liveris said in a March 19 conference call from Jubail, Saudi Arabia. Jubail is the site of Dow’s Sadara joint venture with state-owned Saudi Aramco of Riyadh, Saudi Arabia.
Sadara’s first units are expected to come online in the second half of 2015. The site eventually will have almost 7 billion pounds of annual capacities for PE, polyurethanes, elastomers and related products. Work on Sadara has involved 44,000 workers, Liveris said, adding that work on the overall project is 45 percent complete, including 65 percent completion of its olefins units.
In Freeport, Texas, Midland, Mich.-based Dow is taking advantage of U.S. shale gas supplies to embark on a major PE and ethylene expansion. The firm currently has 1,700 workers on site, with that amount expected to double by the end of the year. New PE and ethylene production is expected to come online in 2017. Construction of a PDH-based propylene unit already is 20 percent complete, Liveris said.
Dow also expects to reduce costs in its Performance Plastics unit — including PE — by $40 million in the 2014-15 period. The sale or spinoff of Dow’s epoxy resin and chlorine-based business also is underway and should be complete by the end of 2015, Liveris added.
During the call, Liveris — a 38-year Dow veteran who has served as the firm’s CEO since 2004 — pointed out that Dow’s actions “are occurring in what’s been a difficult economy.”
“We didn’t just maintain ourselves, we rebuilt our enterprise with the purpose of driving long-term, sustainable growth,” he said.
Other recent Dow accomplishments cited by Liveris included:
• Achieving record cash flow from operations and reducing debt by $3 billion in 2013.
• Investing on average $1.7 billion per year on R&D from 2006-13.
• Receiving more than 560 patents in 2013, the most in Dow’s 116-year history.
• Generating more than 20 percent of 2013 revenue from patent-advantaged products.
Looking ahead, Liveris said that when Dow’s new North American PE capacity comes online in 2017, he expects that most of it will be consumed in the U.S., with some going to Latin America and very little to the Far East. He added that the new North American PE won’t be competing with material made that Sadara JV, but that Sadara material “will be taking sales from the high-cost guys” in Japan, Taiwan and China.
Liveris added that Dow is not likely to make any major acquisitions in the near future. “The company has organic growth coming out of its ears,” he said. “We don’t have to acquire anything of any size.”
First-quarter sales for Dow and many other firms were affected by extreme cold weather throughout much of the U.S. “The North American carrier fleet in the Northeast was disabled,” Liveris said. “And the consumer hasn’t gone out there and bought in normal patterns. We can expect a slow first quarter, but not onward from here.”
He added that the economic outlook for China “isn’t as strong as it usually is,” and that 2015, 2016 and 2017 “are looking like peak years” for the global petrochemicals market.
Liveris described 2014 as “a bridge year in a slow-growth world,” one that will lead to “key projects and startups” in 2015. He added that he believes that Dow’s per-share stock price “is undervalued at close to $50.”
Already in 2014, Dow has weathered criticism from investor Third Point LLC, which said that Dow had “a poor operational track record” and suggested spinning off Dow’s petrochemical business into a separate public company. Liveris defended Dow’s strategy, and was backed up by legendary investor Warren Buffett and by credit rating firm Moody’s Investor Service.
Dow ranks as one of the world’s largest makers of plastics and chemicals. The firm employs about 53,000 worldwide and posted sales of $57.1 billion in 2013. Dow’s 2013 sales were up less than one percent vs. 2012, but the firm’s profit increased more than four times to $4.8 billion.