Dow Chemical Co. said Thursday it will shut down three plants in Canada and Italy in an effort to cut costs.
Dow said it will take a charge of $550 million to $650 million in the third quarter, and said the move will eventually cut structural costs by about $160 million a year.
"One of the fundamental drivers of Dow's future success is the company's commitment to maintain a sharp focus on financial discipline and low cost to serve," said Andrew N. Liveris, Dow's chairman and chief executive officer. "Part of that commitment involves continually looking for ways to enhance our efficiency and our cost-effectiveness - through good times as well as bad - to ensure we remain competitive across every business and in every geographic region."
In Sarnia, Ontario, all production activity will end by the end of 2008, reflecting the outcome of individual assessments by each of the four businesses located at the Ontario facility. The assessments, which were triggered by the recent suspension of ethylene shipments through the Cochin Pipeline, highlighted a variety of issues related to the effectiveness, efficiency and long-term sustainability of the Sarnia-based assets, the company said.
As a result, the linear low density polyethylene plant will be shut down over the coming weeks, polystyrene production will stop before the end of this year, latex production from the UES facility will shut down by year-end 2008 and the polyols plant will also shut down by year-end 2008.
In Fort Saskatchewan, Dow will shut down its chlor-alkali and direct chlorination ethylene dichloride plants by the end of October 2006. This decision was driven by the substantial capital costs required to maintain long-term operations at the 27 year-old facilities.
In Porto Marghera, Italy, the company said it will not restart production of the toluene diisocyanate (TDI) facility, which was shut down for planned maintenance in early August. Fundamentals in the TDI business remain weak due to excess global production capacity.
Dow is also writing off obsolete technology assets and capital project spending that has been determined to be of no further value.
"During the past three years, the company has shut down more than 50 manufacturing facilities across the globe -- yielding a significant reduction in structural costs -- while continuing to invest in long-term growth," said Liveris. "And that focus on asset optimization will remain sharp, no matter where we are in the business cycle, ensuring that we maintain our competitive edge as we accelerate a strategy focused on dampening cyclicality and driving earnings growth."
Prudential analyst Steven Schuman expects the closures will tighten pricing for several key products, which should benefit other players in the industry. According to our estimates, Dow’s Fort Saskatchewan facility represents about 3.2 percent of total North American chlorine & caustic capacity.
