The Dow Chemical Company
(
DOW
) announced an initial agreement for a long-term off take
agreement with a new joint venture (JV) to be formed between
Idemitsu Kosan Co., Ltd., and Mitsui & Co., Ltd. Idemitsu and
Mitsui are Japanese companies and the joint venture pertains to
the construction and operation of a Linear Alpha Olefins plant on
the U.S. Gulf Coast.
The joint venture is in the Front End Engineering and Design
(FEED) phase, which will be completed in 2014. Dow expects the
agreement with the joint venture to enable a long-term supply and
purchase relationship for linear alpha olefins, which will
enhance its performance plastics franchise.
Dow believes that the joint venture will utilize an integrated
supply of ethylene from Dow's production grid on the U.S. Gulf
Coast to produce linear alpha olefins used as comonomers
throughout Dow's performance plastics franchise. The joint
venture is also expected to contribute significant capital for
these rights.
Dow stated that the agreement reflects its commitment to invest
in projects that provide high returns and it is in line with
Dow's strategy to integrate cost-advantaged feedstocks to support
profitable growth of the company's high value Performance
Plastics franchise. The deal also helps Dow build strategic
relationships that enable it to derive economies of scale and
improve capital efficiency.
Dow did not disclose the financial terms of the agreement and
stated that the location options for the linear alpha olefins
unit are currently being explored. Construction and start-up of
the new unit is targeted for 2016.
Apart from this, Dow also announced that it plans to build a
number of specialty material production plants on the U.S. Gulf
coast to leverage feedstock advantage available from increasing
supplies of shale gas in North America.
Dow expects to ramp up the Performance Plastics capacity along
the U.S. Gulf coast and plans to construct new facilities along
the Gulf Coast. These facilities will likely include a number of
technologies that will manufacture materials for Dow's fastest
growing market segments including packaging, hygiene and medical,
electrical and telecommunications, transportation, sports and
leisure, and consumer durables.
Dow currently retains a short-term Zacks Rank #3 (Hold). Other
companies in the chemical industry having favorable Zacks Rank
are
Akzo Nobel NV
(
AKZOY
),
Axiall Corporation
(
AXLL
) and
Air Products and Chemicals Inc.
(
APD
). All of them hold a Zacks Rank #2 (Buy).
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