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Dow sees continued chemical demand growth: CFO

Highlights

Inventory levels remain low on robust demand

Dow again considering adding 600,000 mt/year of new PE capacity

Dow Chemical saw packaging, construction materials and coatings, industrial and electronics markets surge in the second quarter amid strong demand and higher chemical and resin pricing, CFO Howard Ungerleider said July 22.

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"Strong consumer trends continue in retail, housing, and the manufacturing sectors and inventory levels remain low across most of our value chains," Ungerleider said during the company's Q2 earnings call. "We expect these dynamics to continue to support price strength in [Q3] as the industry works to fulfill pent-up demand."

The company reported $1.9 billion in profits, up from a $225 million loss in Q2 2020, when demand cratered for many products amid the height of coronavirus pandemic-related shutdowns in many global regions.

While some coronavirus restrictions remain or have resurfaced amid the spread of the delta variant, demand has largely roared back for single-use and durable plastics, polyurethane foam, electronics, and industrial uses as vaccinations and economic activity increase.

At the same time, downstream converter and brand owner inventories "remain at all-time lows, with balances very tight," Ungerleider said, on continued fallout of the deep freeze that hit the US Gulf Coast and much of the US in mid-February, forcing weeks-long shutdowns of petrochemical plants.

"Around the world, increasingly positive trends indicate we remain in the early stages of economic recovery with an extended runway for growth," he said.

While industrial production is up nearly 20% over the year-ago low, it has not reached pre-pandemic levels, Ungerleider said. He also noted that retail inventory to sales was at its lowest levels in more than 30 years, and strong demand continued to counter near-term restocking efforts.

US housing starts also show continued growth amid a limited supply of single-family homes after a decade of underbuilding, he said.

And the slow-to-improve personal care market showed a rebound in Q2, with higher sales of cosmetics and beauty products as consumers return to offices, he noted.

"We anticipate the strong demand we experienced in [Q2] across our polyethylene, polyurethane, acrylic, and silicone chains to extend through the second half of 2021," Ungerleider said.

US domestic, export PE prices rise sharply since June 2020

US domestic polyethylene prices have risen up to 57 cents/lb ($1,256/mt) since June 2020 as demand climbed as coronavirus shutdowns eased, S&P Global Platts data showed. Demand kept climbing as two hurricanes in 2020, the February 2021 deep freeze, operational issues, and turnarounds kept supply tight and inventories low.

PE is used to make the world's most-used plastics, from milk jugs and grocery bags to buckets and cookie packaging.

Export PE prices also have surpassed those in other regions. High-density blowmolding PE prices have surged to $1,797/mt FAS Houston July 21 from $706/mt FAS June 3, 2020, Platts data showed.

An analyst noted during Dow's earnings call that US pricing was twice that in Asia.

"Sales and inventory in North America went down, and I think what you saw was ourselves and most producers actually exported less into China," Fitterling said.

He noted, however, that while arbitrage was closed, most producers in China were running at cash-flow breakeven, indicating that global demand continues to be strong.

More turnarounds in Q3 2021 will further hinder restocking efforts, Fitterling said, amid "quite a demand for polyethylene" amid US GDP growth expected to reach 6% in 2021 and up to 5% in 2022.

Amid that projected growth, Dow has resurrected a plan to add 600,000 mt/year of new polyethylene capacity on the US Gulf Coast that was shelved in 2020 amid coronavirus shutdowns, Fitterling said.

"We're dusting that off right now, and we're going to make a decision on that sometime this year," he said. "We are continuing to look at expanding in the plastics portfolio downstream."