Market outlook: DowDuPont PE, elastomers projects on track for 2018

US-based DowDuPont is on track to complete its polyethylene (PE) debottleneck and new elastomers project during 2018, while executives express optimism on the PE cycle.

“Looking ahead, our next two projects on the US Gulf coast are progressing well. The gas phase debottleneck in Louisiana remains on track to be completed mid-year, and our new world-scale specialty elastomers unit in Texas is expected to start up towards year end,” said Howard Ungerleider, chief financial officer of DowDuPont, on the company’s first-quarter earnings conference call.

The debottleneck in St Charles, Louisiana, will add 125,000 tonnes/year of bi-modal gas phase high density PE (HDPE).

The new elastomers unit in Freeport, Texas, will have capacity of 320,000 tonnes/year.

Ungerleider also noted that DowDuPont’s new 1.5m tonne/year cracker and 400,000 tonne/year ELITE PE unit in Freeport “which came online late last year both ran at high rates through the first quarter and contributed to the bottom line”.

DowDuPont’s 200,000 tonne/year Nordel ethylene propylene diene monomer (EPDM) unit and 350,000 tonne/year low density PE (LDPE) plant – both in Plaquemine – came online in the first quarter, “and product from both assets has already been flowing into the market”, said Ungerleider.

“The new [LDPE] facility has ramped up to full operating rates and the Nordel asset is expected to complete the full range of customer qualifications in the second quarter,” he added.

Ungerleider is also president-elect and chief financial officer of Dow Chemical, the Materials Science division to be spun off from DowDuPont.

PE CYCLE OUTLOOK

DowDuPont executives are optimistic about the outlook for PE because of strong global demand that is outpacing capacity additions.

“Global GDP is running north of 3% right now [and] we’re running north of 4.5% growth on plastics. That’s very, very robust demand,” said Jim Fitterling, chief operating officer of its Materials Science segment and CEO-elect of the Dow Chemical Materials Science spin-off.

“There’s not enough plastics capacity coming online this year to keep up with that. And when you look at the plastics capacities across the different mixes, that’s leading to some positive moves there,” he added.

Plastics demand and pricing held up “really well” through the first quarter, and the second quarter has started off strong, he noted.

And Fitterling is bullish on the outlook for PE through 2018.

“I’m not concerned about pricing as we move through the [second] quarter and the back half of the year, and I’m not concerned about capacity adds,” said Fitterling.

“At this rate of GDP growth, we need about the equivalent of four to five worldscale crackers to be built and started up in each year, and for the next three years we’ve got about three [crackers] coming on line, in total. So I think we’re in a constructive environment here,” he added.

US-CHINA TRADE CONCERNS

The executive also said concerns about a US-China trade war have been “overplayed” to some extent.

“I don’t think we’re looking at a major trade war here – some of that’s been overplayed. We’re trying to find a path toward fair treatment with trade with all countries, including making sure IP is protected, and making sure products aren’t being dumped back here in the United States,” said Fitterling. “Nothing’s been imposed at this time that’s having a dramatic impact on us.”

Even in the event of tariffs and a trade war, the company is relatively insulated with global production facilities and local production in China, executives said.

“Remember we have global assets to cater to the demand in China. The whole reason we built Sadara [in Saudi Arabia] was to serve the eastern part of the world. We built the US Gulf coast [projects] to serve North America and South America,” said Fitterling.

And “from a specialty standpoint, we see no impact there. Our biggest business in China is in the electronics area, and we’re pretty much all locally sourced in the market”, pointed out Ed Breen, CEO of DowDuPont.

Breen noted that in the agriculture business such as with soybeans, “with the global trade of those products, if product from America is not going to go to China, product from some other country is, and that American product is going to move around”. If Brazil ships more soybeans into China because of tariffs on US imports, the US would “pick up the slack because global demand is needed”, said Breen.

SPECIALTY PORTFOLIO SALES

In the meantime, DowDuPont plans to sell some of the businesses within its Specialty Products division, which would allow it to spend the proceeds in higher growth areas.

“We do have some businesses we would like to exit and get the cash for those and redeploy it in higher growth areas,” said Breen.

“We have that very defined at this point in time,” Breen said. “It is up to 10% of the portfolio.”

DowDuPont may divest some assets during 2018, but the bulk will take place after DowDuPont spins off the Specialty Products division. Specialty Products is made up of four segments – Electronics and Imaging, Nutrition and Biosciences, Transportation and Advanced Polymers, and Safety and Construction.

The spin-off should take place by the third quarter of 2019, and the division will take on the DuPont name.

DowDuPont will also spin off its Materials Science division and its Agriculture division. Materials Science will be called Dow and Agriculture will be called Corteva.

STRONG Q1 EARNINGS

DowDuPont got off to a strong start in the first quarter, posting a 7% year-on-year increase in adjusted earnings to around $2.6bn on 5% higher sales of $21.5bn.

Operating earnings before interest, tax, depreciation and amortisation (EBITDA) was 6% higher at about $4.9bn.

In the Materials Science division, operating EBITDA gained 23% to $2.6bn as sales surged 17% on an 8% increase in volumes, and a 5% local price improvement. Currency added 4% to the sales gains.

Additional reporting by Al Greenwood