Following the footsteps of Royal Dutch Shell plc (ADR) (NYSE:RDS.A) and LyondellBasell Industries NV (NYSE:LYB), Dow is aggressively expanding into ethylene. It has restarted a cracker in Louisiana and is setting up a new one in Texas. Dow clearly doesn’t want to miss the opportunity low ethane (a natural-gas component that produces ethylene) prices have thrown up.
Lyondell, which has lined up several projects, views it as a “seize the moment” time. It is about to kick off one of the first projects in the U.S. that will up its U.S. ethylene capacity by nearly 20%. Three of its capacity-expansion projects revolve around Texas, and most should be over by 2015. In fact, as the world’s largest polypropylene maker, many are expecting Lyondell to be a front runner for Dow’s unit.
Dow’s other goal is to take its polyurethanes business to an altogether new level. It has proved to be the most profitable business for Huntsman in recent times. Huntsman Corporation (NYSE:HUN) currently dominates the market with 18% share. While Dow is at 12% clip currently, it could well overtake Huntsman Corporation (NYSE:HUN) once its would-be world’s largest petrochemical facility that is currently underway in Saudi Arabia starts operating by 2016. With the Asia-Pacific region as the main target, this project will be The Dow Chemical Company (NYSE:DOW)’s window to emerge as a global leader.
What you can expect
Dow expects to raise $1.5 billion from the sale of the two units. Its war chest just got heavier with a $2.5 billion award for damages in an arbitration case with a Kuwait- based company. These, together with planned reduced capital expenditure of about $2 billion this year, should push up Dow’s free cash flow (currently at $1.5 billion) significantly.
Like DuPont, Dow wants to use the extra cash to pare down debt while rewarding shareholders. Any improvement in Dow’s current total debt-to-equity ratio of 124% will be welcomed by investors. In 2012, Dow increased dividend by 34%, and in February it announced a $1.5 billion buyback program.
One can expect a lot more bounties as Dow gets leaner and better. More important, the two businesses I detailed here aren’t the only ones Dow is spreading its wings over. A lot is brewing in other areas as well. I’ll tell you more in an upcoming post together with what you should do with Dow’s stock now. Stay tuned.
The article An Easy Way to Get Cash-Rich This Year originally appeared on Fool.com and is written by Neha Chamaria.
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