Stimulus Could Boost Ailing Chemical Industry

Chemical makers stand to get a much-needed boost as an indirect recipient of the billions in government money promised in the stimulus package signed by President Obama.

By Ernest Scheyder AP Energy Writer

NEW YORK (AP) — Chemical makers stand to get a much-needed boost as an indirect recipient of the billions in government money promised in the stimulus package signed by President Obama last week.

The ailing industry was hammered in 2008, first by sky-high energy prices and then by plummeting consumer spending. Of the $787 billion in the stimulus bill, at least one-tenth is allocated to projects that could benefit chemical companies.

The package provides incentives for weatherizing homes and using alternative energy. It also allocates billions for infrastructure projects.

Chemical companies make items like insulation for home attics, films for solar cells and coatings on bridges. Some of their products create or conserve power, placing the industry at the nexus of an intensifying national conversation on energy usage.

Their products are also found in cars and appliances, products that shoppers shunned at the end of 2008. That drop-off in consumer spending led to plant closures and thousands of layoffs.

Since Sept. 1, 2008, just before the recession intensified with Lehman Brothers' bankruptcy, shares of Dow Chemical Co. have dropped 77 percent and shares of DuPont have slid 56 percent.

Congress set aside $37.4 billion for construction and infrastructure spending in the 407-page stimulus bill.

The American Chemistry Council, an industry trade group, estimates that for every $1,000 spent on nonresidential construction projects, like roads or bridges, about $160 to $230 makes its way to the chemical industry. That number would rise when home construction is included.

"For an industry that is facing some significant economic challenges, this will contribute to some increased demand for our products," said Cal Dooley, the council's president and chief executive.

DuPont expects its popular Kevlar product — normally associated with flak jackets — to be used extensively in bridge and road reinforcements.

"People talk about having 'shovel-ready' projects," said DuPont spokesman Anthony Farina. "We're ready to roll."

German-based BASF, the world's largest chemical maker, could see higher sales at its construction chemical business, which makes additives for concrete and other highway materials.

"As demand in (construction markets) picks up, chemical companies benefit indirectly," Gabelli & Co. analyst Rob Felice said.

About $11.3 billion has been set aside for home weatherization grants and energy-efficient upgrades to federal facilities. There's also a 30 percent tax credit for upgrading a home's energy efficiency.

That's good news for companies that make home wrap and other insulating projects. The wrap is placed underneath siding and protects against water vapor and wind.

Dow expects the recent slide in sales of its weatherization products because of the housing meltdown to either level off or reverse course in 2009 as more government regulations require products that cut energy usage, boost efficiency and limit greenhouse gases.

Another $30 billion will go to modernizing the nation's electrical grid, researching battery technology and other energy-efficiency programs.

DuPont expects a boost for its solar business. The Wilmington, Del.-based company says it makes eight essential components for the panels.

Midland, Mich.-based Dow makes turbines for wind mills and is developing roofing shingles that contain solar cells.

The stimulus package could help reduce demand for natural gas, one of the industry's primary feedstocks, said Peter Molinaro, vice president of federal and state government affairs at Dow.

For now, the timing on some of these projects remains uncertain and a few projects could potentially be shelved for years.

The question also remains: just how will the money trickle down for the projects sought by Congress and President Obama?

"At this stage we know what the direction is of the bill, but we haven't gotten the translation yet," said Torsten Kraef, vice president of Dow Building Solutions.