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The Dow Chemical Company (DOW - Analyst Report) announced an initial agreement for a long-term off take agreement with a new joint venture (JV) to be formed between Idemitsu Kosan Co., Ltd., and Mitsui & Co., Ltd. Idemitsu and Mitsui are Japanese companies and the joint venture pertains to the construction and operation of a Linear Alpha Olefins plant on the U.S. Gulf Coast.

The joint venture is in the Front End Engineering and Design (FEED) phase, which will be completed in 2014. Dow expects the agreement with the joint venture to enable a long-term supply and purchase relationship for linear alpha olefins, which will enhance its performance plastics franchise.

Dow believes that the joint venture will utilize an integrated supply of ethylene from Dow's production grid on the U.S. Gulf Coast to produce linear alpha olefins used as comonomers throughout Dow's performance plastics franchise. The joint venture is also expected to contribute significant capital for these rights.

Dow stated that the agreement reflects its commitment to invest in projects that provide high returns and it is in line with Dow’s strategy to integrate cost-advantaged feedstocks to support profitable growth of the company’s high value Performance Plastics franchise. The deal also helps Dow build strategic relationships that enable it to derive economies of scale and improve capital efficiency.

Dow did not disclose the financial terms of the agreement and stated that the location options for the linear alpha olefins unit are currently being explored. Construction and start-up of the new unit is targeted for 2016.

Apart from this, Dow also announced that it plans to build a number of specialty material production plants on the U.S. Gulf coast to leverage feedstock advantage available from increasing supplies of shale gas in North America.

Dow expects to ramp up the Performance Plastics capacity along the U.S. Gulf coast and plans to construct new facilities along the Gulf Coast. These facilities will likely include a number of technologies that will manufacture materials for Dow’s fastest growing market segments including packaging, hygiene and medical, electrical and telecommunications, transportation, sports and leisure, and consumer durables.

Dow currently retains a short-term Zacks Rank #3 (Hold). Other companies in the chemical industry having favorable Zacks Rank are Akzo Nobel NV (AKZOY), Axiall Corporation (AXLL - Snapshot Report) and Air Products and Chemicals Inc. (APD - Analyst Report). All of them hold a Zacks Rank #2 (Buy).

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