Wednesday, August 1, 2007

Dow In Two More JV's

Just when you think it is safe to take a break from the transition Dow Chemical (DOW) is undergoing, think again.

Dow (Dow) and Solvay S.A. announced Monday an agreement to create a joint venture for the construction of a hydrogen peroxide (HP) plant in Thailand. Operational in 2010, the new HP plant will serve as a raw material source for the manufacture of propylene oxide (PO). The HP plant will be the largest in the world, with a capacity of over 330 kilotons per annum (KTA) of hydrogen peroxide at 100% concentration.

Additionally, Dow and BASF(BASF) announced they are in advanced negotiations for another JV for the construction of a world-scale, 390 KTA propylene oxide (PO) manufacturing facility in Map Ta Phut, Thailand. The new plant would use the hydrogen peroxide to propylene oxide (HPPO) technology jointly developed by Dow and BASF. “This project would expand our successful cooperation with Dow and Solvay to deploy this innovative HPPO technology in Asia,” said Jacques Delmoitiez, president of BASF’s Polyurethanes division. Propylene for the proposed HPPO facility in Thailand would be supplied from the liquids cracker Dow announced in yet another JV with The Siam Cement Group (SCG) in Thailand in October of 2006.

The Dow and BASF Thailand facility would be the second world-scale plant to use HPPO technology. The first, a 300 KTA Dow and BASF HPPO plant, also supplied by an HP plant based on Solvay’s high yield technology, is currently under construction in Antwerp, Belgium, and is scheduled for start-up in early 2008. Propylene oxide is used to produce propylene glycol, polyurethanes and glycol ethers.

“This new facility will further support Dow’s growth plans for our downstream performance businesses in the region such as Dow Polyurethanes and is yet another example of our commitment to meeting the needs of our customers through establishing joint ventures with strategic partners, using an asset-light investment approach. In addition, the fact that HPPO technology offers environmental benefits such as reduced wastewater and increased energy efficiency underscores Dow’s commitment to sustainability, as outlined in our 2015 Sustainability Goals.” said Pat Dawson, president of Dow Polyurethanes.

“The hydrogen peroxide plant will implement the latest developments of Solvay’s unique high yield technology,” said Eric Mignonat, general manager for Hydrogen Peroxide at Solvay. “Solvay has been active in the Asian hydrogen peroxide market since 1988 through its Thai affiliate, Peroxythai, a leading supplier of peroxygen chemicals in Asia with the majority of its sales outside Thailand. A significant share of the capacity of the new plant will be available to support further development of Solvay’s Hydrogen Peroxide business within this fast growing region.”

The beauty of these JV's to date is that they are "self financing". It essentially means that the profits from them flow directly to the bottom line and they required no use (or very minimal) of shareholder funds to initiate. That frees those funds up to be returned to us in the form of additional buybacks, a big dividend boost or to build for a game changing acquisition. If I had to make a bet, based on the results to date of the JV plan, the buyback or dividends increase looks to be the way to go and I am fine with that. Big purchases are always iffy at best and there is no reason to change a game plan that to date, is working perfectly.

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