NEW YORK - While waving goodbye to a difficult 2001, Dow Chemical Co. officials said their plastics units are initiating moves they hope will brighten the picture in 2002.
Sales in Dow's Plastics and Performance Plastics units - which generate about half of the Midland, Mich.-based firm's total revenue - were down 4 percent through the first nine months of 2001. Profit at those units took a dizzying drop of 56 percent in that period.
Demand and selling prices were down across the board for almost all Dow resins, including polyethylene, polypropylene, polystyrene, polycarbonate, ABS and polyurethane. High natural-gas prices early in the year also hurt Dow's bottom line.
Dow officials addressed those conditions and took a look ahead during a year-end news conference in New York on Dec. 19.
Polyolefins and elastomers business group President Romeo Kreinberg described 2001 as ``one of the most challenging'' markets he has seen in 25 years.
``Every time we'd try to get [PE] prices up, challenges kept coming to us,'' Kreinberg said. ``Producers couldn't export material, so they tried to sell more in North America, which increased supply and decreased prices.''
To protect margin, Dow idled a total of 600 million pounds of linear low density PE capacity midyear in Seadrift and Freeport, Texas. Instead it ran a newly opened PE plant in Prentiss, Alberta, at a higher rate to take advantage of lower feedstock costs in the Canadian market, Kreinberg said.
Merging massive polyolefins businesses in the wake of Dow's merger with Union Carbide has gone well, he said, with polyolefins providing Dow with $550 million in savings so far.
In December, Dow commercialized its first PE resin developed since the merger: a new grade of high density PE aimed at pressure pipe applications. The new grade, being produced in Taft, La., can meet stringent PE-100 standards set for pressure pipe, said PE Vice President Len Azzaro.
``We're looking at converting a market that's traditionally been steel,'' Azzaro said.
Dow also is reviewing its product mix, deciding if customers are better-served by Dow PE resins made through a solution process or if customers should be using hexene-based PE made at former Carbide sites, he added. To date, the combined Dow/Carbide PE product mix has been reduced by 30 percent.
In the wire and cable market, Dow is applying its Insite single-site catalyst technology to create enhanced polyolefins for that segment, where Carbide had been a significant player with its LDPE slate. The firm plans to commercialize enhanced grades of PE and PP in that area sometime in 2002.
Dow's major PP event in 2001 was its acquisition of a plant in Cologne, Germany, from Basell NV. Dow has opted out of a partnership with Phillips Petroleum Co. to operate a PP plant set to open next year in Linden, N.J. The 700 million-pound-capacity plant was to be a partnership between Carbide and oil refiner Tosco Corp., but in the past two years, Tosco was acquired by Phillips while Dow merged with Carbide.
Dow had wanted to stay involved in the Linden plant, but was unable to make an arrangement with Phillips, said Juan Luciano, Dow's global PP business director.
In PS, Dow was able to use Six Sigma quality methods to increase capacity for one of its packaging grades by 5 percent in Joliet, Ill. The improvement was made solely through changes in processes and procedures and entailed no capital spending, said Kathleen Bader, business group president of styrenics and engineered products. Dow plans to apply the same methods at other plants, she added.
Overall, Six Sigma procedures have contributed $750 million in pretax earnings since Dow launched the program last year. That amount should double by the end of 2003, officials said.
Bader said she was not overly concerned with the drop in PS sales this year, adding that she expects sales volume to bounce back next year by 4 percent.
``This is a standard polystyrene trough,'' she said.
Dow's advanced Styron A-Tech PS resins showed solid growth in 2001 and now represent about 10 percent of Dow's total PS production, according to global PS business director Clay Dunn. That percentage should hit 20 percent next year, Dunn said.
The engineering resins market suffered along with its commodities counterpart in 2001, but Dow saw a slight comeback later in the year as polycarbonate use grew through higher cellular phone sales, according to Dennis McGrew, Dow's global director of new business development for engineering plastics.
``After the [terrorist] events of Sept. 11, people were looking for more connectivity,'' McGrew said of the cell phone uptick.
Dow's thermoset resins business also has some ground to make up in 2002. After years of 25 percent return on capital and 5 percent growth rates, PU and epoxy markets shrank in 2001, according to Bob Wood, president of the thermoset business group.
``We were the cleanup hitter, but we didn't deliver,'' Wood said.
As a result, Dow recently idled a toluene diisocyanate line in Freeport, Texas, taking out about 130 million pounds of capacity. The firm also canceled plans to convert a 33 million-pound line in Camacari, Brazil, from methylene diphenylene diisocyanate to TDI production. Dow still has 600 million pounds of TDI capacity worldwide, including 220 million pounds in Freeport.
The PU foam market has been affected by consolidation, which has put more buying-power into the hands of fewer customers, Wood said.
``We need to figure out how to stop destroying value in these businesses,'' he added.
Dow Automotive is taking steps as well to build from a disappointing showing in 2001. The unit recently gained approval for its Betafoam-brand PU foam in the frame, pillars and other sections of General Motors Corp.'s 2003 Cadillac CTS, said Dow Automotive President Larry Denton.
Denton also estimated that Dow's Strandfoam PP foam now is used in more than 3 million parts on vehicles already on the road. To date, most Strandfoam uses have been in passenger interiors.
But the overall automotive environment in 2002 still may be depressed, in spite of sales gains created by zero percent financing offered by Big Three automakers. Denton said Dow expects 2002 North American auto sales to be down as much as 3 percent, while sales in Europe should be flat and sales in Asia and South America could be up 3-5 percent.
Dow is ramping up marketing efforts for its Primacor copolymers, based on ethylene/acrylic acid. The materials - made in Freeport and Tarragona, Spain - have been used as tie layers between foil and film in products such as ketchup packets. Dow now is working to develop more coating applications for Primacor, ranging from paperboard coatings to concrete and asphalt repair.
Dow's per-share stock price bounced between $30 and $38 for most of the year. Dec. 21 it was at about $35.30 - not far from its $36 price at the start of the year.