Dow CEO Sees Strong Demand Across Several Sectors

Where are we in that cycle when it comes to demand maybe starting to pick back up and what that means for inventories? Morning, Katie, great to be with you and that’s a really good point. As as we look back to mid 2022, coming off of a record peak in 21, we started to see a slowdown in the economy and there was a lot of discussion then around destocking and 2023 kind of being the bottom of the economic cycle for the chemicals industry. This quarter is the second consecutive quarter we’ve seen volume growth. We saw 1% volume growth this quarter. If you exclude our hydrocarbons and energy sales byproduct sales off of our cracker complex, you’d see 5% downstream demand growth. So that’s pretty strong. And with the guidance we gave for second quarter, which is about a $200 million improvement in earnings in second quarter, that will get us to positive year over year comps. And so that’s to me as a bit of a sign that we’re starting to see the turn happening. We typically in our industry tend to lead into a slowdown and then we also tend to lead out of it when things start to turn. So maybe that turning point, of course, we’re approaching it, maybe it’s already here. But let’s situate this conversation in the macroeconomic backdrop. Of course, if you take a look at what markets are pricing in right now, now the first rate cut has been pushed to December. I remember when people were saying they would start in March. And if that’s true that interest rate cuts are delayed, does that delay a stronger rebound in demand for durables for construction from your customers? How are you thinking about that? We have strong demand growth in several sectors right now before any rate cuts that I think is going to continue through the year. If you take a look at automotive, I think we’ve seen very strong growth there. Industrial electronics, whether it’s through automation or data centers or chip production, a lot of our silicones business which goes into thermal management, a lot of our infrastructure business and wiring cable in our PNSP, our packaging, especially plastics business are seeing strong demand growth. Pharma in our industrial intermediates business is seeing strong demand growth. And then the core of our business, our packaging business is seeing good volume growths. Our whole polyethylene portfolio was up. Chemical shipments in the first quarter were up almost 4% year over year, 4.3 I think in the month of March. And so that’s a good sign that and on a global basis up 3.6%. So I think you’re starting to see that in the industrial markets, the telecommunications market, consumer electronics, automotive, packaging, we’re seeing really resilient signs there. When you get to housing, those effects things like our coatings business for paints, our polyurethanes business for insulation, as well As for furniture and bedding and durable goods like appliances, those tend to start to move. When you see existing home sales move up or new home sales move up, permits for new homes are starting to inch up. Existing home sales still relatively flat. But in our experience, once you see a couple of rate cuts, you see a pretty immediate step up in those demand drivers for those businesses. So that’s good. You mentioned earlier lower feedstock and energy costs. I would say we saw about a 10 percentage point increase in operating rates in the first quarter. A big portion of that was in Europe. Energy costs were €47 a MW hour. A year ago, they were €27.00 a MW hour. In the first quarter, we took advantage of that and with our low cost positions in Europe, we saw pretty profitability there. So big improvement there in that measure. But I let’s go global right now. You brought up some of the global influences, but let’s talk about global chemical prices. Of course, when it comes to the last 18 months, they’ve been pretty depressed. You’ve had some excess supply from China, for example, being brought on. How confident are you that we’re maybe past the bottom? Or do you think there’s more to go? We saw pricing move up through the first quarter in our ethylene and polyethylene franchises. So that’s a positive sign with both price and volume moving in the right direction. We also saw prices move up in our siloxanes and silicones business in the first quarter and operating rates move up there as well. So 2 positive trends. And that leaves, again, the construction related businesses who have yet to move up. So I would say we’re seeing that underlying demand strength even in China. We were up in volume in our Industrial Intermediates business and and in our polyethylene business, we were up double digits in the first quarter in China. And so I think that shows you just what a cost advantage we have in the Americas to be able to supply that demand. Interesting comments around China, of course from automakers to Apple, there’s been a lot of fear about China, but it sounds like you are moving past that. But let’s talk about Europe. When you think about Europe’s chemicals industry, what is the earnings cycle look like there? We know the chemical companies in the US have been going through it, but what about Europe? We have a bit of an advantage position in Europe because we we crack light in Europe, we crack more propane in our crackers in the Netherlands and in Spain. And so propane to nap those spread has increased pretty dramatically and that’s a cost advantage that we have that others in the market don’t have. We’re focused on the domestic market. And so the thing we want to watch long term in Europe is can these energy costs stay low like they are today. And what happens to the downstream demand, We’ve seen some announcements of higher cost assets in Europe shutting down. We’ve seen some announcements on energy intensive industries like steel shutting down. We have to watch the demand and see what happens with our downstream customers in places like appliances in automotive and and make sure that our footprint is sized to serve that market long term. Clearly the cost advantage is in Canada, the United States, Latin America and the Middle East with Europe have been moved into the high cost position last year and Asia Pacific kind of at the top end of the curve and what sets the the pricing for them is the price of oil. And I mean Speaking of cost advantages, you take a look at your US gas costs advantage, this is from of course Bloomberg Intelligence. That advantage versus your global competitors, it appears to be heading back towards record levels. How much of A tailwind was that to your first quarter earnings? You had over $100 million of improvement in the first quarter just from lower feedstock and energy costs around the globe. The European numbers I I quoted you from on an electricity standpoint as well as the US natural gas advantage.