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Dow expects supply chain clogs to last into 2022: CEO

Highlights

Company's order backlog 30% higher than normal

Plastics demand strength seen continuing

Dow Chemical expects supply chain clogs that have slowed chemical and resin exports to last into Q1 2022 amid continued high demand for plastics across various industries, CEO Jim Fitterling said Oct. 21.

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Dow's order backlog is about 30% higher than normal amid supply chain bottlenecks that decreased its inventory-to-sales ratio by about 10% in Q3 2021, Fitterling said during the company's quarterly earnings call.

Said supply and logistics bottlenecks exist "everywhere," particularly marine pack cargoes for export and product that moves by truck, he added.

"It's a little hand-to-hand combat right now," Fitterling said. "If a truck driver doesn't show up, the shipment gets delayed. I think we're going to be in that situation for the rest of the year and into the first quarter."

Dow reported net income of $1.68 billion for the quarter, up from a $25 million loss in the year-ago quarter. The sharp upswing stemmed from net sales up 53% from Q3 2020 and higher prices amid robust demand despite supply and logistics constraints.

Fitterling said price gains lifted sales of industrial and consumer packaging as well as flexible food and beverage packaging, though volumes were lower compared to Q3 2020 because of lower polyethylene supply amid turnarounds and weather-related outages.

Hurricane Ida's Aug. 29 assault on Louisiana affected Dow's complexes in Taft and Plaquemine along the Mississippi River, forcing the company to shut down a cumulative 2.5 million mt/year of ethylene capacity and a total of 3.37 million mt/year of polyethylene capacity.

The Plaquemine complex resumed operations first, but the Taft complex was shut until later in September.

CFO Howard Ungerleider said continued industrial activity recovery was expected to continue through Q4 as production ramps up from low inventory levels to meet demand. He said demand for electronics, mobility, building and construction "continues to outpace supply," and higher energy costs along the US Gulf Coast and especially in Europe were expected to cost an additional $100 million in Q4.

Ungerleider said Dow expects supply chain disruptions to persist, prolonging ability to restock inventories.

Dow further expects those lingering global issues to create tighter-than-forecasted market conditions, exacerbated by the Chinese government's crackdown on energy consumption that has prompted many petrochemical producers to shut down plants or cut rates.

"We expect robust economic growth to continue," Ungerleider said. "With the Delta variant slowing the reopening of economies around the world, there remains significant pent-up demand globally, particularly across our industrial and consumer end markets."