Thursday, December 27, 2007

Dow Chemical To Invest Heavily In China

There has been a ton of speculation as to what Dow Chemical (DOW) was going to do with the $9.5 billion it is getting from Kuwait in the recent JV agreement.

Some backround:
On 12/7 I wrote "How about using the very same strategy they have been using for the past year? Selling chunk of this business to outsiders and placing them into the Joint Venture (JV) category. This would provide Dow billions of dollars instantly to be deployed in buying some specialty chemical makers without impairing the balance sheet."

A week later Dow announced it has sold 5 of those very commodity businesses into a new JV with Kuwait and would receive $9.5 billion for them AND still receive a 50/50 split of the businesses results.

Where is the money going?

Dow Chemical plans to invest $5 billion in China in the coming 10 years, said CEO Andrew N. Liveris in Shanghai yesterday. The $5 billion fund budget will not cover a potential coal-to-chemical project in central China's Shaanxi Province, where the chemical giant is conducting a feasibility with Shenhua Group Corp, the world’s second largest coal producer, added Liveris.

Now that is has signed the agreement with KPC (Kuwait Petroleum Corp.) Dow is in talks with Sinopec (SHI) to take over stake in the refiner's $5 billion joint venture oil refinery and petrochemical project with Kuwait Petroleum Corp in East China's Guangdong province.

China welcomes chemical producers from Kuwait and Saudi Arabia because they are able to provide crude oil to the country's large petrochemical projects, said Wang Jin, an analyst at Orient Securities recently.

Dow is on a path to be the world's dominant petrochemical producer. Early this year CEO Andrew Liveris called 2007 "a transformational year". He has delivered.

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