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Pandemic accelerates streamlining of new Dow

July 30/2020

MOSCOW (MRC) -- Dow's restructuring plans were prompted by the difficult market conditions created by the COVID-19 pandemic, but they align with the company's long-term focus on streamlining operations and maximizing efficiency, reported Chemweek with reference to comments by executives during the company's earnings call on 23 July.

Dow intends to shed uncompetitive assets, lay off about 2,000 employees, and hold off on new capital projects.

"I don't expect us moving CapEx up until we get back to pre-COVID[-19]-type volume levels and margin levels," CEO Jim Fitterling said during the company's second-quarter earnings call. "And so that would mean probably a couple of years before you see us ramp back up into that kind of space."

Dow announced the restructuring and other cost-cutting measures along with its quarterly earnings, citing the prospect of a gradual and uneven recovery. "(We) will upsize our 2020 operating expense reduction target from USD350 million to USD500 million through additional structural cost interventions," Fitterling said in the earnings release. "We will also initiate a restructuring program during the quarter, targeting more than USD300 million in annualized EBITDA benefit by the end of 2021. This program includes a 6% reduction in Dows global workforce as well as actions to exit uncompetitive assets.

The workforce reduction will cost about 2,000 jobs, president and CFO Howard Ungerleider told CW. The layoffs will be spread fairly evenly across businesses and geographies, he said, but they will be tilted toward assets and sites serving markets most challenged by the COVID-19 shutdowns and the recovery outlook.

"Automotive and construction have been hit pretty hard," Fitterling said during the call. "We're seeing people go back to construction sites, but on existing projects, and we're watching closely to see how new construction projects get permitted. And a fair amount of product that we sell goes into products that help support the construction market. On the consumer side, those demands and volumes look much better."

The asset shutdowns will be consistent with the direction Dow has taken since spinning out of DowDuPont in April 2019.

"[W]e had done some work here to take a look at the footprint of the company and where we wanted to be in a decade," said Fitterling. "And with this pandemic, I think it challenged us to take a look at which of these assets are struggling right now and may, for the long term, struggle to be competitive in any scenario, and that's what we're focusing in on. So it isn't a wholesale business unit - it's one-off assets here and there that are at the wrong end of the cost curve."

Ungerleider estimated that the shutdowns would result in a total charge in the range of USD700 million to USD1.3 billion, about USD300 million related to severance and the remainder related to asset actions or contract termination fees, most of it paid in 2021-22.

The sale of Dow's North American rail assets to Watco, announced on 6 July, and plans to divest other non-producing assets are unrelated to the COVID-19 pandemic, Ungerleider told CW. "As we thought about the new Dow and as we spun out of DowDuPont, we really felt strongly about having the best-owner mindset in everything we do, whether it's benchmarking our cost-structure or looking at all of our businesses and asking ourselves, are we the right owner? We've got a chunk of assets that are not product-producing that have built up over time."

Watco paid USD310 million for the assets. "It's a 14-times multiple on EBITDA, so it really does release capital, and Watco is definitely the better owner," said Ungerleider. "We can take that money and reinvest it in product-producing assets or training for our people or new innovations for our customers. And so there will be more to come in that space."

As MRC wrote before, US-based materials science specialist Dow and Malaysia-based plastic stretch cling film producer Thong Guan has introduced a new range of bio-based polyethylene (bio-PE) cling film for Asia Pacific region. According to Dow, this marks a milestone in the regions commercialisation of a plastics offering made from renewable feedstock, enabling industry providers to produce high-performance plastics while reducing carbon footprint.

According to MRC's DataScope report, PE imports to Russia dropped in January-June 2020 by 7% year on year to 328,000 tonnes. High density polyethylene (HDPE) accounted for the main decrease in imports.

The Dow Chemical Company is an American multinational chemical corporation headquartered in Midland, Michigan, United States. Dow is a large producer of plastics, including polystyrene (PS), polyurethane, polyethylene, polypropylene, and synthetic rubber.
Author:Margaret Volkova
Tags:PE, HDPE, petrochemistry, packaging, film, Dow, Russia, USA.
Category:General News
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