24 July 2008 16:47 [Source: ICIS news]
By Nigel Davis
LONDON (ICIS news)--Dow Chemical took the unprecedented surge in feedstock and energy costs on the chin in the second quarter and it hurt.
But the fightback, instigated across the board - by pushing through two waves of significant price increases, cost cutbacks and plant operating rate reductions - fended off an impact that could have been much worse.
CEO Andrew Liveris called the second-quarter performance “remarkable”. Indeed, Dow was able to limit the margin compression from an additional $1bn sequential quarter-to-quarter increase in hydrocarbon and energy costs to about $130m. The short-term actions helped limit the profits fall to 27%.
The results show just how exposed Dow remains to the commodities cycle. The basic plastics and chemicals businesses were hit hard. Prices were pushed up sharply but costs rose faster.
Polyethylene volumes were up but margins down. Worryingly polypropylene demand was down globally, due, Dow said, to lower consumer spending and slowdowns in the housing and automotive sectors in ?xml:namespace>
As might have been expected, polyvinyl chloride (PVC) demand remained soft.
Volumes were off substantially for ethylene oxide and ethylene glycol due to weak industry fundamentals. New
Dow has, for a long time, said that it has to push harder into what it likes to call “performance” areas, or businesses that are much more closely aligned with end-users.
Its £18.8bn acquisition of Rohm and Haas and the creation of the K-Dow olefins and polyolefins joint venture with Kuwait’s Petrochemical Industries Co (PIC), both expected to complete around the turn of the year, are vitally important manifestations of that strategy.
Dow made a great deal more money from agriculture in the latest quarter. Chief financial officer Geoffrey Merszei says that much stronger agriculture sales are not just a function of the expanding ag sector. Dow's performance chemicals business held up well too.
But performance plastics were exposed to higher costs and weaker auto and construction industry demand, although volumes were up with strength in
Here, again, raw material and supply chain costs increase could not be covered by price hikes. The North American automotive and housing markets continued to decline.
Performance plastics second-quarter EBIT (earnings before interest and tax) were down sharply, 29.8% lower than in the similar period of 2007 at $268m.
Rohm and Haas will bring Dow a suite of businesses with stronger consumer orientation and a longer reach in fast growing markets in
Rohm and Haas had to run hard in the second quarter to keep up, just like Dow. And in some of its specialty materials businesses, the most ‘chemical’ in the portfolio, it had to fight to play catch up with raw material costs.
The Rohm and Haas electronic materials businesses pushed profits up 7% year-on-year but profits from specialty materials were down 14%.
Within that segment paint and coatings materials profits were down 10% and packaging and building materials profits down 28%. Rohm and Haas’s performance materials business pushed profits up 36%.
Dow will be less exposed to the cyclicality inherent in commodity chemical markets following the completion of the K-Dow merger and the absorption of Rohm and Haas.
Synergies with the specialties maker could also produce not-insignificant additional growth.
Rohm and Haas’s sales in rapidly developing economies were lifted 42% in the latest quarter while sales growth in
“We demonstrated strong sales momentum in the second quarter, particularly in electronic materials and the chemicals businesses outside
“We have made good progress against our Vision 2010 strategy for accelerating profitable growth through pricing actions and a realignment of our geographic footprint and support services, despite the challenge of an increasingly difficult economic and business environment.”
No chemical company is immune from the impact of slower growth in important end-use markets in the
Gupta put the outlook into some context when he said that the external environment “remains very uncertain and challenging”.
Added Dow’s Liveris: “The surge in oil prices, which has further weakened the
Dow expects further global uncertainty but believes its latest set of financial results has demonstrated that diversification on a “global and end-use market basis” has helped it manage through challenging times.
To discuss issues facing the chemical industry go to ICIS connect
For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.
Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.
|ICIS news FREE TRIAL|
|Get access to breaking chemical news as it happens.|
|ICIS Global Petrochemical Index (IPEX)|
|ICIS Global Petrochemical Index (IPEX). Download the free tabular data and a chart of the historical index|
Asian Chemical Connections