US ethylene supercycle to be similar to late 1980s – Dow CEO

29 January 2014 19:33  [Source: ICIS news]

NEW YORK (ICIS)--The coming US ethylene supercycle will be similar to the strong peak in the late 1980s, leading to more than $5bn in annualised EBITDA for Dow Chemical’s integrated performance plastics business in the “next year or so”, the company’s CEO said on Wednesday.

“We believe our plastics business will go north of $5bn in EBITDA [earnings before interest, tax, depreciation and amortisation] in the next year or so… because of low NGLs [natural gas liquids] – a supercycle, like the late 80s,” said Andrew Liveris, CEO of Dow.

Liveris spoke on a conference call with investors discussing fourth quarter 2013 results.

The 1988-1989 peak in the ethylene cycle was a strong and long one, lasting around a year and a half versus the 1994-1995 peak, which lasted about half as long.

Dow’s performance plastics segment, which includes its upstream crackers, generated $4.09bn in adjusted EBITDA in 2013 – a 34% jump from 2012. In the fourth quarter of 2013, EBITDA in this segment rose 40% year over year.

Performance plastics is overshadowing Dow’s other segments in terms of profit generation. In terms of adjusted EBITDA generation in 2013, this segment was followed by performance materials ($1.46bn); electronic and functional materials ($1.04bn); agricultural sciences ($969m); coatings and infrastructure solutions ($892m); and feedstocks and energy ($837m).

Liveris estimated that global ethylene operating rates are approaching the high 80% range.

“We feel this year will be somewhere around 89%, maybe as much as 90% for the entire industry operating rate – that’s a global number,” said Liveris, who noted that the US will lead the global upcycle.

“There’s no question shale has brought a completely different view to profitability in this peak cycle in ethylene related products – not just plastics but also ethylene glycol [EG],” said Liveris.

“[In] our plastics business, half of the profits are coming from value-add downstream, half from upstream integration. The part that’s going to go up in a very big way in the cycle is upstream ethylene margins,” he added.

In the meantime, Dow is boosting capital spending (CAPX) as it ramps up major projects on the US Gulf Coast, including a new cracker in Freeport, Texas.

The company expects to spend $3.3bn-3.5bn in CAPX in 2014 versus $2.3bn in 2013.

“We’ll kind of stay at that level in the next couple years, and then it will start to drop off after the PDH [propane dehydrogenation] unit, and then after the cracker,” said Dow's chief financial officer, Bill Weideman.

Dow expects to complete its PDH unit in 2015 and its Texas cracker in 2017.

By: Joseph Chang
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