News Focus: Dow Chemical CEO presnts 2013 outlook

07 December 2012 10:31  [Source: ICB]

Liveris is optimistic on a US fiscal cliff resolution, but still sees a slow-growth world. Dow's two major projects are on track

US-based Dow Chemical's CEO Andrew Liveris is proceeding with a focused investment plan against the backdrop of an uncertain and slow-growth macro environment. Key elements include its US Gulf Coast investments and its Sadara joint venture in Saudi Arabia.

 

Focused plan: Liveris highlights priorities at Dow's investor day

"I am optimistic that we won't go off the [US fiscal] cliff," said Liveris at a media event at Dow's annual investor meeting last week. "We believe there will be a solution that will appease the markets."

The US fiscal cliff refers to automatic spending cuts and tax hikes amounting to $600bn-800bn (€462bn-616bn), starting on 1 January 2013, if the president and Congress cannot come to an agreement on economic policy.

Liveris is the co-chair of US president Barack Obama's Advanced Manufacturing Partnership, formed in June 2011 to ensure a competitive manufacturing sector. So far, Dow is not seeing any major negative impact over worries about the fiscal cliff, said the CEO.

"Taking a holistic view of this, we are suffering more from the China slowdown than anything in the US," said Liveris. "The US has been a bright spot in the world. But as the fiscal cliff looms, it is creating a haze that needs to dissipate."

The key US automotive and construction sectors have additional upside "if we don't blow the fiscal cliff", Liveris said.

CHINA UPTICK
Liveris expects China GDP growth of 6-7% in 2013 and added that Dow is seeing an uptick in activity.

"In the past few weeks we have seen an uptick in China activity as small and medium-sized companies are getting more liquidity and manufacturing indices are turning positive," he said. "We are not planning on any big bounce-back but are beginning to see better buying patterns emerge, and would expect 6-7% economic growth in China in 2013 - still less than in previous years."

The pick-up in China demand has been apparent in plastic films for packaging, he said.

"We had been used to double-digit growth [in chemical demand] but in the past six months that slowed to stopped," said Liveris. He projects global GDP growth of around 2.5% in 2012, with the US at about 2.2% or higher.

Dow will not seek ownership partners for its 1.5m tonne/year, 80:20 ethane/propane cracker on the US Gulf Coast but is looking for other partners for downstream units to reduce capital outlays.

"We are not into condo crackers. We think you need a clear manager and integrator for the facility," said Liveris. "However, we can secure large contracts for ethylene and derivatives - whether it involves PE [polyethylene] or not - to defer capital."

The cracker, code-named "Texas 9" by Dow and to be built in Freeport, Texas, is on track for completion in 2017, the CEO said.

Dow will use around 1.1m tonnes/year of ethylene capacity for its own high-value derivatives, while the rest will be open for partnerships.

At Dow's new cracker site, "we will load it with next generation NORDEL [rubber] technologies and higher-end products in our [PE] and performance packaging chain, and our elastomers chain such as olefin block copolymers," said executive vice president Jim Fitterling.

For how partnerships would work, he compared this to the Dow/Mitsui Chlor-alkali joint venture expected to start up in Freeport in mid-2013.

"Here we had no interest in making EDC [ethylene dichloride] used for the PVC [polyvinyl chloride] market anymore, but our partner Mitsui did and wanted to access to a worldscale facility. And so they will benefit from the EDC, while we benefit on the chlorine side," said Fitterling.

Dow will take its share of the 50:50 joint venture's chlorine for internal use, while at the same time producing EDC with Mitsui's share of the chlorine for Mitsui to market worldwide.

"We have been approached by quite a few people that would like to have that kind of low-cost position off of our footprint in Texas," said Fitterling.

Dow is also on track with its other US Gulf Coast projects - the restart of its St Charles cracker by the end of 2012, a propane dehydrogenation (PDH) plant in Freeport by mid-2015, and boosting ethane capability at is Plaquemine, Louisiana cracker by 2015. These projects are expected to add $2bn to earnings before interest, tax, depreciation and amortisation (EBITDA) by 2017.

SADARA ON TRACK
Dow's Sadara joint venture in Saudi Arabia with state-owned Saudi Aramco is proceeding on track with first production from its plastics units expected in the second half of 2015.

"We already have 10,000 people on site and expect that to rise to a peak of 60,000 next year," said Liveris. "The FEED [front end engineering and design] is complete and we have seven-storey furnaces coming up on the site."

Sadara, the largest petrochemical project to date, is expected to deliver EBITDA margins of around 40% once operational, said Liveris.

The product slate will include ethylene, propylene, solution PE, low density polyethylene (LDPE), elastomers, amines, glycol ethers, propylene glycol, polyether polyols and isocyanates.

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By: Joseph Chang
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