Dow presents rosy view of the future

While poor market conditions are getting many chemical industry managers down, the mood is upbeat at Dow. At a May 16 investor event, executives said they think the firm should be able to improve pre-tax earnings by more than $3 billion per year by the end of the decade. Many of the gains will come from its large low-carbon petrochemical project in Canada and through plastics recycling initiatives.

“It’s been 5 years since we spun out of DowDuPont. And I think if I could summarize the last 5 years, I feel like we’ve created a strong company with excellent operating discipline,” CEO Jim Fitterling told reporters before the event.

The company reported earnings before taxes of $5.4 billion in 2023.

The chemical industry is grappling with overcapacity after a frenzy of new plant construction in the US and Asia met with sluggish demand. Europe, which is among the highest-cost regions in which to make petrochemicals, has been hit particularly hard. Major players such as ExxonMobil and Sabic plan to close facilities in the region. And Dow competitor LyondellBasell Industries recently launched a review of its European operations.

But Fitterling is optimistic, noting that he saw positive momentum beginning in the fourth quarter of 2023. “Not all markets are turning positive at the same time, but it feels like things are starting to turn up,” he said.

In Europe, Fitterling said, operating rates are improving, energy costs are coming down, and Dow was able to turn a profit in the first quarter of this year. He credited the company’s low costs compared to competitors in the region. The firm plans to enhance this advantage by upgrading its cracker in Terneuzen, the Netherlands, to process more liquefied petroleum gas, a cheaper raw material than the naphtha prevalent in the region.

Fitterling did acknowledge that regional demand is a risk to his company in Europe, particularly if costs weigh on automotive and other industrial customers. “If the demand moves away to some other low-cost region, then I think we have to continue to take a look at that footprint,” he said.

Some $800 million of the additional earnings Dow anticipates by 2030 will come from projects it has already completed, such as expansions of its alkoxylates and specialty amines capacity in the US and Europe. Dow expects to reap another $1.2 billion from near-term investments, including the restart of an ethylene oxide plant in Plaquemine, Louisiana, and new alkoxylation capacity in Terneuzen and Seadrift, Texas.

UBS stock analyst Joshua Spector says a lot of Dow’s potential upside lies outside of its control. “We believe Dow is making many of the right investments but remain less certain on the timing of the turn in the cycle for a number of Dow’s product markets,” he wrote in a note to clients after the presentation. In its core polyethylene business, Spector wrote, Dow needs stronger demand recovery, higher oil prices, and more plant closures across the industry if it is to see a big increase in profits over the next 12 to 18 months.

Much of Dow’s additional earnings will come from low-carbon and recycled plastics, according to the company’s presentation. Notably, Dow expects $1 billion in new earnings from its $6.5 billion Path2Zero project in Fort Saskatchewan, Alberta.

The furnaces for the ethylene cracker complex it is building there will be fueled by hydrogen produced from cracker off-gases in an autothermal reformer. The carbon dioxide emissions from this process will be captured and stored underground. As it completes the new cracker, the company will install the carbon capture system on its existing facilities in Fort Saskatchewan.

In all, the project will yield 2 million metric tons (t) per year of low-carbon polyethylene. Not included in the $1 billion of projected new earnings is the premium this polyethylene could command in the marketplace as customers look to reduce their own carbon footprints.

Dow expects sales of packaging materials made from recycled resins to yield another $500 million in new earnings. The company aims to sell 3 million t per year of recycled and renewable resins by 2030.

To this end, Dow unveiled several initiatives at the investor event. The company announced that it would procure 65,000 t per year of pyrolysis oil from a plastics recycling plant that Freepoint Eco-Systems is planning for Eloy, Arizona. That plant, expected to be completed in 2026, will process 90,000 t of postconsumer plastics per year.

Dow also intends to form a partnership with SCG Chemicals to develop mechanical and chemical recycling facilities in Thailand. The partners aim to process 200,000 t per year of waste plastic by 2030.

Deutsche Bank analyst David Begleiter thinks Dow’s sustainable investment strategy is ahead of its competitors. “The company is well positioned for the market’s shift to low emissions and circular solutions,” he wrote to clients. “This is akin to, in the words of hockey legend Wayne Gretzky, skating to where the puck is going to be, not where it has been.”