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Dow Chemical, Saudi Aramco JV Sadara Commissions Last Plant

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The joint venture of Dow Chemical and Saudi Arabian Oil Company (Saudi Aramco), Sadara Chemical Company, has completed the commissioning of the last of its 26 plants, marking an important milestone for the massive chemicals facility in Jubail, Saudi Arabia. The last plant is the region’s first isocyanates facility.   

Sadara is the world’s biggest integrated chemicals complex built in a single phase. The facility comprises of flexible cracking capabilities and is expected to manufacture over 3 million tons of high-value performance plastics and specialty chemical products annually.

The last commissioned plant is an isocyanates section currently making crude quantities of toluene di isocyanate (“TDI”) and other specialty chemicals. The TDI section is comprised of three integrated units producing di nitro toluene (“DNT”), toluene di amine (“TDA”) and toluene di isocyanate (“TDI”). TDI is primarily used in making flexible polyurethane foam for furniture, mattresses, cushioning and car seats and also has other industrial uses. The TDI unit commenced production this week while the DNT and TDA units started operations in April.

The isocyanates section also includes a facility producing polymeric methylene di phenyl di isocyanate (“PMDI”) that started making commercial quantities in early June. Sadara is also producing another important polyurethane precursor, polyether polyols. The polyols facility came online in late July.

The Sadara complex started the operations of its mixed feed cracker – the heart of its operations -  in Aug 2016. Its four polyethylene production units came onstream between late 2015 and early 2017.

Saudi Arabia aims to diversify the economy with the inclusion of Sadara, which will add value to the existing petroleum reserves and manufacture chemicals that are not currently produced in the Middle East. Moreover, Sadara will increase employment in the region.

Dow has been investing in Saudi Arabia for over four decades. The company is one of the largest foreign investors in the nation. Sadara is in line with Dow’s initiative to grow in the Asia Pacific, Middle East, India, Africa as well as Eastern and Central Europe with cost advantages. The company aims to expand in markets including packaging, electronics, construction and transportation. Sadara will cater the needs of Dow’s customers in the Asia Pacific, India, the Middle East, Africa and Central and Eastern Europe.

Dow has outperformed the industry it belongs to over a year. The company’s shares have gained around 21% over this period, compared with roughly 18.1% gain recorded by the industry.

Dow topped earnings expectations in second-quarter 2017, on the back of its cost-cutting and productivity actions, improved pricing and continued focus on consumer-driven markets. The U.S. chemical giant registered adjusted earnings (barring one-time items) of $1.08 per share for the quarter that comfortably beat the Zacks Consensus Estimate of $1.01.

Dow is witnessing improved global economic activity with strong momentum in manufacturing, investment and trade. The company believes that it is well positioned to capture demand in consumer-led markets.

Dow currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Better-placed companies in the chemicals space include The Chemours Company (CC - Free Report) , Kronos Worldwide, Inc. (KRO - Free Report) and BASF SE (BASFY - Free Report) all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Chemours has an expected long-term earnings growth of 15.5%.

Kronos has an expected long-term earnings growth of 5%.

BASF has an expected long-term earnings growth of 8.6%.

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