Dow Chemical 2013 Annual Report Download - page 70

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Sales for the Hydrocarbons business were down 2 percent compared with 2011, due to a 1 percent decrease in both price and
volume. Price and volume were down in all geographic areas, except EMEA. Despite the unfavorable impact of currency,
overall price increased in EMEA due to higher benzene prices and volume increased in EMEA due to increased sales of
propylene.
In 2012, Energy business sales declined 23 percent compared with 2011. Volume was down 20 percent with declines in all
geographic areas, primarily due to decreased sales of industrial gas. Price was down 3 percent driven by lower natural gas
prices resulting from high inventory levels in the U.S. and one of the mildest winters on record in North America.
The Company's cost of purchased feedstock and energy decreased $2.5 billion in 2012, an 11 percent decrease from 2011. The
cost of purchased feedstocks decreased primarily due to lower feedstock and energy prices in the United States resulting from
increased supply of shale gas and natural gas liquids.
Chlor-Alkali/Chlor-Vinyl sales declined 13 percent compared with 2011, as volume declined 9 percent and price declined 4
percent. Volume decreased primarily due to the shutdown of VCM capacity in North America in the first half of 2011. Pricing
trends were mixed as price increases in caustic soda were more than offset by lower prices for EDC and VCM due to weak
global construction-related demand.
EO/EG sales decreased 5 percent compared with 2011, as a 3 percent increase in volume was more than offset by an 8 percent
decline in price. Volume gains were driven by increased merchant sales of purified ethylene oxide and ethylene glycol, as the
business took advantage of favorable conditions to move material not needed for internal consumption by Dow's downstream
derivative businesses. Price decreases were driven by ethylene glycol, as the combination of modest demand growth, stable
inventory supply, high inventories in Asia Pacific and uncertainty in the global economy put downward pressure on prices.
EBITDA for the segment in 2012 was $718 million, down from $940 million in 2011 as lower feedstock and energy costs were
more than offset by a decrease in selling prices and lower equity earnings from MEGlobal, Compañia Mega S.A and EQUATE.
EBITDA in 2012 was negatively impacted by $7 million of certain items, as previously discussed.
Feedstocks and Energy Outlook for 2014
The Feedstocks and Energy segment expects market conditions to show slight improvement. MEG prices are expected to
remain volatile but generally move upward due to improved economic conditions, rising downstream demand and limited
industry capacity additions. The path and pace of economic growth will continue to be an important determinant of MEG prices
and profitability. Caustic soda prices and margins are expected to weaken as new industry capacity in the U.S. Gulf Coast
outweighs demand growth and global chlorine operating rates gradually improve. EDC/VCM prices and margins are expected
to improve with the continued recovery of the global construction market and North America housing activity. Crude oil and
feedstock prices are expected to remain volatile and sensitive to external factors, such as economic activity and geopolitical
tensions. The Company expects crude oil prices, on average, to be slightly above 2013. Ethylene margins are expected to
increase from 2013, however ethylene margins could vary materially from these expectations depending on global GDP growth
rates and global operating rates.
The Company 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 derived 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
Company also announced investments in a new on-purpose propylene production unit (expected start-up in 2015) and a new
ethylene production unit (expected start-up in 2017), both located in Freeport, Texas. As a result of these investments, Dow's
ethylene production capabilities are expected to increase by as much as 20 percent.
In the fourth quarter of 2010, Dow and Mitsui & Co., Ltd. formed Dow-Mitsui Chlor-Alkali LLC, a 50:50 manufacturing joint
venture to construct, own and operate a new membrane chlor-alkali facility located at Dow's Freeport, Texas, integrated
manufacturing complex. Construction began in 2011 and operations are expected to begin in the first quarter of 2014. The new
facility will have an annual capacity of approximately 800 kilotons. Under contract to the joint venture, Dow will operate and
maintain the facility. The joint venture is a variable interest entity and is included in Dow's consolidated financial statements.
See Note 19 to the Consolidated Financial Statements for additional information.
On December 2, 2013, the Company announced the planned carve-out of a portion of its chlorine chain, including the
Company's U.S. Gulf Coast Chlor-Alkali/Chlor-Vinyl business, in preparation for transactions involving select chlorine and
derivative businesses over the next 12-24 months. Assets included in this planned carve-out are the Chlor-Alkali and Chlor-
Vinyl facilities in Plaquemine, Louisiana and Freeport, Texas, including the Company's interest in the Dow-Mitsui Chlor-Alkali
LLC manufacturing joint venture.