FocusDow closings part of larger restructuring

04 December 2007 22:06  [Source: ICIS news]

Flags fly at an entrance to Dow Chemical in Midland, MichiganBy Al Greenwood

HOUSTON (ICIS news)--Dow Chemical's announced plant closings come as part of a broader restructuring that includes massive projects in China and the Middle East, a consultant said on Tuesday.

"This is part of any company's evaluation of its portfolio," said Andrew Swanson, vice president of chemicals at Nexant, a US chemical consultant firm.

Dow said on Tuesday that it plans to shut down a polypropylene (PP) plant in Louisiana, close a styrene plant in Brazil and abandon the auto-sealant business - part of a larger project to re-direct capital into other projects that could create more growth.

Dow could have similar plans in the works for its polyethylene (PE) and chlor-alkali businesses, Bank of America (BofA) wrote in a report issued on Tuesday.

Indeed, poor profitability among commodities makes action such as Dow's necessary, Bank of America said.

In a report released in May, Moody's Investors Services said it expected Dow's financial metrics to weaken further as commodity margins fall. Moody's said it expects the trend to last for several years.

In general, there has been an ongoing trend of companies moving their commodity businesses to lower-cost regions outside of the US, Swanson said.

Earlier this year, Dow announced that it signed a memorandum of understanding (MoU) with Saudi Aramco to build, own and operate the Ras Tanura integrated project. The project is estimated to cost at least $20bn (€14bn).

Dow also plans to develop a coal-to-chemicals complex in China with the Shenhua Group. The project will use clean coal technologies that convert coal to methanol to produce ethylene and propylene, the companies said in a statement.

Dow shares were trading at 3:20 Houston time (2120 GMT) at $41.05 on the New York Stock Exchange, down 1.18%.

Other chemical companies are also reviewing their portfolios.

PPG Industries is becoming more focused on coatings and specialty products. Rohm and Haas is concentrating on coatings, electronic chemicals and niche products.

A recession in the US could prompt more companies to consider their own restructurings, said John Rogers, a senior vice president of Moody's.

($1.00 = €0.68)

By: Al Greenwood
+1 713 525 2645

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