DOW Dow Inc

Dow Chemical Company (DOW) and Saudi state oil giant Aramco have approved a plan to build a chemical plant in the eastern Saudi port city of Jubail.

The joint venture called Sadara Chemical Company will lead to one of the world’s largest chemical facilities, producing more than 3 million metric tons of chemical products and plastics a year. Saudi Aramco and Dow announced their respective board authorizations for formation of the joint venture on July 25, 2011.

Construction on the project has already begun and first production units will come online in the second half of 2015, with all units expected to be up and running by 2016.

Sadara is expected to deliver annual revenues of around $10 billion within a few years of operation and generate thousands of direct and indirect employment opportunities through the complex and related investments in downstream projects.

Comprising 26 manufacturing units, building on Saudi Aramco’s project management and execution expertise, and utilizing many of Dow’s industry leading technologies, the complex will be one of the world’s largest integrated chemical facilities, and the largest-ever built in one single phase.

Sadara will capitalize on an advantaged cost position, the company said, to create a manufacturing hub providing a differentiated product slate.

That slate will include over 3 million metric tons of value-added performance plastics and chemical products such as polyurethanes (isocyanates, polyether polyols), propylene oxide, propylene glycol, elastomers, linear low-density polyethylene, low-density polyethylene, glycol ethers and amines to supply rapidly growing markets in energy, transportation, infrastructure and consumer products.

The joint venture is expected to generate thousands of direct and indirect employment opportunities by the end of 2011, Dow and Saudi Aramco plan to recruit Saudi nationals as the first group of technical trainees for competitive and unique manufacturing and engineering training programs. 

Sadara will have responsibility for product marketing within a local zone of eight countries. Dow will market and sell on behalf of Sadara to all countries outside the Middle East.

In July 2011, Dow released its second quarter 2011 financial results. The company earned 85 cents per share in the second quarter of 2011, ahead of the Zacks Consensus Estimate of 80 cents per share as well as last year's 54 cents per share.

However, including one-time charges, the company earned 84 cents per share compared with 50 cents per share in the year-ago quarter. Quarterly revenues jumped 17% year over year to $16.0 billion and were above the Zacks Consensus Estimate of $14.7 billion, driven by double-digit gains in all operating segments and geographic areas. Excluding the impact of divestitures, volume grew 9% with gains in all operating segments but Coatings and Infrastructure, which was flat owing to difficult conditions in construction end-markets, and Chemicals and Energy.

Volume increased in all geographic areas, led by Latin America (23%) and Asia Pacific (11%). Excluding the impact of divestitures, price rose 19%, with double-digit increases in all geographic areas.

All operating segments except Electronic and Specialty Materials (up 7%) and Health and Agricultural Sciences (up 5%) reported double-digit price gains. Price gains have more than offset an increase of $1.5 billion in purchased feedstock and energy costs.

Sales in the emerging regions reached $4.9 billion, driven by Latin America, which increased more than 35% excluding the impact of divestitures. Volume in the emerging markets increased 14% excluding the impact of divestitures, with double-digit gains in Electronic and Specialty Materials, Health and Agricultural Sciences, and Plastics.

There was no financial guidance from Dow. However, Dow anticipates demand to improve further, especially in Asia with the global economic recovery. The US and European markets have also started showing signs of improvement. Dow is also optimistic on major consumer markets, including electronics, coatings, automotive and packaging. However, construction markets are expected to remain weak.

Dow faces stiff competition from EI DuPont de Nemours & Co. (DD).

Currently, Dow has a short-term (1 to 3 months) Zacks #4 Rank (Sell) and a long- term Neutral recommendation.

 
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