Low oil to pressure some margins before boosting demand − US Dow

HOUSTON (ICIS)–US-based major Dow Chemical expects margin pressure for some of its products as a result of low oil prices, the company’s CEO said on Thursday.

However, low oil prices should ultimately act as an economic stimulus and increase demand for Dow’s products, CEO Andrew Liveris said during an earnings conference call.

The company expects to benefit from that increased demand as well as from high operating rates, he said.

The pressure on margins, however, will depend on the cracker feedstock.

In general, margins will shrink in regions where natural gas liquids (NGLs) are the predominant feedstock, said Howard Ungerleider, Dow chief financial officer. Some of that happened in the fourth quarter.

However, Dow plastics margins expanded in those regions that typically rely on naphtha, he said.

In Europe, Dow also benefited from the flexibility of its crackers, which can also use propane and liquefied petroleum gas (LPG) as feedstock.

Ungerleider added that Dow’s European crackers can now crack about 55% propane/LPG, up from the low 40s.

In North America, margins for cracking propane have exceeded those for cracking ethane.

Cracking propane also produces more co-products than cracking ethane, which results mostly in ethylene.

Dow has the most propane-cracking flexibility in North America, Ungerleider said, allowing it to benefit from this trend.

Longer term, Liveris expects low oil prices will act as an economic stimulus, increasing demand for Dow’s products.

“You will start to see peak economics in the plastics engine going into 2016 and 2017,” he said.

If that scenario plays out, then Dow should enjoy a further benefit from high operating rates, which are already high across the company’s plastics chain, Liveris said.