Do Q1 earnings at Dow, SABIC, and ExxonMobil reflect a trough?

By: 
May 01, 2009


First quarter earnings reports from the resin-producing arms of Dow Chemical, SABIC, and ExxonMobil show how far demand for plastics fell at the start of 2009, but also indicate the bottom might have been reached. In an April 30 conference call, Dow’s chairman and CEO Andrew Liveris noted the severity of the decline but hinted the worst might be over. “These results reflect the demand destruction that continued into the first quarter,” Liveris said, before adding, “Inventory de-stocking appears to be over, so at least one major component of demand destruction is behind us.” Liveris said Dow was further encouraged by operating rates that improved each month from December to April.







Top to bottom: Dow’s Andrew Liveris, SABIC’s Mohamed Al-Mady, and ExxonMobil’s Rex Tillerson released first quarter results that showed a brutal start to 2009 but some indications that the worst might be past.



Overall, Dow had sales of $9.1 billion for the first quarter, down 39% from the same period last year. Net income was $24 million compared to $941 million in the first quarter of 2008. By segment, Performance Plastics posted first-quarter sales of $2.4 billion, down 39%, with prices off 11% and volume dropping 28%. Basic Plastics sales fell 47% in the first quarter to $1.8 billion compared to $3.5 billion in the same period last year. Prices decreased 35% with volumes off 12%.

Liveris said Dow continues to “rightsize” manufacturing, shutting down eight plants in the quarter, and is weighing divestments that could total $25 billion as it works to generate cash. Commenting on the failed K-Dow joint venture for its basic plastics, Liveris said outreach and dialogue continues with its Kuwaiti partners, and there are parallel negotiations ongoing with two other state-owned players for a deal of similar scope to K-Dow.

“We are beginning to see some signs that the pace of global economic decline is moderating,” Liveris said, “although the signals are still not overly clear, albeit better than they were in January.” Liveris called China a “potential bright spot.”

Geoffery Merszei, Dow’s executive VP and CFO, said volume is nowhere near mid-2008 levels but demand is picking up, with March being the strongest month of the quarter and helping to erase most of December’s volume declines. Volume for Performance Plastics and Chemicals rose 13% from February to March. On the basics side, polyethylene volume increased 10% from the prior quarter and was down only 4% year over year.

SABIC vice chairman and CEO Mohamed Al-Mady said in his company’s first quarter earnings statement that the ongoing economic crisis has affected customers ability to access credit and contributed to a decline in demand for petrochemical products and metals. Al-Mady said engineering plastics, which SABIC gained further exposure to with the purchase of the former GE Plastics, were particularly hard-hit due to the recession in the automotive, construction, and electronic industries. The company, however, is going forward with current expansions in Yansab, Sharq, and Saudi Kayan, as well as future expansion plans.

In spite of the challenges, Al-Mady said SABIC maintained the same operational levels, with total first-quarter production of 14.17 million tons, an increase of 0.39%. Volume sales were up 5% over 2008, totaling 11.53 million tons.

SABIC (Saudi Basic Industries Corp.) reported a net loss for the first quarter of SR 0.974 billion ($259.7 million), compared to a net income of SR 6.924 billion ($1.8 billion) over the same period in 2008. SABIC noted the continued decline of petrochemical products and metals prices hampered profitability.

At ExxonMobil, company-wide earnings were down 58% from the year-ago quarter at $4.6 billion. In spite of the global slowdown and sharply lower commodity prices, chairman Rex Tillerson said his company increased its capital and exploration project spending by 5% to $5.8 billion. Investments include plans for a new technology center in Shanghai, China to provide product applications support for its growing ExxonMobil Chemical business in the Chinese and Asian markets. The company expects the center to be operational in 2010.

Tillerson said chemical earnings, which include its plastics business, were $350 million, down $678 million compared to the first quarter of 2008. The company said lower volumes and margins each reduced earnings approximately $300 million. Product sales were 1,051 kt (thousands of metric tons) lower than the year before, at 5,527 kt. Chemical sales were higher outside the U.S. (3,484 kt) than within (2,043 kt). [email protected]

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