Urethane Comments from Dow DuPont Earnings Call

Howard Ungerleider

In the Materials Science division, we expect continued strong consumer demand though at a moderately slower pace than in 2018. We expect operating EBITDA to be down low-20% as volume growth, cost synergies and the benefit from the completion of our U.S. Gulf Coast investments will be more than offset by lower chain margins spreads that will continue into the first quarter, due to the averaging effect particularly on our polyethylene and isocyanates chains. The division is acting quickly on a series of actions to offset as much of these headwinds as possible, including cost and productivity actions, capitalizing on new capacity additions, and driving pricing improvements.

Jim Fitterling

Here are some division highlights. We again captured demand growth across the majority of our core businesses. We achieved high-single digit volume growth in Polyurethanes and Industrial Solutions and our Packaging & Specialty Plastics business grew volume 4%.

Industrial Intermediates & Infrastructure operating EBITDA declined by 18%, primarily driven by a contraction in isocyanates that impacted core business results, particularly in Polyurethanes, as well as some softening in appliance and automotive end markets. The contraction in isocyanate spreads, along with a 25% margin compression in MEG also led to year-over-year reduction in equity earnings. These headwinds more than offset demand growth and benefits from cost synergies.

Sales gains in both Polyurethanes and Chlor-Alkali and Vinyl and Industrial Solutions were led by a robust volume growth due to increased supply from Sadara. In the Polyurethanes chain, the moderation in isocyanates prices that we’ve forecasted for some time accelerated in the quarter with MDI prices dropping about 40% year-over-year. In our view, the fly-up margins that we captured over the past year completely unwound over the course of the fourth quarter, notably in Asia Pacific and Europe, where we have the largest merchant isocyanate exposure.

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