Dow Chemicals (
) is a global chemical company which supplies high-performance
materials, agricultural products, plastics (polyethylene and
polypropylene) and industrial chemicals to industries and consumers
globally. The company's products have a vast array of applications
and are used by various industries including farming, construction,
transportation, electronics and consumer goods. Dow Chemicals
competes with other large chemical companies such as BASF and
) in the specialty chemicals segment, petrochemical firms such as
Exxon Mobil (NYSE:XOM), SABIC and Sinopec for plastics and with
global seed companies such as Monsanto (NYSE:MON) and DuPont (
) for its agricultural products. Here, we look at some key trends
affecting Dow Chemicals' equity value.
Our price estimate for Dow Chemicals stands at
, roughly implying a 26% premium to the market price.
Global recovery in demand should boost revenues
The demand for commodity and specialty chemicals is strongly
dependent on healthy macro-economic conditions such as GDP and
industrial growth. The economic recession of 2008-09 had
significant adverse impacts on Dow Chemicals, leading to a decline
in revenues of over 23%. With the global economy recovering from
the recession of 2008-2009, division sales are expected to increase
Supply/Demand shifting to Asia and Middle-East
Developing markets, especially China present immense growth
opportunities for specialty chemicals, electronic chemicals and
coatings due to the high level of industrial growth in these
Sales revenues of the Chinese specialty chemical
market stood at $124.5 billion
in 2008. Additionally, multi-billion dollar stimulus packages
introduced by the Chinese government for developing infrastructure
should boost specialty chemical demand for construction chemicals.
Another significant development is the shift of petrochemicals
supply towards the Middle East countries., owing to the higher
accessibility to raw materials (hydrocarbons) in this region.
Recent years have seen additional investment stimulus in developing
production capabilities in the Middle-East (such as the Abu Dhabi
These regions are expected to future growth hubs for the supply
and demand of commodity & specialty chemicals, and significant
capacity additions would be required by the company to capture new
markets in these countries.
Price uncertainty in hydrocarbon-based raw
Many of Dow Chemicals' divisions rely on raw materials which are
primarily hydrocarbon-based. This is especially applicable to its
and performance chemicals/materials businesses, which together
constitute over 90% of the Trefis price estimate for Dow Chemicals.
Examples of hydrocarbon-based feedstock include ethylene, propylene
and benzene. Hydrocarbon prices are highly volatile due to their
dependence on various macroeconomic and political factors, and any
sudden surges can adversely impact both earnings for these
divisions in future as costs increase.
See our full analysis