MOSCOW (MRC) -- Dow Chemical, the largest US chemical maker by sales, said this year’s plunging oil prices will stimulate national economies and help rather than hurt its plastics business next year, reported Hydrocarbonprocessing.
Lower oil prices should help increase gross domestic product in the US, the UK, Japan and China, Howard Ungerleider, chief financial officer of Midland, Michigan-based Dow, said on a conference call with analysts. The positive effect will become more visible through 2015, he said.
"Low oil price means more demand in the GDP," CEO Andrew Liveris said on the call.
Brent crude, the benchmark for global oil trading, has plunged more than 20% from its June high to about USD86/bbl, meeting a common definition of a bear market. Oil prices should rebound to more than USD100/bbl next year as economies strengthen, Liveris said.
While lower oil prices probably are an indication of weak economic growth, Liveris’ bullish comments on the decline and Dow’s third-quarter results are "calming" for investors, said John Roberts, a New York-based analyst at UBS Securities.
The oil drop narrows margins for ethane-based plastics and could erode sales volumes in the fourth quarter as customers cut inventories at year-end, Liveris said. Still, US ethane remains among the cheapest feedstocks in the world even with oil at USD80, Ungerleider said. Cheaper oil also boosts profitability at Dow’s plastics operations in Europe, he said.
As cheaper oil helps global economies expand, plastics- industry ethylene plants will run, on average, at 91% of capacity by early 2016, up from 90% at the end of this year and 88% at the start of the year, Ungerleider said. That will give Dow the ability to keep raising prices, he said.
Global economic growth is expected to rise to 3.4% or more next year, up from 2.8% this year, the CFO said.
As MRC wrote before, Hanwha Chemical, one of South Korea's leading polyethylene and polyvinyl chloride producers, has picked Credit Suisse to advise on possible purchases from Dow Chemical's chloro-alkali business but its interest is still in the early stages. The spokesman for Hanwha said no details had been decided.
The Dow Chemical Company is an American multinational chemical corporation. As of 2007, it is the second-largest chemical manufacturer in the world by revenue (after BASF) and as of February 2009, the third-largest chemical company in the world by market capitalization (after BASF and DuPont). Dow is a large producer of plastics, including polystyrene, polyurethane, polyethylene, polypropylene, and synthetic rubber.
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