Dow announces 6% workforce cuts; U.S. chemical capex to shrink 18% in 2020; Pemex chemical production drops

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Dow's plant in Bahia Blanca, Argentina. Photo courtesy of Dow Inc.

Dow to layoff 6% of workforce to ensure financial strength

Dow Inc. will cut its global workforce by about 6% to save costs and will eliminate assets in areas most impacted by Covid-19, Dow’s top executives said on July 23 during its second quarter earnings conference call.

Dow needs “proactive actions to ensure our cost structure remains competitive in a market recovery that may be gradual or uneven,” CFO Howard Ungerleider said.

The actions include targeting $500 million in operating expense reductions in addition to a “restructuring program.”

“Program includes a 6% reduction of Dow's global workforce as well as actions to exit non-competitive assets that are closely linked to markets impacted by the pandemic,” Ungerleider said.

Dow has 36,500 employees, according to website information as of mid-August.

Costs associated with the layoffs and asset elimination will reach “$1 billion, plus or minus $300 million,” he added.

About $300 million are related to severance payments and the other two-thirds to expenses like termination fees arising from the asset elimination.

CEO James Fitterling said that the pandemic “challenged us to take a look at which of these assets are struggling right now and may, for the long term, struggle to be competitive in any scenario.”

What Dow will eliminate are “one-off assets here and there that are at the wrong end of the cost curve,” he added.

Dow divested in early July rail infrastructure assets at six North American sites for over $310 million.

U.S. chemical capex to shrink 18% in 2020, production down 9%

U.S. chemical production will see a 9% on-year decline with capital expenditures likely to fall at about double that rate in 2020 mainly because of Covid-19’s impact on manufacturing, construction and automotive.

“Production volumes are falling, a trend that began last summer in response to the trade disputes, particularly with China, and then the weakness accelerated” with the pandemic, said Chris Jahn, president of the American Chemistry Council (ACC), during a Reuters Events mid-July conference.

Capital spending may decline 17.6% in 2020 from the previous year, but rebound 15.7% in 2021, he added.

That capital spending reduction comes after several years of new project announcements that added up to some $205 billion in new capital investment announced since 2010.

Of that, however, about half is in planning stages, delayed, or uncertain. Just about 32% of it was completed. Another 21% is under construction, he said.

The U.S. is the second largest chemical producer in the world after China. The U.S. produces about 14% of all of the world’s chemicals, Jahn said.

Retail, buildings, vehicles, appliances, furnishings and machinery are key end-use markets and all of them were hit by lower demand due to Covid-19, Jahn said.

“We’re cautiously optimistic that the downturn has bottomed out,” he added.

Northeast petrochemical hub potential is strong, but infrastructure needed

The U.S. northeast region is one of the world’s most attractive places for petrochemical investment due to huge natural gas resources but still needs improvement in rail, pipelines and storage infrastructure, as well as federal policies to support free trade, executives said.

Jerry James, president of Artex Oil, said during a mid-July Reuters Events conference that the area known as Shale Crescent, which includes parts of Ohio, Pennsylvania and West Virginia, represents 33.9 Bcf/d of natural gas production, compared with 25.8 Bcf/d in Texas

“If Ohio, West Virginia and Pennsylvania were a country, we alone, without the rest of the U.S., would be the third largest producer in the world,” he added. It would only trail the U.S. and Russia, he said.

The Shale Crescent region is within 700 miles of 70% of all of the polyethylene demand in the U.S. and to 77% of all of the polypropylene demand.

The area offers abundant water supply to support manufacturing, including navigable inland waterways that connect to the world.

The region has long had experience with petrochemical projects. West Virginia was home of the world’s first petrochemical complex.

“It’s a terrific location for expansion of plastics resins, petrochemical, derivatives,” said Chris Jan, president and CEO of the American Chemistry Council (ACC), also during the Reuters Events conference.

The region “requires new infrastructure, storage and pipeline distribution networks for NGLs and chemicals,” he added.

Based on ethane supplies expected to come online by 2025, there is potential for $36 billion worth of new chemical and plastics resin production, as well as to create 100,000 chemical-related jobs, he said.

This “assumes ethane storage and pipeline infrastructure is built,” he added.

In Ohio, chemicals represents the state’s third largest manufacturing industry, with 39,155 jobs that generate $3.3 billion in payroll across 629 establishments.

In Pennsylvania, chemical companies represent the state’s fifth largest manufacturing industry with $1.6 billion in payroll from 488 establishments.

West Virginia currently has 5,887 direct jobs related to chemicals that represent $545 million in payroll across 75 establishments, Jahn added.

If a larger chemical hub is to be developed, a shrinking worker supply needs to be reversed.
“It’s been hard to fill position and replace the people who are retiring,” Jahn said.

Pemex production declines in second quarter

Mexican state oil and gas company Petroleos Mexicanos, known as Pemex, said its total petrochemical production posted a 12% on-year decline in the second quarter to 358,000 tonnes, according to financial statements released on July 28.

Most second quarter petrochemical production involved ethane derivatives, with 84,000 tonnes (mt), followed by sulphur, with 75,000mt, and methane derivatives with 74,000mt, it said.

Pemex earned US$202 million from petrochemical product sales within Mexico, including fertilizers. This is an 8% on-year decline.

By Petrochemical Update