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Dow sees durable plastics consumer demand softening on inflation: CFO


European operations could be curtailed on tighter gas availability

US single-family home construction retreating

Dow Chemical expects inflation to keep affecting global consumer demand for durable products while industrial activity and infrastructure spending are seen staying resilient, CFR Howard Ungerleider said July 21.

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"We continue to closely monitor the evolving economic landscape, including inflation, interest rates, ongoing supply chain challenges and geopolitical risks," Ungerleider said during the company's second-quarter 2022 earnings call.

Durables include big-ticket items like furniture, bedding, consumer electronics and appliances, he said. Upstream petrochemicals used to make those items include polyethylene terephthalate for polyester fiber, polypropylene for plastic linings in appliances as well as solvents and glue.

Housing construction also uses a lot of durables, like polyvinyl chloride used to make pipes, window frames and vinyl siding, and appliances. CEO Jim Fitterling said commercial and multi-unit construction "tends to be strong," though single family homes and home resales were slowing amid rising mortgage interest rates.

June US housing starts fell 2% from May and 6.3% from the year-ago month, while single family housing starts in June fell 8.1% from may and were down 15.7% from June 2021, according to data released July 19 by the US Census Bureau.

"Commercial construction still looks good and then we keep an eye on single family home unit builds here in the US," Fitterling said.

Such big-ticket items were being put on hold as consumers pay higher food and energy prices, he said.

However, Fitterling said travel has not slowed, as Dow sees robust travel-related services and tourism, which leads to healthy plastic food and consumable packaging demand.

European operations could be curtailed

Fitterling said integrated ethylene margins in the US were seen softening by a penny in Q3 from Q2, but European margins could "come off a few cents" given higher energy costs.

As Europe enters winter, he said, "you have to be thinking that the government could move into some curtailments," though Dow's operations in Spain and the Netherlands have flexibility for liquefied petroleum gas cracking rather than more costly naphtha.

"We're looking at it from a standpoint of maintaining the business in Europe and trying to keep everything running in the event of a curtailment that would mean we'd have to slow something down," Fitterling said. "We'd obviously look to bring in import materials from one of our other low-cost facilities."

However, he said Germany was "the place that we have to keep an eye on."

Dow had already significantly reduced its natural gas use in Poland, "which is really the biggest exposure," he said.

The European Union has proposed reducing gas consumption by 15% through early 2023 in case Russia cuts off gas supply in response to sanctions imposed after its February invasion of Ukraine.

In April, Dow acquired a minority stake in a consortium that will build and operate an LNG import terminal at its industrial park in Stade, Germany. The project will provide nearly 25% of US annual commitment to increase LNG supplies to Europe.

"What we really want to try to do is help Europe get some additional sources of gas supply in there, which is why we're doing what we're doing at Stade because we think that's necessary for them for the long term," Fitterling said July 21.