Dow CEO expects earnings momentum to gain in second half of 2012

02 February 2012 17:02  [Source: ICIS news]

NEW YORK (ICIS)--US-based Dow Chemical expects earnings momentum to pick up in the second half of 2012 on higher ethylene margins from low-cost ethane, as well as demand growth driven by inventory restocking, its CEO said on Thursday.

“In the second half of 2012 and beyond, we see structurally long ethane as increases in fractionation and pipeline capacity surpass the rise in ethane demand,” said Andrew Liveris on the company’s fourth-quarter earnings conference call.

He sees volatile pricing in ethane – the key feedstock for ethylene in the US – in the first half of 2012 as ethylene crackers undergo turnarounds.

In the long run, Liveris said favourable shale gas dynamics and the company’s petrochemical expansions on the US Gulf coast will drive earnings before interest, tax, depreciation and amortisation (EBITDA) upside of around $2bn/year (€1.5bn) by 2017.

Dow is in the process of selecting a site on the US Gulf coast – likely in Texas – for its new world-scale cracker, which is targeted for start-up in 2016–2017, said Liveris. The company will also restart its 390,000 tonne/year cracker in St Charles, Louisiana, by the end of 2012.

On the demand side, Liveris expects volumes to “accelerate significantly” in the second quarter and into the back half of 2012.

“The restocking effect will accelerate near-term demand growth,” said Liveris.

He sees the US in gradual recovery mode, with the food packaging, transportation and energy industries showing signs of steady growth, but electronics and construction sectors lagging through the first quarter.

Western Europe is expected to experience weak growth through the first half. But demand is expected to remain healthy in emerging markets, led by China, said the CEO.

Dow is seeing polymers restocking in Asia, and price increases from high-cost naphtha in the region will benefit the company as well, said Liveris.

“Demand is picking up, and was even picking up going into the [Lunar New Year] holidays,” he said.

Earlier on Thursday, Dow posted underlying fourth-quarter earnings of $289m – down by 46% from the year-ago period, on 2% higher sales of $14.1bn.

Volumes were flat excluding the impact of divestitures, while prices were up by 5% year on year.

Earnings per share of $0.25 fell a nickel short of Wall Street estimates.

($1 = €0.76)

Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy

By: Joseph Chang
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