Dow to shut 20 plants, idle 180 more as part of reorganization
Chemical companies are taking dramatic steps to cut back capacity in era of low demand
by Staff -- Purchasing, 12/8/2008 10:57:00 AM
Dow Chemical provide more details this week about its ongoing restructuring that includes major capacity reductions and realignment of the company’s businesses into three main focus areas.
Demand for chemicals is slumping. According to the latest survey just out from Purchasingdata.com, only 13% of chemical buyers polled plan to increase spending in the next quarter, while 60% plan to cut chemicals spending.
In an effort to reduce its production capacity in an era of declining demand, Dow Chemical is closing 20 facilities and temporarily idling another 180 plants around the world. As a result Dow will also cut 5,000 full-time jobs, or about 11% of its global staff, as well as about 6,000 contractor positions.
Under a newly developed alignment, Dow will comprise three operating models: a joint ventures and asset-light business, a performance-products unit and a health/agriculture/advanced materials unit. Dow said it would provide specific details on the businesses early next year.
“We are accelerating the implementation of these measures as the current world economy has deteriorated sharply, and we must adjust ourselves to the severity of this downturn,” says Dow CEO Andrew Liveris in a statement. “We are moving from a highly centralized and standardized approach, to operating three very different business models with a lean and efficient corporate center.”
As part of that new strategy, last week, Dow announced another joint venture in the Middle East, K-Dow, a 50/50 joint venture with Petrochemical Industries Company of Kuwait. A year ago, Dow sold $9.5 billion worth of its operations into a joint venture with Kuwaiti state-owned Petrochemical Industries Co.
With demand for chemicals slumping and feedstock costs declining, Dow officials say previously enacted price hikes have slipped back. According to arecent news report, Dow CFO Geoffery Merszei last week told a Citigroup chemicals conference that the industry is experiencing significant pricing pressure due to slumping global economies and sliding oil prices. “A lot of these price increases (enacted earlier in the year) we have to give back,” he said. “There is a lot of pressure on pricing, and pricing is dropping.”
According to the latest buyers’ survey from Purchasingdata.com, 85% of chemicals buyers reported either flat or down chemicals prices last month, as
Dow is not the only chemicals giant cutting back. Last week DuPont announced it was cutting 2,500 jobs, or about 4% of its work force, dismissing 4,000 contractors and temporarily halting production at 100 sites.
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