INSIGHT: Dow robustly upbeat on momentum behind recovery

03 August 2010 17:29  [Source: ICIS news]

By Nigel Davis

Dow CEO Andrew LiverisLONDON (ICIS)--“With yet another quarter of top- and bottom-line growth across our company, we continue to have confidence that momentum is gradually building, and we have not changed our view of a sustained global recovery led by Asia, slowly helped by the US recovery, but with Europe lagging,” said Dow Chemical CEO Andrew Liveris on Tuesday.

Dow sees a slow return of the consumer and increased business spending in the US, and the continued support of stimulus packages in other industrialised economies. It expects growth to continue “at a tempered pace” in emerging markets.

Another healthy set of results from a major chemical company supports the view that industry globally is driving economic growth. And although Dow disappointed the market on Tuesday, posting lower than expected earnings and sales, largely because of plant outages and weather-hit agrochemicals sales, it was once again robustly upbeat on the momentum it feels lies behind the recovery.

The US desperately needs the return of the consumer but that is going to take time considering the shock given to the system by the sub-prime mortgage and credit crisis. And business spending will only return with force when banks are more confident themselves and ease their lending criteria.

It is not possible to look too far ahead when considering the US and other major economies. And there are also some still great gaps in demand that remain to be filled - if they ever are, perhaps.

PolyOne’s CEO on Monday referred to recent data that showed just how troubled US housing and auto markets are. Both are vitally important end-use markets for Dow.

The chemicals giant, however, is “guardedly optimistic” on the US macro economy.

It has reaped the benefit of increased business spending in the US, with its sales in North America climbing by 22% in the second quarter compared with the year-ago period. Europe, Middle East and Africa sales were also up 22% and Asia Pacific sales up 19% to about half the level in dollar terms of those made in North America.

The company’s second-quarter results illustrate the bounce back in the commodity businesses but also the impact of the unplanned outage of its Bahia Blanca polyethylene plant in Argentina and production problems in the coatings chain: methyl methacrylate and phenol outages at plants in Texas.

The unplanned outages cost Dow $300m in sales and 7 cents in earnings per share (EPS), it said. The EPS outcome for the latest quarter was $0.50/share compared with a loss of $0.47/share in the second quarter of 2009.

Liveris said on Tuesday that Dow was now back to normal levels of operation and that the outlook in coatings and elsewhere was positive. The global plant operating rate of 83% was 8 percentage points higher than last year. The improvement from the fourth quarter of 2008 was 20 points.

Dow is still also relatively bullish on the ethylene chain, suggesting that new capacities will not “ramp up” as fast as expected and will be partly absorbed by ongoing demand growth.

There will be some margin contraction but Liveris said that there are strong suggestions that inventories in the polyethylene business in North America remain at low levels - and are there to be filled.

Dow expects the third-quarter 2010 impact of additional supply to be as little as $150m and for the business to leave the trough in late 2010 or early 2011. Liveris talked of “peak margin territory” for the business in the next few years.

What Dow loses on PE, however, it is likely to gain in the new portfolio of businesses that Liveris said will make gains through technology and greater pricing power.

It can do without unplanned plant outages - and may have to invest to bring some of the former Rohm and Haas assets up to the sort of speed that Dow likes to see its plants run at.

The company’s headline volume gain in the quarter was a surprisingly modest (given the performance of its peers) 7% but could have been 11% absent the outages and the divestment of the Styron business.

For more on Dow Chemical visit ICIS company intelligence
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By: Nigel Davis
+44 20 8652 3214



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