Dow Chemical idles polyethylene plant in Argentina

Sao Paulo — Dow Chemical plans to temporarily idling a polyethylene plant in its Bahia Blanca complex in the Buenos Aires area in Argentina, it said Thursday.

To balance production to current demand, Dow said it is idling three PE and two elastomers production units in the Americas for at least 30 days. The company did not say when the plants would be idled.

"The plants have an aggregate annualized capacity of approximately 2 million lb and are located on the US Gulf Coast and in Argentina," CEO Jim Fitterling said during the company's first-quarter 2020 earnings call Thursday.

Dow idles three polyethylene plants in US to slow inventory builds

The idled plants comprise two PE trains in Texas, a PE unit in Argentina and two elastomers units in Louisiana — about 10% of the company's global capacity for packaging and specialty plastics.

According to sources and S&P Global Platts data, the Dow Chemical Bahia Blanca complex has two crackers - cracker 1 with installed capacity of 275,000 mt/year, and cracker 2 with installed capacity of 455,000 mt/year. The complex has six productive plants: two for ethylene and four focused on PE — high density PE, low density PE, linear low density PE and expanded PE).

It is unknown which of the plants is going to be idled in Argentina. The company also does not disclose specific ethylene and PE production data. When contacted for comment, the company said the plant that will be idled for at least 30 days in Argentina will a gas phase PE plant, but provided no more details.

Dow does not expect to lose any market share as a result of the stoppages, Fitterling said during the call. "I think what we're trying to do here is just make sure that we don't plow a lot of material in inventory until we see a good demand signal coming on the back end," he said.

MANAGING BOTTLENECKS

Fitterling said Dow is taking action to idle these facilities or reduce operating rates in line with demand trends in the US, Europe and Latin America.

"We're working with our customers to get orders placed with enough lead time so that we can make the best asset decisions across our network and manage bottlenecks in the supply chain to deliver product where it's needed," he said.

Dow said its PE business has strong participation in durable goods segments such as the automotive, furniture and bedding, appliance and construction sectors, all of which have been battered by the lockdowns imposed across the globe.

"We are taking these actions with a thoughtful approach that will allow us to quickly respond as demand improves when economies around the world reopen," Fitterling said. Once confidence builds again, Dow said, the PE units would restart and meet the incoming demand.

Chief Financial Officer Howard Ungerleider expects robust consumer-driven demand for food, health and hygiene and packaging applications, while seeing a downtrend in automotive and infrastructure applications.

When it comes to pricing volatility for packaging and specialty plastics, Fitterling said he expects to see less volatility in Latin America than globally, and expects the industrial side in the region to see an upturn by May and June.

The company's net sales in Latin America in Q1 fell 8.5% year on year to $964 million. The pro forma net sales variance in Latin America was a decrease of 9% year on year in Q1, based on a 13% fall in local prices and product mix and a 4% increase in volume, with the exchange rate being flat.

MARKET REACTION

Some Argentinian distributors contacted Thursday said it was the first time they were hearing about the situation, but would contact Dow as soon as possible to learn more.

"They have announced idling some plants, but didn't say specifically which one in Argentina, so we don't know yet the impact in the market," one distributor said.

Another distributor said if there was a shortage of any products in the market, Braskem or extra-zone material would supply it. "There's too many offers from everywhere at low prices," the source said.

A third market participant said "obviously there is not as much market demand and there is product left over. This is happening to all plastic producers."