Dow Announces Additional Polyethylene Capacity Reductions in North America
Responding to increased feedstock cost pressures and continued weak demand, the polyolefins and elastomers (PO&E) Business Group of The Dow Chemical Company announced today it will immediately begin the process of idling approximately 885 million pounds (400 KMT) of additional polyethylene (PE) manufacturing capacity in North America. This cut-back in production, coupled with previous capacity idling of approximately 600 (270 KMT) million pounds which has occurred since mid-2001, brings total idled polyethylene manufacturing capacity at Dow, including its Union Carbide subsidiary, to more than 1.4 billion pounds in North America.
"Profits in the global petrochemical industry are somewhat dependent on running plants at high operating rates," said Bob Beil, Commercial Vice President, Dow PO&E North America. "At this point in time, it is less costly for us to idle these plants than to run them. Given today's high feedstock costs and eroding polyethylene margins, running under-utilized plants does not make economic sense."
In mid-2001, Dow idled 600 (270 KMT) million pounds of capacity at two of its North American production sites in Texas. These actions were taken to optimize sourcing locations and maximize inventory productivity.
Today's announcement adds an additional 885 million pounds (400 KMT) of PE production that will be idled in North America.
"We are taking action on the things that are in our control," said Romeo Kreinberg, President, Polyolefins and Elastomers Business Group. "We have realized some significant margin erosion in recent months, due in large part to natural gas prices that remain at double historical levels. With the winter heating season fast-approaching, and the nation's gas reserves far below where they should be at this time in the calendar year, we're preparing for another period of volatility in gas prices during the remaining months of 2003 and into 2004."
Based on current demand projections, the idling of these assets will not affect customer supply.
Dow expects all idled units to return to normal operation when market conditions warrant. In the interim, affected products are being produced on alternative qualified trains in North America.
"We maintain the position we have previously stated regarding a recovery. When this business comes back, it will be with a bang," said Beil. "But in the absence of a cohesive national energy policy which would solve the current natural gas supply and pricing issues, and with polyethylene margins at unacceptable levels, we are left with very few choices but to idle under-utilized assets."
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