Dow Inc. (NYSE:DOW) Q4 2022 Earnings Call Transcript

Matthew Skowronski: Good morning. This is Matt Skowronski on for John. Two commodities that Dow participates in, siloxanes and MDI, have had competitor capacity come online recently. You called out weaker pricing in siloxanes in your guide for the first quarter. But can you just talk about how long you expect it to take for pricing these commodities to recover?

Jim Fitterling: Yes, good morning. And thank you for the question. I think we’ll see a little bit of demand improvement. But siloxanes prices have fallen to their lowest levels in some time at the end of the year, and so we start the year at those levels. I don’t think we’re expecting any immediate improvement. The downstream demand still continues to be good. Building and construction will be the thing that I think will start to tip it to the positive. So if we see a good rebound in building and construction in China, that should start to pull things to the positive and lift things up. North America has been fairly resilient. And North America and Europe are typically slightly higher than the Chinese prices, and that continues to be the same case today.

So I — that’s my outlook on siloxanes on. On MDI, I would say the biggest difference between what’s reported in the markets on MDI in our view, is just what you believe about the RTO timing of some of the Chinese competitions, new plants that are coming online. I think our view is that, that’s going to be stretched out over a longer period of time. Most of what’s reported would have all that 4 world-scale MDI facilities coming on in 2023. I don’t think that’s our view of how that’s going to happen. That would be more spread over the 2023 to 2025-time period. And so I think that will take some of that pressure off of MDI. Downstream demand for MDI and for systems and the application that it goes into is really good so I don’t feel worried about that.

That’s purely what your assumptions are about — that our new demand coming — or new supply coming online and the time frame

Operator: The next question comes from Christopher Parkinson of Mizuho. Please go ahead.

Christopher Parkinson: Great. Thank you so much. You have a very helpful slide given all your growth expansions on Slide 10. And obviously, there’s been a lot going on regarding the and the polyethylene side over the last few years. But when we all take a step back, just given all the volatility and the macro headwinds, how should investors now be thinking about normalized earnings that we’re thinking about ’24 when we’re looking out to ’25 or even perhaps especially in the context of potentially lower NGL prices. Just do you have any updated thoughts on that? Thank you.

Jim Fitterling: Good question, Chris. I would go back that this is the basis of obviously, the earnings corridor slide that we put together and we shared last year and at earnings day back in 2021. And so if you look at it, I think we look at the midrange of the kind of the through-the-cycle range as being what we target for the growth. And that’s kind of how we report the growth. And then peak potential would be when you would see those scenarios like you mentioned with lower NGL prices and higher oil prices. Now like we got into with 2021 and the first half of 2022, that was kind of peak levels for plastics. I do think the possibility exists that oil price is going to continue to be driving higher because we’ve had underinvestment in oil production, inventory is at the bottom of their five-year average.

And if you started investing in oil production today, it would be three to five years before you would see any movement in that number. And I do think that any demand pull on that is going to start to move oil prices up, anything speculative that happens will move it up quickly because those inventory levels are so low. Meanwhile, NGL production is continuing to grow at a pretty good clip. I think it’s going to be up pretty substantially here in the United States this year. And so that keeps costs down on NGLs. And so that’s positive. So Canada, U.S., Argentina, I feel good about the positions we have there. Obviously, Kuwait, Saudi Arabia, we feel good about that. Our cracking into news and Spain. I think that’s positive. So you’ve seen the high watermark for plastics, delivered $8 billion of EBITDA which is right in line with what we’ve got here with peak potential, EBITDA range.

And I think we’re trying to get in other segments up to that peak potential as well. So I feel good about where we’re going long term, and that’s also one of the reasons we wanted to make the investment in Canada, if all the conditions are right, we want to make that investment to continue to leverage that position. Hard to say what’s going to happen with all that energy policy, plays a big part in it. I think the one thing that governments aren’t correctly addressing is that all the things that we’ve passed for IRA, for new alternative technologies, that’s all great. We’re very supportive. It’s a fantastic package. We also need some support for conventional oil and gas production because we are going to need a reliable power and natural gas is going to provide the low carbon reliable power for the foreseeable near future.

Howard Ungerleider: I would also just say that, I mean, when you think about that earnings corridor of 6% to 12% and then moving to the middle of the decade into the $7 billion to $13 billion range with all the CapEx and OpEx investments we’re making, if you just want to look at the mathematical average, right now, that’s about a $9 billion normalized through the cycle. And then by the middle of the decade, that should be in the $10 billion range by the middle of — in terms of the mathematical average in a normalized view by the middle of the decade.

Operator: Thank you. The next question comes from Frank Mitch of Fermium Research. Please go ahead.