UpdateMany job cuts due to divestments - Dow CEO

08 December 2008 19:52  [Source: ICIS news]

Dow CEO Andrew Liveris(adds detail throughout, market reaction)

HOUSTON (ICIS news)--About 2,000 of the 5,000 full-time job roles being eliminated by Dow Chemical are expected to go with businesses that are to divested, Dow CEO Andrew Liveris said on Monday.

Dow said it plans to eliminate 11% of its total workforce, temporarily shut down and close several plants and divest businesses to cope with the global economic downturn.

The company is closing 20 plants.

“The vast majority of these were already part of Dow’s Business Portfolio Optimization Group and were targeted for action,” Liveris said in a conference call. “Today’s announcement means we’ll pursue these closures and divestitures at an even more aggressive pace than we have in the past.”

He added, “I should point out that about 2,000 roles of the total jobs being eliminated are expected to go with these divested businesses."

Dow said it will temporarily shut down 180 other plants.

The idled plants represent about 30% of Dow’s plants worldwide and are mostly split evenly between North America and Europe, Liveris said.

Dow also is removing roughly 6,000 contractor positions.

Market sources registered little surprise regarding Dow’s cutback announcement in light of falling demand, but their assessments of the impact of the move were mixed.

“In my opinion the industry has waited too long with reducing rates,” a US benzene buyer said. “Now they are panicking and overdoing it in the other direction. I believe this will lead to a shortage in several products and consequently overpricing as soon as demand picks up a little.”

Chemical company layoffs and plant closures that are spreading through the industry are due in part to what one ethylene glycol (EG) trader called the “accelerated information” phenomenon.

“News and analysis spreads so quickly now due to the internet. In the past, it took more time to assess everything. Now, they can collect data quickly, and once one company does it, there’s a lemming effect - the rest follow it,” the EG trader said.

The image of US automakers going before Congress asking for bailout funds to survive was also part of the equation, the trader said.

“Chemical industry executives watched as automakers were asked by Congress about cost-cutting methods, rather than wait until it was too late,” the EG trader said. “They decided that wasn’t going to happen to them.”

US polycarbonate (PC) market sources said the market might scarcely notice a potential stoppage at Dow’s Freeport plant in Texas. The site’s 105,000 tonne/year PC line represents 10% of total US capacity.

Buyers have already reduced orders dramatically, and domestic competitors SABIC Innovative Plastics and Bayer could easily fill any supply gaps, sources said.

“I don’t see any issue with this,” a PC buyer said. “Everyone’s usage is down so far and [they are] looking for more ways to tighten the belt,” one PC buyer said.

Potential reduction of butyl acetate (butac) production by Dow in the US would "have some impact but [it] is not overwhelming," a butac buyer said.

The butac buyer said demand was expected to fall in the short-term but said there would be shortages when it picks up next year.

Butac distributor prices have dropped 6-7 cents/lb in the past month due to the economic crisis and across-the-board plunge in demand for petrochemicals and oil-related feedstocks.

Dow operates a butac plant in Seadrift, Texas, but Dow spokeswoman Tracie Copeland said the company has not yet specified which plants would be closed or idled.

An epoxy resins buyer questioned whether the job impact of the Dow announcement was as big as it would initially seem to be.

“I don’t think those are unemployed people as much as they are divested people,” the epoxy resins buyer said. “I think most of this is going to be restructuring into the K-Dow and Rohm and Haas deals. They’re just speeding up [the] programme announced a year ago.”

“I think there will be some jobs lost, but at the end of the day this is misleading in that there will be repositioning of jobs that will now longer be ‘Dow’ jobs,” the epoxy resins buyer said.

Dow said it will eliminate other positions by streamlining its corporate centre.

At the same time, Dow will organise itself under three operating groups: feedstock-driven businesses, performance products and market-facing businesses, Liveris said in a conference call.

Market-facing businesses will include health and agriculture, advanced materials and Dow's Rohm and Haas acquisition.

The new corporate structure and the reductions all fall under Dow's asset-light strategy, Liveris said, which will reduce its exposure to low-margin feedstock chemicals while increasing its emphasis in high-margin businesses.

The changes go hand in hand with Dow's acquisition of Rohm and Haas and its joint venture with K-Dow Petrochemicals, which it established with Kuwait's Petrochemical Industries Co (PIC), Liveris said.

Nonetheless, Dow decided to accelerate the restructuring in light of the weakening economy, Liveris said. In September and October, Dow saw deterioration across the board.

"The entire industrial supply-chain - all the way to what the consumer buys outside of food and health - is in a recessionary mode," Liveris said.

The reductions and plant closings will cause Dow to take a $700m (€553m) charge in fourth-quarter earnings, said Geoffery Merszei, chief financial office. Out of the total, $350m will be related to severance payments, and the rest will be related to shutdowns.

The shutdowns should save Dow $350m/year by the end of 2009, and $700m/year by the end of 2010, he said. The savings come on top of the $800m that Dow expects to gain through its acquisition of Rohm and Haas, bringing total cost cuts to $1.5bn by the end of 2010, the company said.

Shares of Dow on the New York Stock Exchange were trading on Monday afternoon at $20.04, up $1.04.

($1 = €0.79)

Additional reporting by Gene Lockard, David Barry, Lane Kelley, Ben Lefebvre, Al Greenwood and Landon Feller.

For more on Dow Chemical visit ICIS company intelligence
Paul Hodges looks behind today's headlines and studies key influencers shaping the chemical industry in Chemicals and the Economy
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By: Brian Ford
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