Dow Chemical DOW said that its Sadara joint venture with Saudi Arabian Oil Company (Saudi Aramco) in the Middle East has started production of polyethylene, meeting the earlier announced target to commence initial production by end-2015. This represents a significant milestone for the joint venture.
The Sadara investment supports Dow’s strategy to enable cost-advantaged growth in rapidly growing regions. 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.
Sadara’s 26 manufacturing units that are being built in Jubail Industrial City II remain on scheduled for a sequenced start-up process.
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, 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’s shares closed roughly 2.2% down at $50.90 on Tuesday. Its shares are up nearly 28% so far this year.
Dow currently holds a Zacks Rank #2 (Buy).
Other companies in the chemicals space worth considering include Celanese Corporation CE and Innospec Inc. IOSP and Stepan Company SCL. While both Celanese and Innospec sport a Zacks Rank #1 (Strong Buy), Stepan retains a Zacks Rank #2.
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