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Braskem buys Dow’s PP business

Long rumored but finally realized, Dow Chemical Co. today announced the sale of its polypropylene (PP) business to Brazilian plastics and petrochemical giant Braskem for $323 million, cementing that company's bid to become a global player in polyolefins and continuing Dow's push to center its commodity business on resins where it has a feedstock advantage, namely polyethylene (PE).

Earlier in the day, Dow announced its second-quarter earnings, which displayed strong performance for its Plastics unit, which includes, PE, PP, and catalysts and licensing for those materials, with sales up from $2.993 to $3.274 billion, while prices rose 16%. Volume was down 7% on a quarterly basis, but up 10% year-over-year. The emphasis shift towards PE was evident, however, as sales of PE made up more than three quarters of total sales of the group over the three-month period.

Dow has announced major investments in its existing Gulf Coast operations, as well as its Sadara venture with Saudi Aramco, to capitalize on advantaged ethylene feedstocks, which have been driven down globally on the increasing influence of the booming U.S. natural gas industry, which has served to depress ethylene prices. Propylene, however, has ridden a roller coaster over the course of the last few years, buffeted by rising oil prices that impact its primary feedstock antecedent, petroleum-derived naphtha.

Dow's PP business has total annual production capacity of 1,050 thousand tons, with four industrial plants between the U.S. and Germany. The U.S. facilities at Freeport and Seadrift, TX, add up to 505 thousand tons, increasing Braskem's PP regional capacity by 50%. The two German plants, located in Wesseling and Schkopau, have annual capacity of 545,000 tons of PP.

In February 2010, Braskem acquired Sunoco Chemical's U.S. business, paying $350 million and gaining annual production capacity of 950,000 tons. In that deal, Braskem received three Sunoco plants in La Porte, TX; Marcus Hook, PA; and Neal, WV, saying at the time that those operations accounted for approximately 13% of installed U.S. PP production capacity.

Full circle after "K-Dow" dissolved

In late 2008, Dow's bid to reposition its polyolefins business through a 50:50 joint venture with Petrochemical Industries of Kuwait that would be called K-Dow fell apart amidst the global economic crisis. There have been numerous rumored suitors in the intervening years, including Braskem, before the Brazilian giant announced its move.

In today's earnings call and before news of the deal, Dow's chairman and CEO, Andrew Liveris noted that 70% of the company's ethylene is in cost-advantaged feedstock locations. Liveris also went over the numerous ventures and deals announced by the company in recent weeks, including the Aramco project, and the more recently announced work with Mitsui on sugar-cane based PE.

"What you have seen over the last few days and weeks is the new Dow in action," Liveris told investors and analysts on the conference call.

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