UPDATE 2-Dow Chemical to build specialty plants on U.S. Gulf Coast

Mon Mar 18, 2013 10:48am EDT

* Looks to tap cheaper shale gas in North America

* Expects plants to employ up to 3,000 workers at construction peak

March 18 (Reuters) - Dow Chemical Co said it plans to build several plants on the U.S. Gulf Coast to take advantage of cheap shale-derived natural gas to produce plastics used in areas such as transportation and telecommunications.

The U.S. plastics-producing industry is increasingly shifting away from oil-derived naphtha, the key feedstock for the petrochemical industry. It is also investing billions in plants that run on ethane, made from shale gas.

Over the past few years, Dow has changed its focus from low-margin commodity chemicals to high-margin specialty materials. The biggest U.S. chemical maker said last week that it planned to raise $1.5 billion from asset sales over the next 18 months to focus on high-margin businesses.

Margins in Dow's performance plastics business, which accounts for a quarter of total sales, have improved in North America as the company uses cheap natural gas to make some plastics in the region.

In contrast, margins have been squeezed in Europe and Asia where it uses more-expensive crude oil-derived naphtha.

Dow said on Monday that the plants will employ up to 3,000 workers at construction peak, but did not specify how much it intends to invest.

"These moves directly support Dow's transformational strategy to create additional competitive advantage for Dow's performance businesses by expanding access to advantaged natural gas-based feedstocks," the company said in a statement.

The facilities will manufacture materials for several of Dow's fastest growing market segments, including packaging, hygiene and medical, electrical and telecommunications, transportation, sports and leisure and consumer durables.

Dow, which is exploring specific location options on the U.S. Gulf Coast, said the new units will cater to markets in North and South America.

A glut of natural gas liquids like ethane in North America has led to a handful of announcements about new plants that convert ethane into ethylene, a building block for many plastics.

Dow, a proponent for a go-slow policy on natural gas exports, warned that shipping the fuel abroad would mean fewer domestic factory jobs.

Using ethylene in specialty products will help the company beat downturns in the commodity chemical cycle. The company's ethylene production plant on the U.S. Gulf Coast is expected to go online in 2017.

Dow also said it had reached an initial agreement to provide ethylene to a petrochemical plant on the U.S. Gulf Coast, being developed by Japanese oil refiner Idemitsu Kosan and trading house Mitsui & Co.

Dow spokeswoman Nancy Lamb declined to disclose the cost of the new plants or the terms of the ethylene supply deal for the Idemitsu Kosan-Mitsui joint venture.

Dow shares were down about 1 percent at $33.41 on Monday on the New York Stock Exchange.

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