Dow swings to profit in Q4 on rebound in automotive, industrial sector demand

Houston — Global petrochemical giant Dow Chemical saw automotive and industrial demand rebound strongly in the fourth quarter of 2020, and expects that strength to continue in 2021 particularly as COVID-19 vaccinations become more widespread, CEO Jim Fitterling said Jan. 28.

"We're seeing the automotive sector come back" with both electric and internal combustion vehicles, he said during the company's Q4 2020 earnings call. Dow also saw strong demand for construction and appliances, furniture and bedding to fill newly built homes, all of which declined sharply in the second quarter of 2020 at the height of coronavirus pandemic-related shutdowns.

"I think we've got good demand ahead of us. Housing starts is a very, very solid sign, the highest we've seen since 2006," he said. "So that drives a lot of content for our products."

US housing starts for December reached 1.669 million units, the highest in 2020 and up 5.2% from 1.587 million units in December 2019, according to US Census Bureau data.

Fitterling said as economic and market fundamentals continued to improve in the fourth quarter, demand for plastics used for everything from cookie packaging and trash bags to more durable plastics used to manufacture vehicles and big-ticket home items rose.

Dow reported Q4 2020 net income of $1.24 billion, up from a $2.32 billion loss in the year-ago quarter. For the year, the company reported $1.23 billion in profits, up from a $1.36 billion loss in 2019.

"Resilient demand, tight market supply, low inventory levels and disciplined price volume management enabled strong polyethylene pricing momentum and margin expansion," Fitterling said.

Polyethylene prices recover

Polyethylene is used to manufacture the world's most-used plastics. US export prices have risen dramatically from April 2020 lows amid resilient demand and tight supply.

Weekly US export high density blowmolding PE prices were last assessed Jan. 27 at $1,290/mt FAS Houston, more than double the 2020 low of $607/mt FAS on April 29, S&P Global Platts data showed. Export linear low density PE prices also have more than doubled to $1,235/mt FAS on Jan. 27 from $574/mt FAS on April 29.

Prices for more specialty low density PE have risen 66.6% to $1,433/mt FAS on Jan. 27 from $860/mt FAS on April 29, Platts data showed.

In April, Dow shut down three PE plants –- two in the US, one in Argentina -– when prices had cratered amid the height of pandemic-related shutdowns. But as those eased from May through the rest of 2020, PE demand remained resilient, particularly that used to make single-use plastics. Demand for more durable plastics rebounded later in 2020.

US supply has been tight, however, from planned outages and unplanned outages when southeast Texas and Louisiana were hit by hurricanes in August and October.

Fitterling said Dow expected 2021 production outages to reach the same levels as in 2020, largely because of planned work that was postponed because of the pandemic, which should keep supply fairly tight.

"So you're going to have, on a planned basis, almost the same amount of capacity offline as we did last year, before you ever get into any unplanned events," he said. "And those things, to me, a pretty strong start to 2021."

Fitterling noted that while Dow's segments mostly reported gains in net sales, those for its consumer solutions business, which includes chemicals used to make cosmetics, reported a decline in the fourth quarter "as a result of paused social and workplace activities," siphoning demand for makeup.

He said that personal care demand was expected to rebound in 2021, "probably up 4%," as vaccinations become more widespread, allowing for the return of more normal economic activity.

"I think we're getting ahead of what will be some pent-up demand once we hit an inflection point on these vaccinations," he said. "Certainly, people are tired of being at home. They want to travel. They want to get back to life as normal, and that will open things up. And we're gearing up that we should see some of that in the second half of the year," he said.