NEW YORK Dow Chemical Co and Mitsui & Co Ltd have formed a joint venture to turn sugar cane into ethanol and plastic, an area widely considered the future of the chemical industry.
The move directly challenges Braskem SA, Brazil's largest chemical company, which last fall opened its own plant to turn sugar cane into plastic.
Dow downplayed any perceived conflict, saying the market for renewable chemicals can accommodate many players.
"We didn't look at this as taking share from anyone," said James Fitterling, Dow's president of corporate development and hydrocarbons. "We looked at it as supplying green alternatives to our customers. We know from our customer demand globally there's plenty of pull for these products."
Financial terms of the Dow-Mitsui deal, announced on Monday, were not disclosed.
Japan-based Mitsui will buy a 50 percent stake in Dow's Brazilian sugar cane operations.
By partnering with Mitsui, Dow is essentially cutting its own risk in the unlikely event the sugar cane operation fails. But the company and its shareholders also lose out on a full share of profits.
The venture will make ethanol once a plant is constructed, and then expand into plastics for the packaging industry.
The plant will be able to produce 240,000 cubic meters of ethanol per year. Construction is expected to begin in the third quarter of 2011, and the plant should be operational by the second quarter of 2013, a Dow spokesman said.
The name and headquarters of the JV have yet to be determined.
Dow first announced its sugar cane operation in 2007 as part of a joint venture with the now-defunct Crystalsev. Dow bought Crystalsev's stake after its collapse and has since been searching for a new partner.
Dow already grows sugar cane on roughly 42,000 acres in Brazil.
Dow has long had a policy of forming joint ventures with peers. It has separate joint ventures with Corning, Petrobras, Exxon Mobil and several Kuwaiti state-owned firms.
Dow and Mitsui also have another joint venture, based in Texas, that produces chlorine.
Shares of Michigan-based Dow were up 1.5 percent at $34.80 on Tuesday afternoon. The stock has traded between $22.55 and $42.23 in the past 52 weeks.
Shares of Mitsui trading on pink sheets in New York were up 2 percent at $371.75.
(Reporting by Ernest Scheyder; Editing by Gerald E. McCormick, Matthew Lewis and Bernard Orr)