INSIGHT: Dow upbeat on restructuring, sees some signs of growth

26 July 2013 16:52  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS)--“Heading into 2013 we held the view that, from a macroeconomic perspective, this year would largely be a replay of 2012, and calibrated our business plans accordingly,” Dow Chemical CEO Andrew Liveris said on Thursday.

“Looking at global market dynamics again this quarter, this continues to be the right view,” he added.

The US chemicals major is not overly downbeat about the second half, but then it is not overly upbeat either.

In the Dow second quarter statement, Liveris had little to say about the current or projected operating environment. The Dow story, he suggested, is about delivering value to shareholders and about investments for growth in “attractive regions”.

To deliver more value, Dow expects to spin-out or divest more businesses than those earmarked in the current plan.

Included in the parts of the portfolio that are now in the ‘fix/take action’ mode are epoxy resins, the European building and construction business, and commodity chlorine derivatives. Between them, they have annual sales of about $6bn (€4.5bn).

Dow’s investments are principally based on shale gas economics in the US and in Sadara (the massive joint venture project with Saudi Aramco). Liveris said that Dow had allocated the funds for the growth needed for the next decade.

The arbitration decision on the K-Dow venture produced a windfall of $2.2bn in the second quarter, which Dow used to pay down debt.

Its debt-to-market capitalisation ratio is back now to where it was in 2008 before it embarked on the ill-fated project with Kuwait’s PIC, and was forced to take out a bridging loan to finalise the acquisition of Rohm and Haas.

Cash flow from operations in the second quarter saw significant improvement, Liveris said, driving the ratio down to 36.4%. The focus on fixing the balance sheet and on stronger cash generation will pay off, he suggested, adding that the company does not need to be involved in any merger and acquisition (M&A) activity.

Expanding a little on the market environment in a call with analysts, Liveris said Dow was seeing the US as a bright spot, as well as some stabilisation of growth in China.

“The downside continues to be Europe ... where our view remains unchanged, as weakness continues with no material signs of improvement on the near-term horizon”.

In the US, the housing market is recovering and the consumer is showing signs of life, the Dow CEO said.

“Emerging markets are a surprising pillar of strength and we expect there will be growth in the second half that was not seen in the first half, especially in Asia, with China appearing to be stabilising.”

Dow says that local consumption is improving, and that demand might have reached an inflection point. “However, we maintain the view that, while growth continues in China, we all have to reset expectations below historical rates,” Liveris added.

Dow said on Thursday that there were “optimistic fundamentals” in some of its important end market with agriculture, the star performer for the company in the second quarter in terms of sales gains, remaining strong on high farm incomes.

The company said it is also seeing growth in transportation markets, and signs of some positive movement in electronics.

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By: Nigel Davis
+44 20 8652 3214



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