Midland, Michigan – Dow is running its global polyurethane assets, including propylene oxide and MDI, at reduced rates in the coronavirus pandemic. '[This is because of] government-mandated shutdowns around the world,' said Jim Fittering, the company's CEO.
Fittering was speaking in a conference call with investors as the company reported financial results for the its first quarter of 2020.
Fitterling: don't plough product into inventory
He said polyurethanes are suffering because lockdowns had shut production in downstream industries such as automotive, furniture and bedding, appliances and construction.
He added: 'We are dialling back the capacity… we don't really feel like in this environment, ploughing a lot of material into inventory is the right thing to do.'
Polyurethanes & construction chemicals – part of the industrial and intermediates division – reported sales down in the first quarter of 2020. Prices fell because oil got cheaper over the quarter. Volumes fell everywhere but EMEAI, which was up slightly. Demand fell in furniture and bedding, automotive and appliance applications. Markets in the Asia Pacific region, particularly in China, had the biggest falls.
In the industrial intermediates & infrastructure business, net sales fell by 12.7% between Q1 2019 and Q1 2020, to $3bn. This compares with $3.5bn in the 2019 period. Operating EBIT in the division fell by 36.8% to $175m in the first quarter of 2020, down from $277m in the 2019 quarter.
Fittering set the scene when he said: 'We… experienced margin compression in our upstream polyurethanes and silicones chains on weaker industry fundamentals.'
Sales fell because prices and volumes fell in the quarter, but it was not all bad news. Volumes were up slightly in EMEA; however, everywhere else, coronavirus lockdowns stifled demand.
Taking the company as a whole, total net sales were $9.8 bn in the first quarter 2020, down 11.31% on the company's pro forma numbers for the same period last year. Operating EBIT across the business fell by 26.2% in the quarter to $843 m.
For the rest of 2020, Fittering said: '[Dow is] assuming a gradual and sustainable return of global economic activity and reopening of economies in May and June. We expect a recovery will begin to take hold as the year progresses.
'We are further reducing our capital expenditure target to $1.25 bn. [This is down by] $750m on 2019; trimming operating expenses by $350 m; and unlocking another $500m from working capital.'
However, Dow is still planning for new polyurethane businesses. Fittering said: 'Downstream, expansions in our industrial solutions are still continuing. Systems house[s] will come back as the automotive business and the insulation and construction business comes back.'
