Dow sees no basic plastics JV this year as unit drives earnings

28 April 2010 18:58  [Source: ICIS news]

Dow CEO Andrew LiverisHOUSTON (ICIS news)--US major Dow Chemical does not expect to form a basic plastics joint venture this year as advantaged US feedstock turned the unit into an earnings star during the first quarter, chief execuitve Andrew Liveris said on Wednesday.

"The fact that this business is earning this much money has made the business more valuable, and we are definitely taking our time in structuring the right deal," Liveris said during the company's earnings conference call.

Despite the unit's performance, however, Dow still intended to eventually incorporate it into a joint venture.

"The timing of any such deal for us will be based on maximum valuation," he said. "There is a right partner out there with feedstock that the business should be joint ventured with, but we are not counting on it this year."

Dow remained committed to its asset-light strategy, despite the strong performance of its basic plastics unit, Liveris said.

"We have a very clearly stated strategy," he said.

Dow's larger asset-light strategy has involved partnering in a joint venture to reduce capital requirements.

Back in 2007, Dow and Petrochemical Industries Co (PIC) of Kuwait agreed to create a $17.4bn (€13.2bn) joint venture that would make polyethylene (PE), polypropylene (PP) and polycarbonate (PC) among others.

The so-called K-Dow joint venture with PIC fell apart at the end of 2008.

Since then, US PE margins soared as it was the nation's advantaged natural gas feedstock.

As such, Dow's basic plastics unit reported $718m in first-quarter earnings before interest, tax, depreciation and amortisation (EBITDA). That was up substantially from $122m reported for the same time last year.

"Even though these are trough-like conditions, the business is earning four to five times what it earned in the '01-02 trough, which is a spectacular statement," Liveris said during the earnings conference call.

Another plus for the business was the untapped reserves of shale gas in the US, which several analysts had called a potential game changer for the industry.

In all, Dow was now intent on making the most money from a basic plastics joint venture, Liveris said.

But Dow still planned to eventually move its portfolio to downstream businesses with higher margins, he said. Those businesses would still need raw materials, which would be supplied through the company's asset-light structure.

($1 = €0.76)

ICIS has launched weekly pricing reports in Africa for polyethylene and polypropylene. For more information contact Nadine Spoeri
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