Dow's Liveris Sees US Industry Position Improving
February 3, 2011
The head of Dow Chemical Co. (DOW) said Thursday that the U.S. can become a low-cost leader for the global industry as shale gas production increases and cheap natural gas from the Middle East is diverted to produce power.
Demand for commodity and specialty chemicals is returning to pre-recession levels and U.S. exports to Asia have soared, with prices rising amid tight supplies for the building blocks off everything from diapers and packaging to autos and consumer electronics.
Andrew Liveris, chairman and chief executive of Dow Chemical, said an expected glut of capacity from Middle East producers failed to materialize last year, with more of the region's natural gas diverted to alternative uses.
"They need power as much as they need petrochemicals for value-added," said Liveris on a call with analysts after the largest U.S. chemicals company by revenue reported a near-three fold rise in fourth-quarter profit.
Cheap U.S. natural gas prices already give its chemical companies an advantage over many overseas rivals, though this is eroded by the cost of shipping to fast-growing Asian markets. Liveris said the development of domestic shale-based deposits could narrow the cost gap with the Middle East.
He said Dow would accelerate efforts to move away from low-value commodity business, though the outperformance of its basic chemicals and plastics operations drove results that surpassed analysts' expectations as the company absorbed higher raw material costs and secured a 10% rise in prices.
The company will continue to shed some low-margin operations and seek bolt-on deals, notably in seeds and electronics, though Liveris said there was no need to resurrect anything like its abortive joint venture with Petrochemical Industries Company, or PIC, that would have parked most basic operations in a new entity.
The Kuwaiti company's decision to pull out of the deal saddled Dow Chemical with a huge debt burden and almost derailed its acquisition of Rohm & Haas. Liveris said he expected arbitration on a settlement with PIC to be resolved by the third quarter.
Dow Chemical has since rebuilt its balance sheet and refocused its portfolio, exceeding internal targets as it pursues annual Ebitda of $10 billion. The measure hit $7.5 billion last year, and Liveris said it would hit the milestone "in the near term".
The broad recovery in global chemicals demand was evident in a 12% rise in volume shifted by Dow Chemical last quarter, matching the gain reported last week by rival DuPont & Co. (DD) and reflecting tight supplies in key inputs for the manufacturing sector such as caustic soda and titanium dioxide.
Sales at Dow Chemical rose sequentially in all regions as business moved closer to pre-recession levels and it pushed utilization and limited unplanned outages. Liveris said that the economic recovery in Europe and North America "appears to be gaining traction" as the company also reported record emerging-market sales.
The company reported a profit of $511 million for the quarter ending in December compared with $172 million a year earlier. Per-share earnings rose to 37 cents from 8 cents a year earlier, well ahead of the 35-cent consensus. Excluding restructuring charges and other items, earnings were up at 47 cents from 18 cents. Revenue increased 10% to $13.8 billion, some 10% ahead of expectations, and was up 22% excluding divestments.
Gross margin rose to 14.2% from 12.9%, and sales across its business segment rose in the double digits on a percentage basis, except coatings and infrastructure, which had 6% growth. Sales in Dow Chemical's two largest segments--plastics and performance products---rose 20% and 23%, respectively.
Dow Chemical shares recently were up 0.6% at $36.86.
Source: Dow Jones Newswires
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