The largest U.S. chemicals manufacturer, The Dow Chemical Company (DOW) and Mitsui & Co., Ltd., of Japan have formed a Brazilian joint venture that will use local sugarcane to produce ethanol and plastics.
The plastics resulting from the processing of Brazilian sugarcane will be used in the packaging, hygiene and medical industries. That would accelerate Dow’s plans to make a wide variety of chemical products and plastics from renewable fuels like ethanol.
The company currently makes such products from fossil fuels like refined oil, which is getting increasingly expensive. Brazil is one of the biggest and cheapest sources of ethanol because of its large sugar crop and Dow has operated in Brazil for more than 50 years.
The joint venture will initially make sugar cane-derived ethanol for use as a fuel. The company will complete a fully integrated plant that produces ethanol and bioplymer products, such as packaging for medical supplies.
Japanese trading firm Mitsui will buy a 50% stake in Dow’s Brazilian sugar cane operations. According to industry sources Mitsui will make an initial investment of $200 million.
The companies plan to start building the project by the third quarter of this year. The first phase of the project includes the construction of a new sugarcane-to-ethanol production facility in Santa Vitoria.
Mitsui expects the joint venture to further enhance the development of important opportunities in securing sugar cane based resources for Mitsui’s green chemical business. Furthermore, Mitsui envisages developing a biomass-derived chemicals and biopolymers business through alliances with potential partners such as Dow with advanced technologies to utilize sugar cane based resources to create further value.
This investment also illustrates Dow’s commitment to invest for growth in high-value, innovation-rich sectors through strategic partnerships. The project aligns with Dow’s goal of developing low carbon solutions to meet the world’s pressing energy and climate change challenges.
Dow supplies high-performance materials, agricultural products, plastics (polyethylene and polypropylene) and industrial chemicals to industries and consumers globally. The company’s products have a vast array of applications, which are used by various industries including farming, construction, transportation, electronics and consumer goods.
In April 2011, Dow reported its first quarter of 2011 results. The company earned $0.82 per share in the first quarter of 2011, ahead of the Zacks Consensus Estimate of $0.67 per share as well as last year’s $0.43 per share. However, including one-time charges, the company earned $0.54 per share compared with $0.41 per share in the year-ago quarter.
Quarterly revenues jumped 20% year over year to $14.7 billion and were above the Zacks Consensus Estimate of $13.8 billion. Volume and pricing gains across all business segments and geographical regions, particularly North America and Europe, yielded healthy revenue growth.
Dow anticipates that demand would 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 about 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.
