Dow ahead of the curve in shutdowns - Citigroup

05 September 2006 22:36  [Source: ICIS news]

HOUSTON (ICIS news)--Dow Chemical is just ahead of the industry curve in its decision to shut down five plants around the world, an analyst with Citigroup said on Tuesday.

“Dow’s new CEO [chief executive officer] Andrew Liveris is making his mark on the company by pro-actively shutting down five plants around the world,” said chemicals analyst PJ Jukevar. Dow’s actions reflect its strategic shift of commodity assets to low-cost sites in the Middle East, Jukevar added.

The shutdowns will reduce North American capacities for chlor-alkali by 3.1%m, polystyrene by 3.9% and low density polyethylene by 2.2%, Jukevar said. It will also reduce global capacity for toluene diisocyanate by 6%.

“What is strikingly different about these shutdowns compared [with] the previous ones back in 2002, is that these actions are being taken during the good times rather than waiting for the bad times,” Jukevar said. “Management didn’t have to shut down these assets, but opted to do so, especially the chlor-alkali plant in Canada.”

The decision to close the chlor-alkali plant in Fort Saskatchewan “was probably the most difficult, given peak-like profitability in that chain,” Jukevar said. Dow was mostly exporting ethylene dichloride (EDC) to China, he said, but with China’s addition of 4m tonnes of polyvinyl chloride (PVC) capacity in the last 3 years, the trade was probably becoming less profitable after taking into account the shipping costs.

“So although the caustic molecule was very profitable, the EDC trade with China was lost forever,” Jukevar said.

The broader issue surrounding the shutdowns involves North America’s aging plants, Jukevar said. Dow said in its closure announcement that its chlor-alkali and direct chlorination EDC plants in Fort Saskatchewan, Canada are 27 years old, requiring substantial capital to maintain long-term operations.

“This raises an important question for the broader industry regarding many plants in the US that were built in the 1970s, and are now over 30 years old,” Jukevar said. “However, some of these plants were modernised by investing capital and are likely to survive the next downturn, but several others are approaching the end of their useful life.”

By: Brian Ford
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