Dow to put chlorine business in line for asset-light strategy

05 February 2010 00:03  [Source: ICIS news]

Dow headquartersBy: Joe Chang and Al Greenwood

NEW YORK (ICIS news)--US major Dow Chemical’s expects to eventually line up its chlorine business in its asset-light pipeline, although a complete sale of the chlor-alkali business is not likely, an analyst said on Thursday.

“They are integrated [with other parts of Dow], so a complete sale of the chlor-alkali business is not likely. Plus, margins are about as low as they can be right now,” said Hassan Ahmed, an analyst at New York-based research firm Alembic Global Advisors.

“However, on a 100% basis, the business could be worth over $4bn [€2.9bn] based on normalised EBITDA [earnings before interest, tax, depreciation and amortisation] of $800m,” he added.

Dow Chemical said during its fourth-quarter conference call that it plans to pursue an asset-light strategy for its chlorine business, which would involve a partnering in a joint venture to reduce capital requirements.

In addition, the company in the long term does not plan to remain in the merchant market for ethylene dichloride (EDC) and vinyl chloride monomer (VCM), both of which use chlorine as feedstock, Dow CEO Andrew Liveris said during the call.

“You can expect us, though, to continue to find meaningful partnerships with people who want to be in PVC [polyvinyl chloride],” Liveris said.

“We will use our competitive advantage to partner with others because you have to have scale in the chlorine side,” he added.

Dow already has employed its asset-light strategy for ethylene oxide (EO) and ethylene glycol (EG) as well as styrenics.

MEGlobal, for example, is Dow's EO/EG joint venture with Petrochemical Industries Company (PIC) of Kuwait. Americas Styrenics, in turn, is a joint venture made up of Dow and Chevron Phillips Chemical.

"We've got polyethylene/ethylene to do asset light, but chlorine is the next one," Liveris said.

Dow’s chlor-alkali business, which comprises the vast majority of Dow’s basic chemicals segment, has normalised sales of around $2.5bn, Ahmed said.

The business has chlorine capacity of around 7m tons and VCM capacity of about 2.9m tons, according to the analyst.

($1 = €0.72)

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