US Dow expects destocking to continue in Q1

Al Greenwood


HOUSTON (ICIS)–Dow expects destocking to continue during the first quarter after seeing a significant amount of inventory purging during the fourth quarter, the US-based producer said on Thursday.

“We are not at a restocking state yet,” said Jim Fitterling, Dow CEO. He made his comments during an earnings conference call.

Such destocking has already been noted by the Federal Reserve in its Beige Book survey of economic conditions and by RPM International, US-based producer of paints, coatings, adhesives and sealants.

Dow’s comments provide more proof that customers are working down their stocks beyond what is typical during the end of the year.

“Manufacturing activity in the last half of December really slowed, so you could see that in order patterns. And that stayed slow in the first half of January,” Fitterling said.

Such downstream destocking had led Dow to lower operating rates by 10% during the fourth quarter, he said.

Destocking accounted for two-thirds of the quarter-on-quarter decline in Q4 earnings before interest, tax, depreciation and amortisation (EBITDA), said Howard Ungerleider, CFO. The rest of the decline was caused by the seasonal slowdown that is typical in the fourth quarter.

Manufacturing activity is picking up, and the company is seeing signs of that in its order book. However, the industry is not in a restocking state, Fitterling said.

He expects the market will enter such a state as the year progresses. Typically, the second and third quarters are Dow’s highest volume quarters. Also, markets do not have a lot of excess inventory.

For Dow’s Performance Materials and Coatings segment, destocking represented about 50-60% of the slowdown that it saw in the fourth quarter, Fitterling said. “The destocking is going to work itself through in the first quarter, and then I think you will see us get back to more normal seasonality.”

On silicones and siloxanes, Dow saw destocking in downstream end-markets such as personal care and home consumer-goods as well as in building and construction. “I think that will rebound as the year progresses,” Fitterling said.

For the company’s polyethylene (PE) business, it expects a little bit of destocking to continue into the first quarter, Fitterling said.

RPM noted that normalising supply chains are causing some of its customers to slow down purchasing. That has allowed some companies to return to the inventory-management practices that preceded the pandemic.

Already, demand has fallen for products made by some of RPM’s businesses, and the company expects that trend will continue during its fiscal third quarter, which runs through February.

RPM also is adopting more normal buying patterns, and it is adjusting its inventory levels to more typical levels, the company said.

As a result of those inventory adjustments, the company is lowering production rates at some of its plants. It could take six to nine months for RPM to bring inventory levels back to where the company wants them.

The Federal Reserve noted in its Beige Book that some companies are starting to bring their inventories back to pre-pandemic levels.

Fed contacts in the Atlanta district said that they plan to bring their inventory levels back to more normal levels. These companies plan to return to just-in-time inventory management instead of the just-in-case practices that characterised the pandemic.

The Atlanta district includes the states of Georgia, Florida, eastern Tennessee and the southern parts of Mississippi and Louisiana.

A return to normal inventory practices is not the only factor driving inventory destocking.

In the Federal Reserve’s Richmond district, a fabric producer said some of its customers are reducing inventory levels because of concerns about lower demand. The Richmond district includes the states of Virginia, Maryland, North Carolina and South Carolina.

A chemical producer in the Boston district noted weakening demand from the construction and automobile industries. Competing producers are shedding excess inventory. The Boston district includes the states of Massachusetts and others in the northeastern US.

Kevin Swift, senior economist for global chemicals at ICIS, expects the country will enter a mild recession in 2023.

Forward-looking indicators also point to a slowdown.

  • The ICIS Leading Business Barometer (LBB) declined for the 11th month in January, and it continued to signal a recession in the upcoming months
  • The US manufacturing purchasing managers’ index (PMI) was below 50 for the second consecutive month in December, signalling continued contraction
  • Manufacturing indices declined at three Federal Reserve Bank districts, as shown in the following table
Federal Reserve Bank Survey Title Jan Reading
Richmond Fifth District Survey of Manufacturing Activity -11
Philadelphia Manufacturing Business Outlook Survey -8.9
New York Empire State Manufacturing Survey -32.9

 Focus article by Al Greenwood

Thumbnail shows storage tanks.


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