Urethane Comments from Dow Investors’ Call

Jim Fitterling

On Slide 5, Industrial Intermediates & Infrastructure operating EBIT declined versus the year ago period primarily due to margin compression in the polyurethanes component and MEG as well as lower demand in industrial end-markets.

In Industrial Solutions, volume declined modestly as a result of lower demand in energy, agriculture and automotive end-markets. This was partly offset by growth in catalyst application and demand in pharma end-markets. The business reported a significant drop in its equity earnings driven by margin compression for MEG at our Kuwait joint ventures.

Polyurethanes & Construction Chemicals sales declined on lower local pricing in all regions led by lower components prices. However, the business achieved volume growth driven by gains in the United States and Canada on improved MDI supply year-over-year as well as continued demand growth in polyurethane systems.

Our growth in systems reflects the businesses focus on driving its downstream agenda and moving the portfolio from merchant component sales to higher value formulated systems. It has been a multiyear journey and the progress we’ve made so far has been impressive. This quarter marked the 25th consecutive quarter of year-over-year volume growth for the systems business.

Vincent Andrews

Thank you and good morning everyone. Could you maybe talk a little bit about MDI and silicones and sort of what you think is going to happen through fourth quarter and into next year are we just going to bounce around these levels? Can MDI volume continue to compound at a mid-single digit rate or do we have to worry about that being a little bit lighter next year? Thank you.

Jim Fitterling

Thanks Vince. MDI and I would say siloxane versus silicones, MDI and siloxanes are bouncing around at pretty low levels, as you mentioned and I would expect them to stay in there. A little bit of term in the industrial side of the sector and in the auto side of the sector will put a pull there that would start to bring that back up, but haven’t seen that yet. With PMI really declining for the last four consecutive quarters, the big delta here is consumer has been really pulling all the volume growth and industrial hasn’t yet. But I do think with inventories being low, I don’t see any speculative activity out there and with downstream investments, like in our systems business downstream and our silicones business which are both continuing to hold up well that’s going to create a pull on that supply demand balance. And with nothing new on the horizon, I think, you’re going to see some steady improvement. We get a deal on trade if we get a phase one trade deal that obviously will be a tailwind. And I think the industry is poised right now for a little tailwind.

Hassan Ahmed

Good morning Jim. Jim, a bit of an interesting sort of quarter. Obviously, we had this incident happen out in Saudi Arabia, which I would imagine limited feedstock supply to a variety of producers out there. And I would imagine Sadara as well. So could you comment on whether or not you guys saw any curtailments in feedstock supply? Has that normalized out in Sadara? And was there any Q3 negative impact from that? And any residual impact we should expect in Q4?

Howard Ungerleider

Thanks Hassan great question. We saw limited a reduction in feedstock supply. We were down about 20% for less than two weeks. So that wasn’t the real drag on Sadara in the third quarter. The bigger drag was we had a industrial gas supplier that supplies into the complex that really had an outage that really costs us on the range of $25 million, $30 million on Sadara EBITDA. And I think that’s the bigger impact.

Sadara is running well right now. I don’t see any long-term issue from that. And really good cooperation and response from Aramco, real solid response.

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