Dow ChemicalDOW said that it has wrapped up the construction of its new, world-scale ethylene production plant in Freeport, TX. The U.S. chemical kingpin completed the construction within a week of the originally planned date that was set roughly a couple years ago. The ethylene production unit is expected to be operational by mid-2017.
The state-of-the-art production unit, having a nameplate capacity of 1.5 million metric tons, is a major component of Dow's $6 billion investment in the U.S. Gulf Coast geared to bolster the competitiveness of its downstream, consumer-led businesses. The ethylene unit is also among the least capital-intensive ethylene investments currently announced across the U.S. Gulf Coast. It will feed the company's derivative investments that are expected to come on stream during 2017 and 2018.
Dow, one of the biggest ethylene producers on the planet, is seeing significant feedstock advantage in North America. The company's investments in the U.S. Gulf coast and Middle East (including the Sadara joint venture) are focused on boosting this advantage.
Affordable natural gas and ethane (derived from shale gas) offer U.S. producers a compelling cost advantage over their global counterparts who use a more expensive, oil-based feedstock. Leveraging the abundant natural gas supply and cost advantage, chemical makers, including Dow, are investing billions of dollars for setting up crackers that produce ethylene from ethane.
The addition of the new ethylene cracker to the Freeport site represents another significant milestone for Dow. The Freeport site now has more than 4 million metric tons of olefins capacity to offer low-cost integration strength to the company's targeted high-growth derivatives. The unit will provide critical building blocks to strengthen Dow's competitive advantage in targeted consumer-led markets including packaging, transportation and infrastructure.
Dow has outperformed the Zacks categorized Chemicals-Diversified industry over the last one year, supported by sustained healthy growth fundamentals in its core end-use markets. The company's shares have gained around 25.2% over this period, compared with roughly 19.1% gain recorded by the industry.
Dow logged forecast-topping earnings in fourth-quarter 2016, helped by its cost-cutting and productivity actions and continued focus on consumer-driven markets. Dow, in its fourth-quarter call, said that it is witnessing signs of positive economic momentum with the U.S. currently in expansionary mode while Europe continues its gradual recovery notwithstanding growing political uncertainty and geopolitical tensions.
The company sees demand to remain healthy, especially in the businesses that cater to packaging, infrastructure, consumer care, electronics, automotive and agriculture.
Dow is a Zacks Rank #3 (Hold) stock.
Dow Chemical Company (The) Price and Consensus
Stocks to Consider
Better-placed companies in the chemicals space include Univar Inc. UNVR , Kronos Worldwide, Inc. KRO and Sinopec Shanghai Petrochemical Company Limited SHI , all holding a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
Univar has an expected long-term growth of 9.4%.
Kronos has an expected long-term growth of 5%.
Sinopec Shanghai has an expected long-term growth of 14.2%.
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