Dow sees '$400 million headwind' in China sales from coronavirus: CFO

Dow Chemical expects a $400 million headwind in sales in China because of the coronavirus outbreak, CFO Howard Ungerleider said Tuesday.

The company has been running at a 20%-30% lower sales level in China, the first site of the increasingly global outbreak, Ungerleider said at the JP Morgan Industrials Conference. The "vast majority" of Dow's plants in China were running, though some remained at reduced rates amid demand and logistics limitations, he said.

Regarding the worst rout in oil prices in a decade, Ungerleider said if the current pricing scenario persists, it will likely affect several of Dow's petrochemical production chains and joint ventures.

Oil prices fell to the low $30 range after Saudi Arabia announced last weekend it would lower export crude pricing in response to Russia and OPEC failing to agree on production cuts.

JP Morgan had planned to hold its annual conference in New York with analysts on site as usual, but the company decided to revise it into a virtual conference with no in-person attendees amid concerns of coronavirus spread. Ungerleider participated in a "fireside chat" via phone on Tuesday, as did LyondellBasell CEO Bob Patel.

Supply, demand more relevant to petrochemicals than oil prices

Ungerleider said that while oil prices are a factor in petrochemical product prices, supply and demand are more important. He said Dow has seen peak margins when oil has been $30/b, and low margins with oil above $100/b.

"Oil will be a contributor to our revenue, so our revenue will go down. It's not necessarily the only factor that will impact our margins," he said. "It really comes down to demand, and what do you think of global GDP and even more importantly, what do you think about industrial production and then what do you think about inventory destocking or restocking."

Ungerleider also noted that new COVID-19 cases identified in China and South Korea appeared to be ramping down, and China was "in the process of getting back to more normalized demand levels."

LyondellBasell's Patel saw similar developments as the company's Asian businesses, "especially in China," were resuming normalcy.

Patel said LyondellBasell expected to see a more muted seasonal uptick in volumes because of the virus-related petrochemical shutdowns and slowdowns.

Patel also echoed Ungerleider's view that margin impacts will stem more from supply and demand and inventories over the next quarter or two more than oil prices.

However, Ungerleider noted that unknowns remain as companies weather the virus.

"As the virus has spread further and continued to upset supply chains around the world, we do expect some additional bottom line impact on top of that, which I would say are difficult to quantify at this time," he said.