Dow Chemical 2015 Annual Report Download - page 60

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notably North America, due to continued strong demand and tight supply conditions. Volume was mixed by geographic area as
increases in North America and EMEAI were offset by decreases in Asia Pacific and Latin America. Volume increased in
Hydrocarbons due to opportunistic sales of ethylene in North America and Asia Pacific and increased monomer sales in Europe
due to higher operating rates and the use of heavier feedslates. Volume declined in the Energy business due to reduced sales in
North America. Volume in Dow Packaging and Specialty Plastics and in Dow Electrical and Telecommunications was impacted
by the divestiture of the Polypropylene Licensing and Catalysts business and the Company’s 50 percent ownership interest in
Nippon Unicar Company Limited ("NUC"). Excluding the impact of these divestitures and Hydrocarbons and Energy sales,
price increased 4 percent and volume increased 1 percent. Despite production outages in North America in the second and third
quarters of 2014, Dow Packaging and Specialty Plastics volume improved due to price/volume management, most notably in
Europe where declining feedstock costs helped increase export sales. Dow Electrical and Telecommunications volume declined
slightly due to tight supply resulting from production outages in the first half of 2014 and weaker demand in the
telecommunications industry, which was partially offset by increased demand in the power industry.
The Company's cost of purchased feedstock and energy decreased $392 million in 2014, a 2 percent decrease from 2013,
primarily due to decreased naphtha, condensate and propane costs in Europe.
EBITDA for 2014 was $4,422 million, down from $4,503 million in 2013. EBITDA in 2013 was favorably impacted by a
pretax gain of $451 million on the sale of the Polypropylene Licensing and Catalysts business, an $87 million pretax gain on
the sale of a 7.5 percent ownership interest in Freeport LNG Development, L.P. and a $6 million gain for adjustments to
contract cancellation fees related to the 4Q12 Restructuring plan. See Notes 3, 5 and 13 to the Consolidated Financial
Statements for additional information on these items. Excluding these certain items, EBITDA improved as the impact of higher
selling prices and lower feedstock costs more than offset lower equity earnings. Equity earnings were $257 million in 2014,
down from $355 million in 2013, as a result of significantly lower earnings from EQUATE, TKSC and higher equity losses
from Sadara.
Performance Plastics Outlook for 2016
In 2016, the Company expects crude oil and natural gas prices, on average, to remain flat with year-end 2015 levels during the
first half of the year, with prices slowly rising in the second half of the year. As a result, feedstock and energy costs are
expected to be flat to slightly lower than 2015 levels. Global ethylene margins are expected to remain at similar levels with
continued strong demand and stable operating rates. Ethylene margins could vary materially from these expectations depending
on changes in input costs, global GDP growth and global operating rates. Volume in the Hydrocarbons and Energy businesses is
expected to increase due to new supply agreements with Olin as a result of the split-off of the chlorine value chain. Volume is
expected to increase in Dow Packaging and Specialty Plastics due to continued strong demand fundamentals and the start-up of
the first Sadara polyethylene facility in December 2015 and the remaining Sadara polyethylene and olefins production facilities
in 2016. Dow Elastomers is expected to experience volume growth in most market segments despite new global industry
capacity coming on-line in 2016. Dow Electrical and Telecommunications volume is expected to grow at or slightly above GDP
in all geographic areas, except for Latin America, driven by increased use of fiber optic applications used in
telecommunications and increased demand in power transmission, partially offset by new industry capacity in EMEAI and Asia
Pacific.
The Company has 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 including a new on-purpose propylene production facility, which commenced
operations in December 2015, and a new world-scale ethylene production facility (expected start-up in the first half of 2017),
both located in Freeport, Texas. 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. Dow's ethylene production capabilities
are expected to increase by as much as 20 percent. In addition, the Company is building four new production facilities on the
U.S. Gulf Coast to leverage an advantaged feedstock position to support profitable growth of the Company's high value
Performance Plastics franchise which include an ELITE™ Polymer production facility, a Low Density Polyethylene (LDPE)
production facility, a NORDEL™ Metallocene EPDM production facility and a High Melt Index (HMI) AFFINITY™ Polymer
production facility.
The new biopolymers manufacturing facility in Santa Vitória, Minas Gerais, Brazil commenced production in second quarter of
2015. This project, which is a consolidated joint venture with Mitsui & Co. Ltd., was announced during the fourth quarter of
2011. In August 2015, the partner exercised its equity option which requires Dow to purchase their equity investment before
July 12, 2016. The joint venture's original plans for expansion into downstream derivative products have been postponed. The
joint venture is a variable interest entity and included in Dow's consolidated financial statements. See Note 20 to the
Consolidated Financial Statements for additional information.