Dow Chemical Company announced today that it is to close a number of sites around the world in order to reduce structural costs by approximately $160m a year.
Dow said in a statement that as a consequence of these shutdowns, and other optimisation activities, the company expects to incur a charge of between $550m and $650m, which includes costs such as severance and asset write-downs. This charge will be reflected in Dow’s third quarter of 2006 results.
‘One of the fundamental drivers of Dow’s future success is the company’s commitment to maintain a sharp focus on financial discipline and low cost to serve,’ explained Andrew N. Liveris, Dow’s chairman and chief executive officer.
‘Part of that commitment involves continually looking for ways to enhance our efficiency and our cost-effectiveness – through good times as well as bad – to ensure we remain competitive across every business and in every geographic region. Today’s announcement highlights a number of decisions by Dow in support of that objective, and demonstrates our resolve to actively manage the company’s portfolio at all points in the cycle,’ he said.
In making the announcement, Liveris acknowledged the concern that the news would cause at the affected sites and in surrounding communities.
‘We well recognise the impact of these decisions on our employees, their families and those living in the communities around our sites; we will work hard to minimise the negative consequences of these necessary business decisions,’ said Liveris.
The most significant shutdowns will take place at Dow’s facilities in Sarnia and Fort Saskatchewan, Canada, and the Porto Marghera plant in Italy.
In Sarnia, all production activity will cease by the end of 2008, reflecting the outcome of individual assessments by each of the four businesses located at the Ontario facility. The assessments, which were triggered by the recent suspension of ethylene shipments through the Cochin Pipeline, highlighted a variety of issues related to the effectiveness, efficiency and long-term sustainability of the Sarnia-based assets.
As a consequence the low density polyethylene plant will be shut down over the coming weeks; polystyrene production will cease before the end of this year; latex production from the UES facility will shut down by the end of 2008; and the polyols plant will also shut down by the end of 2008.
In Fort Saskatchewan, the Dow will shut down its chlor-alkali and direct chlorination ethylene dichloride plants by the end of October 2006. This decision was driven by the substantial capital costs required to maintain long-term operations at the 27 year-old facilities, an investment Dow says could not be justified based on expected rates of return.
In Porto Marghera, Italy, the Dow has made the decision to not restart production of the toluene diisocyanate (TDI) facility, which was shut down for planned maintenance in early August. Fundamentals in the TDI business remain weak due to excess global production capacity.
The company says it is also writing off obsolete technology assets and capital project spending that has been determined to be of no further value.‘During the past three years, the company has shut down more than 50 manufacturing facilities across the globe – yielding a significant reduction in structural costs – while continuing to invest in long-term growth,’ said Liveris. ‘And that focus on asset optimisation will remain sharp, no matter where we are in the business cycle, ensuring that we maintain our competitive edge as we accelerate a strategy focused on dampening cyclicality and driving earnings growth.’