Dow Chemical Co. is hanging a “for sale” sign on its polypropylene and PP licensing and catalyst businesses.
In a statement from Midland, Mich.-based Dow, officials said the firm “is exploring strategic options for those businesses,” which include two PP production sites in Texas and two more in Germany.
“Evaluating options for businesses that do not fully align with Dow's long-term strategic direction is a key component of our disciplined and ongoing approach to portfolio management,” they said.
Dow President and CEO Andrew Liveris alluded to the move in a recent earnings conference call when he said the firm is “streamlining to move away from commodity plastics and moving faster into high-margin specialty plastics.”
Liveris also cited Dow's spinoff of polystyrene leader Styron last year as a step in this direction. He also identified “technology-differentiated plastics” such as solution polyethylene and elastomers and market-focused units — like wire and cable, and packaging and converting — as “the key growth businesses” in the firm's newly formed division for performance plastics.
Later in that same call — during a question-and-answer session with stock analysts — Liveris added that “commodity plastics that have anything to do with propylene or ethylene, in the long term, will not be part of Dow's future.” Those comments, confirmed by Dow officials, would seem to indicate that Dow's massive PE business also would be on the selling block.
Officials declined to comment further on that possibility. In late 2008, Dow had a deal in place to sell its PE unit and other commodity plastics to a Kuwaiti firm before global economic weakness caused that deal to fall through.
PP is part of Dow's commodity plastics portfolio, but the firm never has ranked among global leaders in that material. In licensing, Dow's Unipol-brand PP technology is a distant second to LyondellBasell Industries AF SCA's Spheripol process in global technology licenses.
“Dow was never big in polypropylene, and they don't want to be low-level in any of their businesses,” said market analyst J.N. Swamy of Chemical Market Resources Inc. in Houston.
Market analyst Phil Karig added that Dow officials “made the decision a long time ago that they needed to stay out of commodity businesses as much as they can, and [selling off PP] is consistent with that strategy.” Karig is managing director of Mathelin Bay Associates LLC, a consulting firm in St. Louis.
“Unless they have a competitive advantage, Dow doesn't want the business,” a former Dow executive said. “And [PP] is all monomer-related — it's not technology- or demand-related.”
Dow's recent announcement of plans to increase its North American propylene monomer supply would seem to be at odds with attempts to divest PP and related assets, but Swamy said the additional propylene could be used to supply the acrylic acid business Dow acquired as part of its 2009 purchase of Rohm and Haas Co.
Acrylic acid is used to make acrylates, which then are sold into several niche markets described by Swamy as “more value-added propylene derivatives” than PP.
Finding buyers for the PP units in the current market might prove challenging, especially with North American PP prices going through the roof, as increased use of natural gas feedstock has tightened propylene supplies. High PP prices are leading processors to consider switching PP work into high density PE, PS or even into non-plastic materials.
Swamy, Karig and the former Dow executive each listed Braskem SA of São Paulo and Reliance Industries Ltd. of Mumbai, India, as potential buyers of the Dow PP assets. Braskem last year bought the North American PP plants of Sunoco Inc., and Reliance long has been rumored to be looking for a way to enter the North American market. Karig added that any potential buyer would have to be assured of a long-term propylene supply, either from Dow or another propylene maker, to make the deal worthwhile.
If the resin and licensing assets are sold separately, Swamy said Dow might find that the licensing business has more value.
The former Dow executive, however, countered that the firm might require a buyer to take the resin assets along with the licensing unit. He added that Dow could consider selling the North American and European PP units to separate buyers as well.
In early March, Dow announced plans to place most of its plastics businesses under a newly created Performance Plastics unit under the direction of Howard Ungerleider, a 21-year Dow veteran with previous plastics experience. The only plastics-related items not in the new unit are polyurethanes, epoxy and emulsion polymers.
Dow followed that up in April with news of a major move to increase ethylene and propylene production to take advantage of newfound supplies of natural gas in North America. Those plans include construction of a new ethylene production unit at a site on the U.S. Gulf Coast by 2017 and of a new propylene unit in Freeport, Texas, by 2015.
Plastics-related businesses accounted for almost 42 percent of Dow's $53.7 billion sales total in 2010. In the first quarter of 2011, Dow's total sales were up almost 10 percent, vs. the year-ago period, to about $14.7 billion. But sales in its plastics unit, including PP, fell almost 1 percent to just under $3 billion in the same comparison.