Dow to face $70m earnings headwind in Q2 from weak chlor-alkali markets – CEO

NEW YORK (ICIS)–Dow expects to face a $70m headwind to operating earnings before interest and tax (EBIT) in Q2 from weakness in its Chlor-Alkali & Vinyl (CAV) business, its CEO said on Tuesday.

“We have seen some pressure… there on lower demand,” said Dow CEO Jim Fitterling on the company’s Q1 earnings call.

Weak housing demand is dragging down demand for polyvinyl chloride (PVC), which is pressuring operating rates for chlorine, he pointed out.

Meanwhile, demand for caustic soda, a co-product of chlorine, is also down. Every ton of chlorine produced results in 1.1m tons of caustic soda.

“On the other side… we are seeing industrial uses putting some downward pressure on both demand and price in caustic soda,” said Fitterling.

“They are managing it well and making the adjustments they need to make… but that is probably the biggest difference in looking forward to Q2 [earnings],” he added.

Major industrial uses for caustic soda include aluminum, and pulp and paper production.

Dow’s Chlor-Alkali & Vinyl (CAV) business is part of its Industrial Intermediates & Infrastructure (II&I) segment, along with Polyurethanes and Construction Chemicals.

That II&I segment is expected to see flat to 2% sales growth in Q2 versus Q1 with earnings pressured by weakness in building and construction, and consumer durables.

The CAV business produces chlorine and caustic soda, as well as ethylene dichloride (EDC) and vinyl chloride monomer (VAM). Assets are predominantly in western Europe and Latin America, according to Dow’s latest 10-K filing with the US Securities and Exchange Commission (SEC).

Dow has major chlor-alkali capacity in Stade and Schkopau, Germany, as well as Aratu, Brazil, and in Al Jubail, Saudia Arabia, through its Sadara joint venture with Saudi Aramco (Dow 35%).

“Our exposure on caustic is really Europe and Latin America, so most of that $70m is on that. None of what was in that outlook guidance was related to our [chlorine] contracts with Olin,” said Fitterling.

“That is clearly driven by the market dynamics and market demand that is driving lower [caustic soda] prices and also lower operating rates in those regions. We will continue to keep an eye on that,” he added.

Focus article by Joseph Chang

Thumbnail shows lumber that is destined for the wood pulp industry, an important end market for caustic soda. Photo by Global Warming Images/Shutterstock