15 June 2010 17:08 [Source: ICIS news]
By Nigel Davis
Critically it did not seem as though chemicals were being absorbed to produce goods for exports: end-use markets in
At the same time, however, firms were reporting stronger demand in key European chemicals markets and demand growth in
Notwithstanding current macroeconomic uncertainties, companies remain bullish. A better-than-expected first quarter behind them, it looks as though business continued pretty well in April and May. A dramatic recent change in sentiment in
Dow Chemical has been particularly upbeat these past few months, heralding a good first quarter and talking in investor presentations not just about the new Dow – a company much more attuned with and reliant upon a broad range of markets for relatively sophisticated materials – but also playing down the potential for a devastating supply-driven downturn in polyolefins.
Dow is still trying to find a solution – and a partner – for its polyethylene business and some of its crackers. In the meantime, it reckons the threat to its important ethylene-chain chemicals from new low-cost capacities in the
Dow reckons it is well positioned in ethylene, but it is also relatively upbeat about the ethylene business. It has to be encouraged, along with all players, by the slower pace of new capacity additions in countries like
Demand has been encouraging so far this year, and Dow takes a positive view. Ethylene demand historically has grown at 5% a year, Dow CFO Bill Weideman told the JP Morgan Diversified Industries Conference 2010 on 8 June.
Dow believes that underlying polyethylene (PE) demand has been real, with demand in North America up 11%,
Restocking was providing the upside potential but Dow saw itself in a good position, with a reconfigured
Dow’s plants in places like
Dow’s “probable case” ethylene scenario is for more than 5% per year of ethylene demand growth out to 2020 and slower incremental capacity additions. It looks to the benefits of continued inventory restocking.
An alternate case would be slower demand growth, with new capacity coming on stream, on time and running as planned at full rates. Weideman pointed out that this could lead to a “small margin compression in the second half of 2010” and drive out between 5m-8m tonnes of industry capacity. The pressure would be on Asia's and
But the recovery might yet be broad enough to go a long way to alleviate the potential pain.
The new Dow – that is, Dow after the Rohm and Haas acquisition – serves a broad range of industries, most of which, the company says, have either recovered from the slump, or are showing flat demand growth. The worst geographical areas are eastern Europe and
The positive contrast between the first quarter of 2010 and the first quarter of 2009 is significant, as might be expected. But encouragement must be gained from the fact that May looked very good, too, even though there were the odd pockets of specific geographical and industry-market weakness.
In its current outlook, Dow recognises global macroeconomic uncertainties but points to broad-based manufacturing momentum.
The company’s estimates for May show that its recovery continued to be driven by the faster-growing emerging markets. Weideman pointed to “broad-based volume gains across performance segments”. (These include, in chemicals, the electronic and specialty materials products acquired from Rohm and Haas, as well as coatings and products for infrastructure development.)
US demand was improving in automobiles, electronics, appliances and consumer staples, he said. The company believed that pricing momentum reflected stable demand.
Emerging market demand has been, and continues to be, vitally important for Dow and for many other chemicals players. The Midland, Michigan-based giant, however, is benefiting greatly from the much-improved picture in
Geographical and product spread provide the cushion against the possible challenges to demand growth in some regions, as well as the opportunities on which the company can build.
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