Dow Chemical 2009 Annual Report Download - page 80

Table of Contents
Polypropylene sales were down 32 percent compared with 2008 as prices decreased 32 percent and volume was flat. Double-digit price declines were
reported in all geographic areas due to the significant decline in feedstock costs and weak global economic conditions. Volume improved in Asia Pacific;
volume in Latin America also improved as demand in the consumer and industrial sectors continued to be strong. Volume declined in North America as
demand in the health care, consumer, and industrial sectors was lower. EBITDA was higher than 2008 primarily driven by lower propylene costs. EBITDA
in 2008 included a $30 million goodwill impairment loss and $2 million of costs related to the U.S. Gulf Coast hurricanes.
Styrenics sales for 2009 were down 44 percent compared with 2008, as volume declined 23 percent and prices decreased 21 percent. Volume was down
with significant declines in all geographic areas except IMEA. North America volume was reduced by the May 2008 formation of Americas Styrenics LLC, a
nonconsolidated affiliate. While government stimulus programs in China resulted in higher demand for appliance applications, overall demand in Asia Pacific
was considerably lower than 2008. In Europe, demand in the commodity food packaging area stabilized; however, demand in the construction industry
remained weak. Prices were down as a result of lower feedstock costs and weak global demand. EBITDA was up significantly from 2008 as the decline in
prices was offset by the benefit of lower feedstock, raw material and freight costs, lower R&D and SG&A expenses, and higher equity earnings from
Americas Styrenics LLC.
2008 Versus 2007
Sales for the Basic Plastics segment were $14,240 million in 2008, up 1 percent from $14,167 million in 2007. Prices increased 12 percent in 2008, while
volume decreased 11 percent. While strong price increases were reported in all geographic areas, there was considerable decline in prices in the fourth quarter.
During the first nine months of 2008, prices moved significantly higher in response to rapidly escalating feedstock costs. In the fourth quarter, an
unprecedented drop in feedstock costs and the global economic crisis resulted in significant price declines across all geographic areas and product lines. While
volume improved in IMEA, high prices, wide fluctuations in feedstock costs, and growing weakness in the global economy resulted in volume declines in all
other geographic areas. North America volume was reduced by the May 2008 formation of Americas Styrenics LLC; the December 2007 closure of the
polypropylene manufacturing facility at St. Charles Operations in Hahnville, Louisiana; and the impact of the U.S. Gulf Coast hurricanes.
EBITDA for 2008 was $1,746 million, down from $2,804 million in 2007. EBITDA declined in 2008 as price increases were not sufficient to offset the
significant increases in feedstock and other raw material costs, lower equity earnings, and reduced operating rates. While equity earnings from EQUATE were
slightly higher than 2007, EBITDA was negatively impacted by significantly lower earnings from Siam Polyethylene, Equipolymers, LG DOW
Polycarbonate Limited and Sumitomo Dow Limited, and a loss from Americas Styrenics LLC. EBITDA in 2008 was reduced by restructuring charges
totaling $148 million. EBITDA also included a goodwill impairment loss of $30 million associated with the polypropylene reporting unit, as well as costs of
$16 million related to the U.S. Gulf Coast hurricanes. EBITDA in 2007 reflected restructuring charges totaling $96 million primarily related to the
announced shutdown of the polypropylene production facility at St. Charles Operations in Hahnville, Louisiana, the write-down of the Company’s 50 percent
interest in Pétromont, and the write-off of abandoned engineering costs.
Basic Plastics Outlook for 2010
Feedstock costs are expected to increase during 2010 as the global economic recovery continues to gather momentum. New global industry polyethylene and
polypropylene capacity is expected to start up during the year, further increasing competition and weakening supply fundamentals.
With feedstock costs expected to rise, polyethylene prices are expected to increase. Equity earnings from EQUATE are expected to be higher as the result
of improved economic conditions coupled with the full-year contribution of a polyethylene capacity expansion that was successfully started up in the second
quarter of 2009.
Polypropylene is expected to remain challenged in 2010. Slowly recovering demand and the impact of new industry production capacity will pressure
supply fundamentals. The Company’s focus in North America will continue to target higher margin products in the food services, rigid packaging, film, and
health and hygiene segments. The business expects this focus on differentiated products and operating efficiencies to result in improved margins.
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