The Urethane Blog

Urethane Comments from Dow Chemical Investors’ Call

Jim Fitterling

Industrial Intermediates and Infrastructure operating EBIT was $175 million, down from the year ago period, as demand growth in the Industrial Solutions business was more than offset by market compression in polyurethane application, as well as equity losses.

The segment also benefited from lower year-over-year planned maintenance turnaround costs. The Polyurethane and Construction Chemicals business reported lower net sales, primarily driven by a lower global energy prices and decreased demand, particularly in furniture and bedding, automotive, appliance and aircraft deicing applications.

Also, we are taking actions to idle facilities or reduce operating rates in line with demand trends in the U.S., Europe and Latin America. We are working with our customers to get orders placed with enough lead times, so that we can make the best asset decisions across our network and manage bottlenecks in the supply chain to deliver products where it’s needed.

Our polyurethanes business has strong participation in Durable Goods segments, such as automotives, furniture and bedding, appliances and construction. These segments are being heavily impacted by government mandated shutdowns around the world, as a result, we are running our polyurethanes assets including propylene oxide and MDI at reduced operating rates.

And in silicones, we are running reduced rates across our global grid of siloxane trains and our Zhangjiagang production facility in China will remain down on an extended plant turnaround into May. We also benefit from full flexibility at our silicones finishing asset allowing us to quickly respond to demand in all formulated silicones applications around the world.

We are taking these actions with a thoughtful approach that will allow us to quickly respond as demand improves when economies around the world reopen, and while the timing and shape of a recovery remain uncertain these actions position Dow to emerge even stronger when the global economy rebound.

John Roberts

Thank you. And you all sound pretty well here, as well. So I am glad to hear that. Can you comment on other industry closures you might be seeing? We don’t usually think of Dow’s high cost although ethane is kind of flipped here currently, but, are we seeing other closures we haven’t heard about yet from competitors in the marketplace?

Jim Fitterling

Yes, John. Thanks for the question. We are not closing the high cost assets. We are closing the balance demand. So, look, all of these are reasonable cost assets, but the reality is, there has been a pretty significant amount of industrial capacity shutdown on the downstream. And so, we don’t feel like in this environment, really ploughing a lot of material into inventory is the right thing to do.

So, that’s why we are dialing back the capacity. I have seen some delays and indefinite suspensions of projects, there was one this week in Ohio, the Thai project that was going to go ahead. So, we are starting to see some of those kinds of announcements. We are seeing reduced rates across polyurethanes, across the globe basically and we’ve got polyurethanes MDI capacity down in China right now, not us, but competitors do.

Really to balance out the fact that downstream automotive and appliances and construction for insulation materials has been slow. So I think that’s what you are seeing. I think it has less to do with the cost position and more to do with the supply demand.

Arun Viswanathan

Hey, good morning. Thanks a lot. Thanks for what you are doing on the frontlines, as well. I guess, I just wanted to ask about both polyethylene and polyurethanes. Both markets has gone through some structural changes here polyethylene on the feedstock side and potentially demand side. Polyurethanes on the demand side with reduced demand for consumer discretionary items.

I guess, would you agree with those characterizations and I guess, when you think about that, thinking longer-term, do you foresee any changes in your strategy and polyurethane as you talked about adding Systems Houses and PE, you talked about selling. Are those still valid in this environment? Have you seen new customers trade down or change their strategy, as well? Thanks.

Jim Fitterling

Arun, I think, we’ll get back to the growth playbook as we mentioned in the script. And I think it’s just a matter of timing here. So, it doesn’t make sense right now to continue to plough cash and capacity when the demand in Europe and North America and Latin America has slowed down, because people are staying at home.

So that’s why we are taking some of the actions that we are taking right now. It’s just to balance that demand. But that demand will come back. People are not going to stay at home forever. We are helping governments right now with safe ways to return to work and we are operating safely. 14,000 Dow people go to the sites every day and we are operating safely and people are healthy.

So, we know it can be done. But it’s just going to take some time before the consumer confidence to come back and that’s why we are doing what we are doing. Downstream, expansions in our Industrial Solutions and in our Functional Silicones products are still continuing. Systems House will come back as the automotive business and the Installation and Construction business comes back and we’ll continue to look at downstream on plastics.

https://seekingalpha.com/article/4341619-dow-inc-dow-ceo-jim-fitterling-on-q1-2020-results-earnings-call-transcript?part=single