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Dow's operating rates approach Q1 2020 levels amid uneven recovery: CEO

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Dow's operating rates approach Q1 2020 levels amid uneven recovery: CEO

Highlights

Dow narrows Q3 net loss to $1 million from $225 million in Q2

Sales fall on lower energy prices; polyethylene demand strong

Houston — Dow Chemical's operating rates "are approaching first-quarter levels" amid an improving, albeit uneven, economic recovery, CEO Jim Fitterling said Oct. 22.

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"As a result of rising demand, we increased operating rates by approximately 20% over the second quarter," he said during the company's Q3 earnings call.

The company posted a net loss of $1 million for the quarter, down from a profit of $347 million profit in the year-ago period. In Q2, which included the height of global shutdowns and economic shocks related to the coronavirus pandemic, Dow posted a $225 million net loss.

Dow's overall net sales declined 10% from the year prior, driven primarily by lower global energy prices, Fitterling said. Packaging volumes rose 1% from the year before, illustrating resilience in demand for polyethylene, a key feedstock for single-use packaging such as grocery bags, milk jugs, shampoo bottles, and buckets.

Polyurethanes and construction chemicals, however, showed a year-on-year decline, despite rebounds in demand for more durable plastics used in furniture bedding, appliances, vehicles, and construction.

CFO Howard Ungerleider said during the first half of 2020, Dow reduced output to match lower demand during the height of worldwide coronavirus-related shutdowns. He added that the pace of recovery during Q3, particularly in durable goods industries such as automotive and construction, progressed faster than expected, prompting a 20% jump in operating rates.

Ungerleider said further that purchasing managers indexes in China, Europe, and the US, which track whether economies expand, stay the same, or contract, have increased, and the US housing market is up 20% year on year.

"The underlying demand trends, combined with continued low inventories, are leading to tight market conditions, which presents [an] additional opportunity for our portfolio to ramp up our operating rates higher," he said.

Polyethylene demand expected to remain strong

Fitterling said he expected polyethylene demand to remain strong, with prices up 12 cents/lb in the quarter. "I would say we'll hold on to that and maybe tick up slightly on average" for Q4, he said.

He said that while volume growth reached double digits, driven by consumer plastics, appliances, construction, and the automotive sectors, it still lingered below 2019 levels. Supply chains to get products built and moved to consumers remain tight in some areas, causing backlogs on the way to catching up with demand.

He said China, in almost all markets, had returned to pre-coronavirus levels and could begin showing overall growth.

"I would say some markets in the rest of the world, like appliances, like packaging, are at pre-COVID levels, but not all," Fitterling said. "In automotive, it's still shallow to pre-COVID levels and probably will be for a couple of years."

Given low inventory levels, which have helped boost resin pricing, Fitterling said he expects producers to get back to "target levels of supply" to help relieve supply-chain backlogs.

"I think people would like to get back to normal inventory levels," he said. "I'm not sure I would call it restocking or stocking up — just get back to a more resilient supply chain."