Dow Chemical and DP World sign storage and shipping deal

DP World says it has signed a storage and shipping deal with Dow Chemical, aimed at supporting the US company’s plan to establish its regional trading centre at the Jebel Ali port.

The deal follows prolonged negotiations between the two parties, and after Dow Chemical began ramping up its US$20 billion Sadara joint-venture petrochemicals plant with Saudi Aramco.

The plant is in Jubail Industrial City II, on the Red Sea coast of Saudi Arabia’s Eastern Province.

DP World and Dow Chemical declined to provide details about the deal, citing “confidentiality obligations”, but Moosa Al Moosa, Dow Chemical’s UAE head and regional finance chief, had indicated the significant scope of the deal.

In reference to the deal, he had said: “I’ll need a lot more warehouses, a lot more containers. In terms of storage, we would be thinking about storing US$1.5 billion worth of products here at Jebel Ali.” He also said that would mean “a tenfold increase” in Dow Chemical’s storage and handling requirements.

The US company’s Dubai office is expected to be the centre of its trade for the region, especially for growing markets in India, Africa and other Middle Eastern countries. The office will also handle products from its coatings plant at the Jebel Ali Free Zone, which it acquired with the $16bn purchase of Rohm and Haas, a chemicals producer, six years ago.

Mr Al Moosa said the Dubai office would also process all the export documentation for the new Sadara plant, but Dow Chemical has been vague about how much of its physical products likely will pass through Jebel Ali.

The Sadara plant, the largest ever single-construction petrochemicals complex, is one of two key strategic planks for the company worldwide. The other is a similarly large new plant on the Gulf Coast of the United States.

At the end of June, Dow Chemical, the world’s second-largest chemicals company behind Germany’s BASF, said that construction of its 26 manufacturing units at the Sadara plant was 94 per cent completed.

The first production of polyethylene is scheduled to come onstream by the end of this year, with full site operations on track for the end of next year.

The Sadara complex will produce a vast range of chemicals, many of which will be sold to the nearby PlasChem industrial park in Jubail Industrial City II to be manufactured into products such as textiles, packaging and food additives.

The Sadara complex offers Dow Chemical cheap and flexible feedstock from its partner, Saudi Aramco, which will own 65 per cent of the venture. About 60 per cent of its products are expected to be sold to the growing Asian markets.

At the end of last month, Dow reported strong first-half earnings, continuing a run of improving results after the company’s restructure in the wake of the 2008 global financial crisis.

Although sales fell 13 per cent to about $13bn in the first half of the year, mainly because of lower oil prices, earnings per share rose 23 per cent to 97 US cents a share on stronger margins.

When it is fully operational, Sadara is expected to add $500 million a year to Dow Chemical’s after-tax earnings and contribute significantly towards the company’s goal of lifting earnings to $10bn.

There are some clouds on the horizon for petrochemicals producers, however, as Andrew Liveris, Dow Chemical’s chief executive, alluded to last month. “China remains a mixed bag,” he told investors on a conference call for the first-half results. “A very solid Q2 (second quarter) for us is not necessarily a harbinger of Q3.”

He later said that China’s market “is soft and getting softer”.

Petrochemicals companies also worry that Iran would increase its export of chemicals substantially following its agreement with world powers to curb its nuclear power programme in exchange for the lifting of sanctions.

Iran has ambitions to use its huge natural gas feedstock reserves to double exports to 75 million tonnes a year when it attracts sufficient foreign investment.

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