Dow Chemical 2012 Annual Report Download - page 73

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negatively impacted by a $7 million restructuring charge for the write-off of certain capital projects as part of the 4Q12
Restructuring plan. See Note 3 to the Consolidated Financial Statements for information on restructuring charges.
2011 Versus 2010
Feedstocks and Energy sales were $11,302 million in 2011, up 34 percent from $8,457 million in 2010, driven by a 27 percent
increase in price and a 7 percent increase in volume.
Sales for the Hydrocarbons business were up 44 percent with prices increasing 31 percent and volume increasing 13
percent. The increase in selling prices for this business was a result of higher feedstock costs, driven by demand improvement
across the industry. Product supply agreements with Styron led to an increase in sales volume compared with 2010.
Sales for the Energy business increased 10 percent compared with 2010, entirely due to increased volume. Sales for the
Energy business are primarily opportunistic merchant sales driven by market conditions and sales to customers located on Dow
manufacturing sites.
The Company uses derivatives of crude oil and natural gas as feedstock in its ethylene facilities. The Company's cost of
purchased feedstock and energy increased $4.3 billion in 2011, a 22 percent increase over 2010. Crude oil prices were, on
average, 41 percent higher than 2010 levels. North American natural gas prices decreased in 2011, and were approximately 8
percent lower than in 2010.
Sales for the Chlor-Alkali/Chlor-Vinyl business increased 14 percent compared with 2010, driven by a 21 percent increase
in price partially offset by a 7 percent decrease in volume. Within the business, VCM price increased in response to higher
ethylene costs and strong U.S. polyvinyl chloride export demand, and caustic soda volume improved due to increased demand
in the alumina and pulp and paper industries. VCM volume decreased due to a reduction in capacity in North America that
more than offset volume increases in caustic soda.
Sales for the EO/EG business increased 21 percent over 2010, driven by a 22 percent increase in price partially offset by a
1 percent decrease in volume. EO/EG prices increased in most geographic areas, as a result of higher feedstock costs. EO/EG
volume declined due to the business' strategic shift to supply purified ethylene oxide to internal derivative businesses.
For the segment, EBITDA for 2011 was $940 million, up from $471 million in 2010 due to higher prices, volume growth,
and improved equity earnings from EQUATE, MEGlobal and The Kuwait Olefins Company K.S.C.
Feedstocks and Energy Outlook for 2013
The Feedstocks and Energy segment expects market conditions in 2013 to show slight improvement compared with 2012.
Monoethylene glycol prices are expected to be volatile but move in an overall upward trend due to improved economic
conditions, rising downstream demand and limited industry capacity additions. External sales of propylene are expected to
decrease in North America due to the expiration of a supply contract with a customer. EDC/VCM prices and margins are
expected to improve slightly, through recovery of the global construction industry and the continued housing recovery in North
America. Crude oil and feedstock prices are expected to remain volatile and sensitive to external factors, such as economic
activity and geopolitical tensions. In 2013, the Company expects crude oil prices, on average, to remain close to 2012 levels
while natural gas prices in the United States are expected to rise. Global ethylene margins are expected to increase slightly
compared with 2012, and gas-based producers in the U.S. will continue to benefit from shale gas dynamics and be significantly
advantaged compared with naphtha-based producers. Ethylene margins could vary materially from these expectations
depending on changes in economic projections and global operating rates.
Early in 2011, 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 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 re-start an ethylene cracker in St. Charles, Louisiana, which occurred at the
end of December 2012. 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 will significantly strengthen its propylene integration in the U.S. and increase its global ethylene
production capabilities by as much as 20 percent.
In the fourth quarter of 2010, Dow and Mitsui & Co., Ltd. formed 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 mid-2013. 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