Commentary: Dow Chemical’s Q2 earnings encouraging

Dow Chemical continues to chug along higher, making progress on profit growth and investing in future capacity while restructuring to reduce exposure to commodity chlorine and epoxy resins. The US-based company booked a solid second quarter, with underlying net income rising 16% year over year to $893m on a modest 2.9% increase in comparable sales to $14.9bn.

Adjusted earnings per share of $0.74 came in 2 cents ahead of Wall Street expectations and Dow’s stock price jumped 3.0% on the announcement on 23 July.

The US shale gas cost advantage is apparent in the strength of its performance plastics segment. That group generated a year-on-year 6% gain in Q2 earnings before interest, tax, depreciation and amortisation (EBITDA) to $1.07bn on a 4% increase in comparable sales to $3.75bn. The EBITDA margin was 28.5% – stunning for a plastics business.

CEO Andrew Liveris said he expects the global economy to grow by 2.5-3.5% in the coming years, which would support the addition of one to three crackers per year. Dow’s 1.5m tonne/year cracker in Freeport, Texas, US is under construction and set for completion by mid-2017, he noted.

Companies have announced plans to build 11 new crackers in the US. Of all of the announced crackers in the US, Liveris expects that up to six will be built. Other companies will likely pull their plans for their cracker projects because of rising costs, he said. “The ethylene cycle and the coincidence of this new capacity are going to be quite well synchronised to benefit companies such as ours,” Liveris said.

Additional reporting by Al Greenwood

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