Dow Chemical Co.'s Basic Plastics unit is staying true to its core values, even after a tumultuous 18-month period.
Recent events haven't changed Basic Plastics' strategy or the role it has with the company, Glenn Wright, the unit's commercial vice president for North America, said in a recent telephone interview.
It remains a strong global franchise within Dow ... . That was true two years ago, it's true now and will be true a year from now.
Basic Plastics weathered the cancellation late in 2008 of a deal that would have spun off half the business in a joint venture with Petrochemical Industries Co. of Kuwait. PIC called off the venture because of worsening global economics.
Dow's recent $15.3 billion acquisition of Rohm and Haas Co. will move Midland, Mich.-based Dow in more of a specialty-chemical direction, potentially placing less emphasis on commodity products such as polyethylene and polypropylene.
Dow's Basic Plastics ranks as the world's largest PE maker and also produces PP globally and polystyrene in Europe and Asia.
The unit was Dow's second-largest business in 2008, with sales of $13 billion. That total was consistent with 2007 sales, but the unit's pretax profit fell 51 percent in 2008 to about $980 million.
First-quarter 2009 sales for the unit were up vs. the fourth quarter of 2008, but were down 47 percent when compared with the same quarter a year ago. First-quarter pretax profit for Basic Plastics almost completely disappeared in 2009, falling to $4 million from $427 million in the year-ago period.
Regardless of short-term setbacks, Wright said Basic Plastics has the consistent role of a global franchise, and that's more prevalent than ever.
Regardless of the economic cycle, our approach is unwavering, he said. We're a high-performance business with a strong portfolio of joint ventures.
Wright has 22 years of plastics experience, starting with Union Carbide Corp. in 1987 and continuing with Dow when Dow acquired UCC in 2001. He pointed out that the market for Basic Plastics improved between the fourth quarter of 2008 and the first quarter of 2009, registering 4 percent sales growth.
We continue to see steady, slow growth, Wright said. Exports have been very strong. Operating rates [for PE] were in the low 70s in the fourth quarter, but grew into the 80s in the first quarter and now are in the high 80s or low 90s.
We're in a macro-recovery period. Non-durables are seeing a better recovery. Packaging, especially food packaging, has been quicker to recover. Health and hygiene products also are recovering nicely.
Durable products have been slower to recover, but Wright said those markets are starting to come around and could be helped by government infrastructure investment, which he said bodes well for PE pipe markets.
On the new-product front, he singled out Continuum-brand bimodal high density PE for pipe and rigid applications, as well as new higher-clarity grades of Inspire-brand PP.
Looking at the broader PE and PP industries, Wright said that Dow has no plans for rationalization, but he added that more capacity could be removed elsewhere. Since 2006, Dow has closed PP assets in Hahnville, La.; high density PE assets in Montreal East, Quebec; and low density PE assets in Sarnia, Ontario, and Freeport, Texas.
The polypropylene market has been challenged from an operating rate standpoint, Wright explained. But from a strategic standpoint and as far as being competitive on a global stage, [Dow] is very comfortable with our current [PE and PP] capacity base.
Some of our plants were challenged by their scale and fixed-cost position, and we had to look at the investment we'd put in those plants over a time period. But Dow has built four of the last six [petrochemical] reactors built in North America, so some of our plants are newer.
Wright also pointed out that the life expectancy of modern HDPE and linear LDPE plants tend to be longer because those plants often can be incrementally expanded or streamlined. They're also of substantial size and scale.
By comparison, many LDPE plants are challenged in those areas, because of investment costs needed to maintain operations at a high level.
Although there's been much speculation on the impact of massive amounts of new resin capacity opening in the Middle East, Wright said he doesn't see Middle Eastern PE and PP having a direct effect by being imported into North America.
The impact [of Middle Eastern resin] will be indirect, in that North America will compete with that material in the export market, he said.
North America is in the second quartile of global feedstock and manufacturing costs, according to Wright, with the Middle East being in the first quartile. Business usually flows from higher quartiles to lower ones, making both North America and the Middle East less susceptible to imports, he added.
It comes down to a combination of economics vs. alternate choice and the return one can get, he said.
Dow's North American processor customer base also will continue to consolidate, but Wright said that Dow doesn't expect that trend to accelerate significantly.
Dow expects North American PE/PP demand to average 1.5 percent growth for the next five years. That would be an improvement over recent results, but still less than the 4-5 percent PE/PP growth rate that Dow expects globally.
There can be significant changes within that projection, Wright said. But I don't know if there will be drastic changes in the trend of history. We're still going to have a global strategy.
At NPE2009, Dow will be the exclusive corporate underwriter of the Society of Plastics Engineers' Antec 2009 conference and also will sponsor the sustainability sector in SPI's Emerging Technology Pavilion.