Dow Chemical DOW recently said that its Sadara joint venture with Saudi Arabian Oil Company (Saudi Aramco) is progressing on schedule and budget. The project is progressing in sync with Dow’s strategy to enable cost-advantaged growth in rapidly growing regions.
Construction of the manufacturing facility is now roughly 94% complete with commissioning and startup of key utilities infrastructure is currently underway. Sadara’s 26 manufacturing units that are being built in Jubail Industrial City II are scheduled for a sequenced start-up process.
The process for first production units will start in second-half 2015 with initial production of polyethylene commencing near end-2015. Full site operations are on track for end-2016.
Dow’s shares ticked up around 0.5% in the trading session following the announcement. Its shares are up roughly 13% so far this year.
The Sadara joint venture, which was formed in 2011, is expected to produce more than 3 million metric tons of high-value performance plastics and specialty chemical products. The joint venture is expected to generate EBITDA margins of 35%-40% and reap average equity earnings of $500 million annually during the first ten years after its start-up. This will also enable Dow to be at a competitive cost position.
Dow formed the joint venture to ensure long-term profitable growth in its downstream, innovation-driven businesses and also in the fast-growing regions such as Asia Pacific, the Middle East and Africa, and Eastern Europe.
Dow, one of the biggest ethylene producers on the planet, is seeing significant feedstock advantage in North America. The company’s investments in U.S. Gulf coast (in Texas and Louisiana) and Middle East (including the Sadara joint venture) are focused on boosting this advantage.
Dow’s strategic investments, including Sadara and U.S. Gulf coast, are expected to help it achieve its overall EBITDA target of over $10 billion.
Dow is a Zacks Rank #2 (Buy).
Other companies in the chemicals space with favorable Zacks Rank include LyondellBasell Industries N.V. LYB, Orion Engineered Carbons SA OEC and Stepan Company SCL with all sporting a Zacks Rank #1 (Strong Buy).
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