Dow Targets High Pigment Prices With Resins
Sep10

Dow Targets High Pigment Prices With Resins

Today, a story I wrote on the on fortunes of the TiO2 market appears in the current edition of C&EN. TiO2 is the white pigment that gives paint its hiding power. If you ever labored applying coat after coat of white paint on a wall in vain trying to cover up a red finish that refuses to die with dignity, then the manufacturer of the paint you have chosen probably skimped on the TiO2. (It isn’t your fault. Actually, it is, you bought cheap paint.) I can’t think of a single commodity that is more important to the paint industry than TiO2. And the paint industry has recently been paying dearly for TiO2. Since the 1990s, the TiO2 industry has been plagued by too much manufacturing capacity. That changed when the Great Recession forced the sector to shut down excess output. With the recovery, the TiO2 industry is now seeing the greatest profitability in about 20 years. For the paint makers that consume the white pigment, runaway TiO2 prices have been painful. These companies are trying to mix in as little of it in their formulations as they can get away with. PPG has one of the more militant stances on this issue in the paint sector. The company wants to reduce TiO2 consumption by 10% by the end of next year. The company has gotten off to a good start, eliminating 2% by the end of the last quarter. There is a potential market here for chemical companies that I couldn’t really get into in the article in print. Last year, Dow Chemical launched its Evoque pre-composite polymer, meant to address the problem of TiO2 crowding in latex paints. TiO2 crowding is what it sounds like it is, but there is even more to it than that. David Fasano, a research scientist at Dow, explains that at very high loadings of TiO2 used in white and architectural latex paint—about 20%--TiO2 begins to interfere with its own ability to scatter light. This is because the TiO2 particle has a sphere of influence, called a scattering zone, that is twice the diameter of the TiO2 particle itself. As the particles come closer together, these zones overlap, diminishing the effectiveness of each other. (To understand this, I imagine an overhead projection of two dots on a screen. As the projector goes out of focus, halos form around the dots and expand until they overlap.) Evoque, an acrylic latex film-forming resin, binds to the TiO2 particles and holds them apart so they don’t get close enough to interfere with each other. Evoque can reduce the paint loading in white and pastel architectural...

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Will Hambrick Head Berkshire Hathaway?
Mar01

Will Hambrick Head Berkshire Hathaway?

Warren Buffett’s annual letter to Berkshire Hathaway shareholders is out this week. Normally, the annual letter of one of the most widely read documents in the business world. This year, given that Warren Buffett has been in the news so much recently with the Buffett Rule and all, it is probably being perused more closely than usual. There is something for the chemical industry in the letter: On September 16th we acquired Lubrizol, a worldwide producer of additives and other specialty chemicals. The company has had an outstanding record since James Hambrick became CEO in 2004, with pre-tax profits increasing from $147 million to $1,085 million. Lubrizol will have many opportunities for “bolt-on” acquisitions in the specialty chemical field. Indeed, we’ve already agreed to three, costing $493 million. James is a disciplined buyer and a superb operator. Charlie and I are eager to expand his managerial domain. I wrote up a small story in C&EN based on this passage. The idea being that Lubrizol is on the hunt for more small acquisitions. My boss, assistant managing editor Mike McCoy, had an even more interesting interpretation of the line “eager to expand his managerial domain.” Mike suggested that maybe “managerial domain” would extend to the whole of Berkshire Hathaway. In other words, perhaps Buffett has Hambrick in mind as a successor. I snickered at first. It seems like a crazy idea because it would have Buffett giving the keys to the kingdom to someone who has only been with the company since September. And Hambrick would go, in relatively short order, from running a mid-sized specialty chemical maker to heading all of Berkshire-friggin’-Hathaway. BUT…Mike isn’t the only one to so speculate. This well-reasoned article by Harry Wallop in the Telegraph puts Hambrick as one of four possible candidates along with BNSF CEO Matthew Rose, reinsurance chief Ajit Jain, and Geico boss Tony Nicely. The “eager to expand his managerial domain” appears in paragraph following the revelation that he has come up with an unnamed successor and two backup candidates. Why was James Hambrick the next thought to come to mind? The phrase “eager to expand his managerial domain” is a cutesy way of hinting at a successor. Warren Buffett is fully capable of cute. Here he is playing the ukulele on television. Another line from the letter that I would like to overanalyze is this: “James is a disciplined buyer and a superb operator.” That is an enormous compliment coming from Warren Buffett. Picking stocks and buying companies is what Warren Buffett does. Go to any business section of any book store and you’ll oodles of books on Buffett’s methods....

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Say What, WSJ?
Oct31

Say What, WSJ?

Here’s an article from today’s Wall Street Journal on companies pulling back in Europe because of the financial crisis there. It contains this passage: Other U.S. companies retrenching because of weakness in Europe include Dow Chemical Co., which in the fourth quarter plans to idle about four million tons of production of naphtha, a material used in plastics manufacturing. It apparently comes from this exchange in the conference call: Brian Maguire - Goldman Sachs Group Inc., Research Division This is actually Brian Maguire on for Bob this morning. I want to follow up on the previous couple of questions on idling in Europe and Asia. You mentioned a couple million pounds could be idled. Do you expect Dow or any of the JV partners to participate in that idling or do you think that it will come more from the competition? Andrew N. Liveris More from the competition. I did actually say a couple of million tons and actually, we've identified -- you know us well when we do this, we've identified about 4 million tons of vulnerable production right now based on pure naphtha cracker plays mostly in Europe but also some in Asia. There are a couple things wrong with the WSJ article: 1) Dow doesn’t make naphtha. Liveris was referring to naphtha-based ethylene production. 2) Liveris was speculating on what the broader industry might do, (at least in Europe and Asia) not on what Dow Chemical will do in the fourth quarter. (Dow doesn’t even have 4 million metric tons of ethylene capacity in Europe.) UPDATE: Now the WSJ story comes with a correction: Corrections & Amplifications Dow Chemical Co. estimates other industry competitors will idle about four million tons of production of naphtha, a material used in plastics manufacturing, in the fourth quarter. A previous version of this article incorrectly said Dow Chemical plans to idle about four million tons of production of naphtha. That's half right. It corrects the bit that is most important for Dow: that it isn't Dow capacity that would be idled. But it still implies that it is the raw material, naphtha, that is being idled, not the products, ethylene, propylene, etc. Close enough, I guess....

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Notes On Dow’s Investor Day
Oct05

Notes On Dow’s Investor Day

Yesterday Dow held its annual investor day. The main theme was that the pieces were in place for strong earnings growth. In an interview after his presentation, CEO Andrew Liveris complained that the company is still being pigeonholed unfairly as a commodity chemical company by Wall Street. The post-recession peak for Dow shares, early this past May, was more than $42. Now they are trading in the low 20s. I am writing a feature story on the event for C&EN. I do have a couple of observations that I wanted to share on the blog right away. Dow is walking back plans to divest high-density polyethylene. About a year ago, Liveris floated a trial balloon about the sale of HDPE. The distinction the company has been making has been between its “specialty” solution process polyolefins and “commodity” Unipol-based, gas-phase polyolefins. Liveris told me yesterday that Dow now plans to convert gas-phase plants into solution-based plants at “integrated” facilities. He specifically mentioned Alberta. I would gather that this means swapping out the reactors and leaving the rest of the plant infrastructure in place. Polyolefins licensing is a keeper for Dow. Polypropylene licensing was left out of the sale of the polypropylene business to Braskem. Dow really intends to keep this. The same goes for its stake in Univation, which licenses Unipol polyethylene. Howard Ungerleider, who leads the Performance Plastics division for Dow, told me the polypropylene licensing unit is a pretty big earner for Dow and has been gaining market share. Dow AgroSciences is a keeper, too. When Dow was going through a crisis in early 2009 related to its purchase of Rohm and Haas, Liveris indicated that he might sell this unit. I asked him if the company is still on the fence about this. He said that the company is “Not on the fence and fully on the farm.” Though the unit is small compared to competitors like Monsanto, Liveris said that the unit is “punching above its weight.” Dow’s acquisition strategy will be modest. The company is steadily digesting the debt related to Rohm and Haas. One might think that the company would be planning acquisitions again. Not so. Liveris says the company is only considering smaller acquisitions to round out his existing portfolio. He mentioned IBM, where Liveris incidentally is a director, as a model. Andrew Liveris is a Michigan Wolverine fan. I talked football with him while arranging my stationary on the conference table. He is very excited about the 5-0 start. I am too. I warned him, as a Michigan alum, not to put too much faith in a good Michigan start. (I was...

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Dow CEO Talks Manufacturing On CNN
Sep20

Dow CEO Talks Manufacturing On CNN

Dow CEO Andrew N. Liveris appeared on a CNN special Sunday night hosted by Fareed Zakara titled “Restoring the American Dream, Getting Back to Work.” The segment with Liveris can be found here. As previously noted by The Chemical Notebook, and in C&EN, Liveris wrote a book on rejuvenating American manufacturing called Make It In America: The Case for Re-Inventing the Economy" . (My review was blurbed in the editorial review section of the Amazon listing!) I transcribed some of the interesting quotes from the CNN piece: Zakaria: The manufacturing jobs of the future are high-tech and high paying, but isn’t it impossible to lure those jobs to America since our labor is more expensive than other countries’? Absolutely not, says Liveris, labor accounts for only 8% of his total costs. Liveris: I do not make a decision on where to site my factories based on labor costs. I make it based on—totally--around the policies to encourage me to invest there and the human capital to support. And that’s why, at the end of the day, we still have a chance in this country. It should be noted that chemical operations are capital intensive, not labor intensive.  Here’s a link to some data from the Census Bureau’s 2002 Economic Survey. For chemicals, the value of shipments per paid employee is more than twice the average for the entire manufacturing sector. And the chemical industry’s average ratio of shipments to payrolls stood at 10.33. Only the petroleum and coal (35.00) and the beverage and tobacco (15.27) industries have higher ratios. At chemical plants, you see a lot of plumbing and reaction vessels, but not many people. The human activity typically occurs a) in the control room, (b) at the loading and packaging area, and c) at the guard shack. So when Liveris says the cost of labor isn’t a big factor in his decision making, we can’t necessarily assume that this applies to other manufacturers, making other kinds of products. Liveris made another point in the interview, one he makes often, which I think if very important to C&EN readers. This is that research and development will follow manufacturing overseas. Liveris: When you make stuff, you don’t realize that when you move the making somewhere else, then the people who know how to make it have the intellectual knowhow to make the next one. Zakaria: But now they are in China. Liveris: They’re in China. So you have lost the supply chain as well, and your creativity has created huge jobs elsewhere of the continuous kind. It’s not just the job of the first Kindle, it is the job of...

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