Dow Chemical expects its facilities to be in "strong operating rate territory" for the rest of 2021, but increasing demand amid economic recovery from the coronavirus pandemic will keep supply tight, CEO Jim Fitterling said April 22.
"I don't think we'll be building inventory until maybe possibly the end of the fourth quarter, and that all depends on whether we have a slow fourth quarter or not," he said during the company's Q1 2021 earnings call.
"There's upside in automotive, there's upside in travel, there's upside in construction and home, there's backlog in appliances and long lead times," Fitterling said. "Everything is pointing to the direction of high operating rates."
All of Dow's units that shut down in mid-February when sustained subfreezing temperatures hit the US Gulf Coast were back online and reached pre-storm operating rates by the end of March, he said.
Fitterling also said Dow's sales were up 22% year over year, with gains in all operating segments in every region. Volumes were in in line with year-ago levels as gains in construction, mobility, electronics and consumer durables, such as vehicles and appliances, were offset by supply constraints from the freeze.
Dow's net income for the quarter more than quadrupled to $991 million from $239 million in Q1 2020, the company said, benefiting from product prices up 19% from the year-ago period.
Fitterling said resilient demand for polyethylene amid tight supply and inventories at five-year lows enabled profit momentum, particularly for industrial and consumer packaging, and flexible food and beverage packaging.
Polyethylene is used to make the world's most-used plastics, from milk jugs and grocery bags to shampoo bottles and cookie packaging.
CFR Howard Ungerleider said entering the second quarter, market demand "remains robust" for packaging, electronics, mobility and architectural coatings, such as paint, as well as "consumer durable end markets," which include vehicles and appliances.
And as travel, workplace and social interaction resumes amid widespread COVID-19 vaccinations, Dow expects higher demand for higher-margin personal care products, such as cosmetics, as well as global service sectors, Ungerleider said.
Fitterling said the company sees momentum in job growth, consumer spending, a return to air travel and expanding manufacturing and industrial activity for global manufacturing purchasing manufacturing indexes at 15-year highs in March. He said those trends, in addition accelerating vaccine rollouts and the Biden Administration's US infrastructure plan, if passed, "will further support growth in our downstream markets."
However, supply squeezes resulting from the freeze as well as turnarounds will linger, Fitterling said.
"We expect the constrained industry inventory levels to continue in the second quarter, preventing inventory builds until later this year as we focus on clearing the growing backlog of customer orders," he said.
New advanced recycling partnership
Also April 22, Dow announced a partnership with London-based Mura Technology to support scaling of Mura's new recycling process that converts plastic waste back to chemical feedstocks used to make new plastics.
Dow said Mura's process can recycle all forms of plastics, including multi-layer, flexible material used in packaging, which are currently difficult to recycle and typically burned or sent to landfills. Dow also said Mura's process has no anticipated limit to the number of times the same material can be recycled.
The world's first plant using Mura's technology is in development in Teeside, the UK, with the first 20,000 mt/year production line expected to start up in 2022. Once all four lines are operational, Mura will be able to recycle up to 80,000 mt/year of plastic waste, providing Dow with its output.
Fitterling said most recycling investments to date have focused on mechanical recycling, which involves collecting, washing and melting plastics and turning them into new plastics. Chemical recycling involves transforming used plastics back to chemical feedstocks.
Fitterling said mechanical recycling costs less than chemical recycling, but it has limits on what kinds of plastics can be recycled. Flexible packaging and other types need advanced recycling, he said.
"What we're doing today is piloting different technologies, trying to prove out business models that work," Fitterling said. "Once we see what works and we can replicate it, we'll come back and talk more about what the investment looks like."
