Dow Chemical bullish on ethylene, PE business – CEO

12 November 2009 16:33  [Source: ICIS news]

TORONTO (ICIS news)--Dow Chemical’s basic ethylene and polyethylene (PE) business has very strong prospects as it benefits from improving demand and competitive US natural gas prices, chief executive Andrew Liveris said on Thursday.

“Our basics plastics portfolio includes the number one polyethylene business in the world,” Liveris said in a speech during the company’s investor day.

“Dow produces every major type of polyethylene, and it operates all polyethylene manufacturing processes.”

Polyethylene, the world’s most versatile plastics, was still growing in excess of gross domestic product, he said.

Dow had left the demand trough of 2009 behind and was expecting growth rates of 5%/year over the next several years, he said.

However,  2010 would see a “supply-driven trough,” Liveris said.

Still, new low-cost capacity would force between 9m-12m tonnes of high-cost capacity out of the global production grid, bringing “a sense of balance to the industry” throughout the year, he said.

Importantly, Dow’s ethylene and PE business in North America was benefiting from the decoupling of natural gas prices from oil, a trend driven by large new gas discoveries in the region, Liveris said.

Dow's past investments in the US were giving it “unparalleled flexibility” to crack different feedstocks, with over 70% of its North American ethylene production able to use light feedstocks.

“This gives us a major cost advantage in world geographies, with North America leading the way,” he said.

At the same time, Dow had “right-sized” its assets on the US Gulf coast to balance internal ethylene demand and production, thus improving the company’s cost position and eliminating the need for spot market purchases.

“The combination of these two dynamics, in our view, gives us nearly $200 (€134)/tonne of leverage going into the ethylene peak”, translating into $1.40 in earnings per share, Liveris said.

“We believe this [leverage] requires serious consideration as to how and when we maximise the strategic value of this incredibly important leading business,” Liveris said with reference to Dow’s divestment plans.

($1 = €0.67)

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By: Stefan Baumgarten
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