Dow Announces $1 Billion Cost Saving Drive
In the current first quarter, the group plans to take charges of $550-$725 million for costs associated with the cutbacks and asset write-downs and write-offs.
Smaller scale European assets could be among the first affected by the cost-cutting moves, CEO Jim Fitterling said in an investor call to present financial results for last year. Talks with the workforce at the target units are in progress.
About $500 million of the projected $1 billion savings is expected to come from structural improvements that Fitterling said would be gained by optimizing labor and services costs and shutting down selected assets, while further evaluating the group’s global asset base and increasing productivity via end-to-end process improvement.
Operating expense reductions of $500 million, focused on near-term cash flow, are an additional key element of the plans. This could include spending less on maintenance turnarounds, while still keeping the focus on safety and reliability, the CEO said.
Other priorities call for reducing purchases of raw materials, as well as lowering logistics and utilities costs and aligning spending levels to the macroeconomic environment.
The Dow chief stressed that the actions are designed to prioritize business operations in its most competitive, cost-advantaged and growth-oriented markets, while also navigating “macro uncertainties and challenging energy markets, especially in Europe.“
Solutions being studied from a profitability standpoint date focus on smaller rather than larger European assets, Fitterling said, remarking that the big cracker sites still have a positive cash flow. He hinted that Dow is talking to European governments about helping to make these sites more competitive, without indicating what kind of concessions it may be seeking.
Following Trinseo’s lead in eastern Germany?
If recent plans announced by plastics maker Trinseo, to discontinue the 300,0000 t/y styrene production at its Böhlen site in eastern Germany, are any indication, the high-energy petrochemicals and plastic production in this region could be under the microscope.
Trinseo acquired the commodity units from Dow after the group had bought them from the Treuhand, the agency charged with selling off former East German assets, in the early 1990s.
In eastern Germany Dow is still engaged at Schkopau and Leuna and has an integrated cracker operation at Böhlen. In western Europe, it has back-integrated complexes at Stade on the northwest German coast, as well as at Terneuzen, The Netherlands, and Tarragona, Spain.
The Stade site is seen by analysts as using outdated technology, but Dow said recently that it has offered property there for construction of an LNG import terminal.
Full year 2022 figures show Dow’s net sales at $56.9 billion, a partly price-related gain on the $55 billion reported for 2021. GAAP net income was $4.6 billion, down from $6.4 billion in 2021, and operating EBIT was $6.6 billion, versus $9.5 billion in 2021.
Author: Dede Williams, Freelance Journalist
Editor's note: An earlier version mentioned $2 billion in cost savings. We have corrected this figure.