Major capital investments going forward in the world’s lowest cost feedstock regions, portfolio restructuring and debt reduction put Dow in an excellent position
It’s a repeat top performance for the head of the world’s fourth largest chemical company, and for good reason. Dow Chemical chairman, president and CEO Andrew Liveris is leading the charge in making major investments in the key feedstock advantaged regions of the US and the Middle East. At the same time, he is actively targeting divestitures to concentrate on businesses with higher growth and margin prospects.
In early December, Liveris announced a landmark decision to carve out its chlorine and derivatives businesses – assets with sales of around $5bn (€3.7bn) – for divestiture, including through outright sales or partnerships. This includes its US chlor-alkali, global chlorinated organics, and global epoxy resins businesses, along with associated brine and energy assets.
Other divestitures include its polypropylene (PP) licensing and catalysts business to W.R. Grace for $500m (completed 2 December), its 50% stake in its Nippon Unicar joint venture (PE for power cables) to partner TonenGeneral, and its stake in the Dow Kokam battery joint venture to MBP Investors.
“The portfolio announcements we’ve made in the past several months have been driven by our commitment to increase return on capital, and are grounded by a comprehensive analysis of the markets we serve and our competitive position in these value chains,” said Liveris.
Major capital investments are taking place on the US Gulf Coast – buoyed by the US shale gas boom – and in Al Jubail, Saudi Arabia. In Freeport, Texas, Dow is on track start-up its new 1.5m tonne/year ethane cracker by 2017. Downstream from the facility, in Texas and Louisiana, will be what it calls “enhanced” polyethylene (PE), low density PE (LDPE), ethylene-propylene-diene monomer (EPDM) and elastomers.
At Jubail Industrial City in Saudi Arabia, Dow and joint venture partner Saudi Aramco are constructing the world’s largest chemical project, Sadara, set to start up in stages from 2015-2016. This will include a 1.5m tonne/year mixed feed cracker, and 26 downstream production units, including PE, amines, glycol ethers, propylene glycol, polyether polyols, isocyanates and elastomers.
Chemical cycles will no doubt impact profitability, especially as there is a massive build-out of US petrochemical and polymers capacity spurred by shale gas feedstock set to start-up in 2017. But if you’re going to build, and build on a massive scale, it would be on the US Gulf Coast or in the Middle East.
The company has already slashed debt levels by $5.2bn since 2010 to around $18.5bn, helped in no small part by the payment of a $2.2bn arbitration judgement by Kuwait’s Petrochemical Industries Co (PIC) related to its busted K-Dow planned joint venture with Dow. Liveris had been relentless in his pursuit of the judgement and the funds since the planned venture unravelled in late 2009. The payment finally hit Dow’s books in May 2013.
Dow’s financial results through the first three quarters of 2013 have been solid, with adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) up 7.1% to $6.26bn. Year-to-date through 2 December, its stock price is up around 24%. Over the next several years, Liveris is targeting annual EBITDA of over $10bn through its capital programs and cost savings efforts. Liveris is certainly positioning Dow to meet and exceed this goal.
- Additional contribution by Tahir Ikram in Singapore
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