Dow's Q4 earnings fall by 11% as North American plastic prices dropped

Q4 earnings at Dow Chemical Co., USA's largest chemical maker, fell 11% as North American plastic prices dropped as the housing slump dampened use of basic plastics. The quarter saw profit from specialty products benefit from rising prices and demand outside USA. Net income declined to US$975 million, (one dollar a share) from USUS$1.1 billion. Sales increased 2.7% to US$12.2 billion. U.S. sales fell 8.3% as prices tumbled, led by a 25% drop in polyethylene. Customers delayed purchases of commodity plastics and chemicals after energy prices slumped. As per the company, profit from ethylene has peaked and will decline this year and next as global output from new plants in the Middle East and Asia will outpace demand, leading to lower prices. To reduce wide swings in earnings, Dow plans to move some assets that make commodity products into ventures with partners that have access to cheaper raw materials, creating a new model for the polystyrene and polypropylene plastics business. Dow made a similar move in 2005 with Kuwait Petroleum's Petrochemical Industries Inc., forming MEGlobal, the world's largest producer of ethylene glycol. Basic Plastics sales rose 1% in the fourth quarter, from USUS$2.92 billion in 2005 to USUS$2.94 billion in 2006. Volume increased 4%, with modest growth in Europe and double digit improvements in both Latin American and Asia Pacific more than offsetting some softness in North America. Price fell 3%, despite strong improvements in Europe and Asia Pacific, reflecting a marked decline in North America. This was particularly evident in the Polyethylene business, which reported increased demand in every geographic region, but saw North American prices decline by around 25% from the same period last year. Polyethylene price rose significantly year over year in both Europe and Asia Pacific, and was up slightly in Latin America. Despite reporting price improvements for Polystyrene in every geographic region compared with the same period last year, the overall double digit increase was not sufficient to keep pace with the escalating cost of benzene, which continues to present a significant challenge for the business. Equity earnings in the fourth quarter fell from the same period in 2005, as a stronger contribution from the Company's polyethylene joint venture with Siam Cement largely offset a drop in earnings from Petromont. Fourth quarter EBIT for the Basic Plastics segment was USUS$461 million. This was down from USUS$624 million in the same period last year, which included a restructuring charge of USUS$12 million. In the Performance Plastics segment, fourth quarter sales of US$3.55 billion set a new quarterly record, up 11% from the same period in 2005. Price rose 8 % and volume increased 3%, with strong gains in every geographic region except North America, where the housing and automotive sectors showed particular weakness. Dow Epoxy set another quarterly sales record, driven by strong demand for functional coatings as product differentiation enabled the business to maintain strong customer support in higher value applications. The business saw positive price momentum and solid demand growth across all geographic regions, with double digit volume increases in every region, except North America. The Specialty Plastics and Elastomers business also reported stronger pricing and volume growth, with the Wire and Cable business seeing healthy demand from the high voltage power distribution industries in Europe and Asia Pacific, and fiber optic applications.