The largest U.S. chemicals manufacturer, The Dow Chemical Company (DOW) and K2 Pure Solutions announced an agreement for K2 to build and operate a bleach plant at Dow’s Pittsburg, California site. The new plant will serve municipal water treatment markets in Northern California.
K2 will lease an additional facility to Dow, which K2 will operate to generate chlorine and caustic soda for use by Dow. Dow will use these materials to manufacture crop protection products at its Pittsburg site. K2 will fund construction of this facility on land leased from Dow. As part of the agreement, Dow will provide necessary raw materials and essential infrastructure for this leased facility.
The project will allow DOW to strengthen an essential, basic raw material supply, while sharing capital costs and improving its cost structure through further integration at the Pittsburg site. This is consistent with Dow’s asset-light strategy for fundamental feedstock investments that support the growth of downstream Performance businesses, such as agricultural chemicals.
The Pittsburg facility is in sync with Dow’s 2015 Sustainability Goals to strengthen relationships within the communities where it operates, improve its product stewardship, reduce its global footprint, and solve some of the world’s most pressing problems – including a more sustainable supply of food and fresh water.
This 20-year agreement will allow K2 to satisfy the growing demand for water treatment materials in Northern California for the long-term.
The entire project, including both facilities, will have an annual capacity of 460 million lb of chlor-alkali products, with initial bleach production expected in the fourth quarter of 2010. K2 will utilize inherently safe salt-to-bleach technology, an emerging, sustainable process that utilizes salt, water and electricity as the principle raw materials necessary to produce bleach and chlor-alkali products.
In addition, K2 will purchase hydrogen from Dow to use in its process for a number of applications including use as a clean fuel that avoids the emission of CO2, a greenhouse gas.
In July 2011, Dow released its second quarter 2011 financial results. The company earned 85 cents per share in the second quarter of 2011, ahead of the Zacks Consensus Estimate of 80 cents per share as well as last year’s 54 cents per share. However, including one-time charges, the company earned 84 cents per share compared with 50 cents per share in the year-ago quarter.
Quarterly revenues jumped 17% year over year to $16.0 billion and were above the Zacks Consensus Estimate of $14.7 billion, driven by double-digit gains in all operating segments and geographic areas.
Excluding the impact of divestitures, volume grew 9% with gains in all operating segments but Coatings and Infrastructure, which was flat despite difficult conditions in construction end-markets, and Chemicals and Energy. Volume increased in all geographic areas, led by Latin America (23%) and Asia Pacific (11%).
Excluding the impact of divestitures, price rose 19%, with double-digit increases in all geographic areas. All operating segments except Electronic and Specialty Materials (up 7%) and Health and Agricultural Sciences (up 5%) reported double-digit price gains. Price gains more than offset an increase of $1.5 billion in purchased feedstock and energy costs.
Sales in the emerging regions reached $4.9 billion, driven by Latin America, which increased more than 35% excluding the impact of divestitures. Volume in the emerging markets increased 14% excluding the impact of divestitures, with double-digit gains in Electronic and Specialty Materials, Health and Agricultural Sciences, and Plastics.
There was no financial guidance from Dow. However, Dow anticipates demand to improve further, especially in Asia with the global economic recovery. The US and European markets have also started showing signs of improvement. Dow is also optimistic on major consumer-markets, including electronics, coatings, automotive and packaging. However, construction markets are expected to remain weak.
Dow faces stiff competition from EI DuPont de Nemours & Co. (DD).
Currently, Dow has a short-term (1 to 3 months) Zacks #3 Rank (Hold) and a long- term Neutral recommendation.
