Liveris on the chemical cycle, Dow’s asset-light strategy and Ras Tanura

By Malini Hariharan

I have been reading a transcript of Dow Chemical’s Q4 2009 earnings call and here are some interesting comments made by Andrew Liveris, the company’s ceo.

Despite recording revenue and volume growth in 2009 Liveris was cautious on the outlook for 2010 citing an uncertain economic environment.

But constraints in Middle East supplies could lead to an early recovery.

“Even though there will be capacity adds, it won’t come on when people think it will come on. We are one of the best operators out there and we had a slow start up of our Kuwait assets and we are very good at this. So I would tell you, you have not as much supply coming on as people think.”

On the demand side, if global GDP expands at around 3% this year it would result in polyethylene (PE) demand growth of 4.5%. As global inventories are low across the chain restocking would push growth above this level, he said

Add to this 6-9m tonnes of high cost liquids cracking capacity rationalisation, 3m of which is already permanently down, gas not as freely available in the Middle East as people think and ethane cost advantage in the US which is now the second lowest cost producer on ethane.
Pic source: ICIS

“So when you put all that together, I think there is a case for a trough-like environment in 2010 with the excess capacity, a recovery in 2011 and a peak environment in the 2013 timeframe,” he said.

He pointed out that Dow had effectively capitalised on its flexi-feed crackers and 20% of its US production in Q4 2009 was exported to China.

On implementing the asset-light strategy for basic chemicals, Liveris stressed that he was “not in a hurry to get it done at the wrong valuation” especially as the business generated an EBITDA of 1.7 last year.

“That is in a trough, demand led trough and great recession of all time. So we know we have a very high performing asset. The partners we are talking to are all strategic. There is three of them,” he said.

And Dow was keen to implement the asset-light strategy for its chlorine business after completing ethylene-PE and styrenics.

“Today a good chunk of our chlorine capacity in Louisiana and Texas will feed our downstream chlorine envelope for performance businesses and be advantaged because it is integrated. You can expect us though to continue to find meaningful partnerships with people who want to be in PVC. So in essence, we will use our competitive advantage to partner with others because you have to have scale in the chlorine side. That should help us create an asset-light strategy for chlorine. We are determined to do that.”

ICIS news also reports that Dow still plans to start up the first units at its Ras Tanura joint venture with Saudi Aramco in 2014 or 2015.

Prices have fallen for Middle Eastern engineering, procurement and construction (EPC) contracts and this has given a reason for Dow to delay releasing contracts.

But Liveris said Ras Tanura was moving ahead ‘nicely on its milestones” and Dow would have more to say on the project by the middle of the year.

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