Dow Chemical 2012 Annual Report Download - page 72

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FEEDSTOCKS AND ENERGY
The Feedstocks and Energy segment includes the following businesses: Chlor-Alkali/Chlor-Vinyl; Energy; Ethylene Oxide/
Ethylene Glycol ("EO/EG"); and Hydrocarbons. Also included in the Feedstocks and Energy segment are the results of
MEGlobal and a portion of the results of EQUATE Petrochemical Company K.S.C., The Kuwait Olefins Company K.S.C., and
The SCG-Dow Group, all joint ventures of the Company.
On June 17, 2010, Dow sold Styron to an affiliate of Bain Capital Partners. Businesses and products sold within the
Feedstocks and Energy segment included certain styrene monomer assets, which were reported in the Feedstocks and Energy
segment through the date of the divestiture. See Note 5 to the Consolidated Financial Statements for additional information on
this divestiture.
Feedstocks and Energy
In millions 2012 2011 2010
Sales $ 10,695 $ 11,302 $ 8,457
Price change from comparative period (2)% 27% 28%
Volume change from comparative period (3)% 7% 5%
Volume change, excluding divestitures (3)% 7% 23%
Equity earnings $ 452 $ 561 $ 407
EBITDA $ 718 $ 940 $ 471
Certain items impacting EBITDA $(7)$—$—
2012 Versus 2011
Feedstocks and Energy sales were $10,695 million in 2012, down 5 percent from $11,302 million in 2011, driven by a 3
percent decrease in volume and a 2 percent decrease in price.
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 was 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.
Sales for the Energy business are primarily opportunistic merchant sales driven by market conditions and sales to
customers located on Dow manufacturing sites. 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 uses derivatives of crude oil and natural gas as feedstock in its ethylene facilities. In addition, the Company
also purchases electric power, benzene, ethylene and propylene to supplement internal production, as well as other raw
materials. 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 fell 13 percent compared with 2011, as volume declined 9 percent and price declined 4
percent. Volume decreased primarily due to the shutdown of vinyl chlorine monomer (“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
ethylene dichloride (“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.
The Hydrocarbons business transfers materials to Dow's derivative businesses and the Energy business supplies utilities to
Dow's businesses at net cost, resulting in EBITDA that is at or near break-even for both businesses. For the segment, EBITDA
for 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