Dow Chemical 2013 Annual Report Download - page 41

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The Dow Chemical Company and Subsidiaries
PART I, Item 1A. Risk Factors.
RISK FACTORS
The factors described below represent the Company's principal risks.
Global Economic Conditions: The Company operates in a global, competitive environment which gives rise to operating
and market risk exposure.
The Company sells its broad range of products and services in a competitive, global environment, and competes worldwide for
sales on the basis of product quality, price, technology and customer service. Increased levels of competition could result in
lower prices or lower sales volume, which could have a negative impact on the Company's results of operations.
Economic conditions around the world, and in certain industries in which the Company does business also impact sales prices
and volume. As a result, market uncertainty or an economic downturn in the geographic areas or industries in which Dow sells
its products could reduce demand for these products and result in decreased sales volume, which could have a negative impact
on Dow's results of operations.
In addition, volatility and disruption of financial markets could limit customers' ability to obtain adequate financing to maintain
operations, which could result in a decrease in sales volume and have a negative impact on Dow's results of operations. The
Company's global business operations also give rise to market risk exposure related to changes in foreign exchange rates,
interest rates, commodity prices and other market factors such as equity prices. To manage such risks, Dow enters into hedging
transactions pursuant to established guidelines and policies. If Dow fails to effectively manage such risks, it could have a
negative impact on the Company's results of operations.
Financial Commitments and Credit Markets: Market conditions could reduce the Company's flexibility to respond to
changing business conditions or fund capital needs.
Adverse economic conditions could reduce the Company's flexibility to respond to changing business and economic conditions
or to fund capital expenditures or working capital needs. The economic environment could result in a contraction in the
availability of credit in the marketplace and reduce sources of liquidity for the Company. This could result in higher borrowing
costs.
Raw Materials: Availability of purchased feedstocks and energy, and the volatility of these costs, impact Dow’s
operating costs and add variability to earnings.
Purchased feedstock and energy costs account for a substantial portion of the Company’s total production costs and operating
expenses. The Company purchases hydrocarbon raw materials including ethane, propane, butane, naphtha and condensate as
feedstocks. The Company also purchases certain monomers, primarily ethylene and propylene, to supplement internal
production, as well as other raw materials. The Company purchases natural gas, mainly to generate electricity, and purchases
electric power to supplement internal generation.
Feedstock and energy costs generally follow price trends in crude oil and natural gas, which are sometimes volatile. While the
Company uses its feedstock flexibility and financial and physical hedging programs to help mitigate feedstock cost increases,
the Company is not always able to immediately raise selling prices. Ultimately, the ability to pass on underlying cost increases
is dependent on market conditions. Conversely, when feedstock and energy costs decline, selling prices generally decline as
well. As a result, volatility in these costs could impact the Company’s results of operations.
The Company has announced a number of investments in the U.S. Gulf Coast to take advantage of increasing supplies of low-
cost natural gas and natural gas liquids ("NGLs") from shale gas. As a result of these investments, the Company’s exposure to
purchased ethylene and propylene is expected to decline, offset by increased exposure to ethane and propane feedstocks. The
first project to come online was the restart of an ethylene facility in Louisiana, which was completed at the end of December,
2012. The Company intends to also build a new on-purpose propylene facility in Freeport, Texas, with start-up expected in
2015 and a new world-scale ethylene production facility in Freeport, Texas, with start-up expected in 2017.
While the Company expects abundant and cost-advantaged supplies of NGLs in the United States to persist for the foreseeable
future, if NGLs were to become significantly less advantaged than crude oil-based feedstocks, it could have a negative impact
on the Company’s results of operations and future investments.