Challenges facing Dow Chemical Co. and other global plastics and chemicals firms were on full display at a media event hosted by the firm Dec. 3 in New York.
At the event — which preceded Dow's 2012 investor forum — Dow Chairman and CEO Andrew Liveris professed optimism about the North American economy, while at the same time confirming that the firm would divest businesses with $1 billion in annual revenue over the next 12 months.
Liveris offered no details of those divestments. In late October, Midland, Mich.-based Dow announced it would close about 20 plants worldwide and eliminate 2,400 jobs. Those cuts will include plastics materials plants in Belgium and Japan.
That announcement came only six months after Dow confirmed it would cut 900 jobs worldwide by closing four plants that made expanded polystyrene foam and polyurethane feedstocks. Dow also is reducing its annual research and development spending by $100 million, partly through ending programs that weren't on track to produce pretax profits for another five to seven years. Those cuts include some alternative-energy programs.
Like many global firms, Dow is struggling with a weak European economy and slowing growth in Asia. But Liveris singled out the U.S. market as “a bright spot.”
The North American automotive and construction markets “both should be up” in 2013, he said, adding that the U.S. “is moving into territory that could lead the world out of a 2 to 21/2 percent GDP growth level.”
He also described plastic film as “one of the good markets” for Dow.
Although he allowed that the pending U.S. “fiscal cliff” is creating political uncertainties, Liveris added that Dow's results now are suffering more from a business slowdown in China than by conditions in the U.S. That slowdown continues to have an energy advantage over many parts of the world.
Regarding Dow's plans to build a massive plant making plastic feedstock ethylene in Freeport, Texas, Liveris said that the project “is moving ahead and is going through the permitting process.” He characterized that project and the massive Sadara Chemical Co. joint venture Dow is building in Saudi Arabia as “big earnings catalysts” for the company.
Liveris stopped short, however, at saying if the Texas project — set to open in 2017 — would include new polyethylene resin capacity.
“We're looking at offers and deciding what makes the best sense,” Liveris said. “We could have large contracts to base-load someone else, but we're not sure if that's going to be for commodity polyethylene or not.”
In Saudi Arabia, Sadar already has 10,000 jobs on-site. That number is expected to grow to 16,000 next year. Units making PE resin will be among the first to begin production, he said. Dow's partner in Sadara is state-owned Saudi Aramco, or Saudi Arabian Oil Co.
But challenges remain for Dow. “Year-to-year, we've lost $2 billion on [product] price,” Liveris said. “I don't care who you are, that's a lot of headwind.”
“In the last six months, you'd look at the world and say we're in a slow-growth world. And we used to say volatility was the new norm from quarter to quarter, but now we're saying it's the new norm from week to week. We're looking at very strict return on capital and being very balance sheet-oriented.”
Liveris also expressed uncertainty about the multitude of new ethylene projects announced for North America. “There are six world-scale ethylene crackers scheduled for the U.S., but greenfield projects are huge capital expenditures,” he said.
Liveris is luckier than most CEOs in that he has a $2.16 billion ace up his sleeve. That's the amount of the break-up fee awarded to Dow after its 2008 attempt to sell its commodity plastics business to Petrochemical Industries Co. of Safat, Kuwait, fell through. The International Court of Arbitration in Paris ruled on the dispute in May. Dow could receive that payment from PIC sometime during 2013. “We'll get cash at the right moment,” he said of the settlement with PIC.
Also at the event, Dow officials highlighted progress made during 2012 by the firm's plastics-related businesses. Dow signed four licensees during 2012 for its Unipol-brand polypropylene technology. Those licensees are expected to be making more than 3 billion pounds of new PP capacity using the technology by 2015. Unipol accounts for 17 percent of global PP output.
Dow's performance packaging business unit created 42 new products for the high-performance packaging sector in 2012. That list includes new and expanded lines of high-performance resins, films and adhesive products. Combined, the new products are expected to deliver more than 100 million pounds of new business to Dow in North America alone during 2013.
Also in 2012, Dow's elastomers business is on track to post record sales and pretax profit, thanks to diversification into new market segments. This marks the third straight year of positive growth for the unit. The elastomers business also plans to build a new plant making Nordel-brand ethylene propylene diene monomer at a location on the Gulf Coast. No final site selection has been made for the new plant, which is set top open in 2016.
Through the first nine months of 2012, Dow sales fell almost 7 percent to just under $43 billion. Profit slid almost 32 percent to less than $1.9 billion. Dow made about half of its nine-month sales from plastics-related businesses.