US Dow free from next ethylene trough - CEO

29 January 2008 18:16  [Source: ICIS news]

Dow closer to bridging ethylene troughHOUSTON (ICIS news)--Dow Chemical's chief executive said on Tuesday that the company is on track to eliminating the cyclical nature of its earnings, which should exceed $3 (€2)/share in next ethylene trough.

In the past, Dow's earnings have been exposed to ethylene costs, an important chemical feedstock.

Dow has since pursued divestitures, joint ventures and acquisitions to greatly reduce its exposure to the ethylene cycle, said CEO Andrew Liveris.

Liveris made his comments during a conference call, following the release of the company's fourth-quarter earnings.

Dow has followed its "asset-light" strategy, under which it established joint ventures with companies with access to low-cost feedstock, growing markets or both.

The latest example is a joint venture with Kuwait's Petrochemical Industries Co (PIC), which will benefit Dow businesses that were most susceptible to the ethylene cycle, Liveris said.

He expects the deal will close by the end of the year. It will provide Dow with $9.5bn in pre-tax cash, money available for possible acquisitions or buybacks to help further insulate it from ethylene cycles.

Dow expects the next ethylene trough to occur in 2010-2011, Liveris said. During that time, Dow's earnings/share should exceed its cost of capital, which Liveris said was $2-3/share.

"In our view, we are now poised to move away from the ethylene-driven troughs that have plagued our earnings profile for so long," he said. "We're now moving towards an earnings-growth company."

In the short term, Liveris did not expect the US economy to slip into a recession.

However, if it does, the company should be insulated from any fallout, as two thirds of its sales is outside of the US, Liveris said. Moreover, Dow's product chains indicate that all weakness is concentrated in the US.

Oil prices should remain at $85-95/bbl during the first half of the year before trailing off, Liveris said. Overall, prices should reach an average of $80-85/bbl for the year.

Dow will consider more M&A targets, Liveris said. Those targets should fall under such categories as infrastructure and transportation, electronics and communications, energy and human health.

If Dow does not find any acquisitions that fit its criteria, it would use the unspent M&A money on share buybacks, which could occur this year, Liveris said.

Shares of Dow were tradiing at $38.23 in mid morning, up 1.70%.

($1.00 = €0.68)

By: Al Greenwood
+1 713 525 2645



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