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Dow Chemical (DOW), Saudi Aramco JV Sadara Inaugurated


The joint venture of The Dow Chemical Company DOW and Saudi Arabian Oil Company (Saudi Aramco), Sadara Chemical Company, was inaugurated by King Salman bin Abdul-Aziz Al Saud. The JV is part of the growth and economic diversification strategy of the country under its Saudi Vision 2030 plan.

The Sadara complex consists of 26 production units, making it one of the largest integrated chemical facility globally and also the largest built in a single phase. The facility comprises of flexible cracking capabilities and is expected to manufacture over 3 million metric tons of high-value performance plastics and specialty chemical products. The company aims to take advantage of the fast growing markets, including transportation, infrastructure, packaging and consumer products.

The Sadara complex has commenced its Mixed Feed Cracker along with commissioning three polyethylene trains, qualifying 25 products as well as shipping polyethylene to nearly 100 customers spread in over 25 countries. The venture is on schedule for a sequenced start-up process, continuing with the polyethylene and polyolefins envelope, the propylene oxide/isocyanates/polyurethanes envelope, and finally the ethylene oxide/propylene oxide/specialty chemicals units.

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, the venture will increase employment in the region. Dow Chemical expects to add 4,000 jobs directly and 10,000 indirectly for Saudi nationals as well as foreigners.

Dow Chemical has been investing in Saudi Arabia for over 4 decades and employs more than 500 individuals in the country. The company is one of the largest foreign investors in the nation. Recently, Andrew Liveris, CEO of Dow Chemical, also met H.R.H. Deputy Crown Prince Salman Al Saud, to discuss the company’s existing investments and potential opportunities in line with Dow Chemical’s growth strategy and the Saudi Vision 2030.

In June, Dow Chemical was the first company to be given a trading license in Saudi Arabia, allowing 100% ownership in the country’s trading sector. The company has a number of other joint ventures in the country, including one with Juffali & Brothers and another with Saudi Acrylic Monomer Company (SAMCo).

The company’s other investments include agreements with King Abdullah University of Science and Technology (KAUST) to build a new Dow Middle East Research and Development Center, and a Reverse Osmosis manufacturing facility. The facility would be the first unit of its kind outside of the U.S.

Shares of Dow Chemical closed 3.2% higher at $55.72 on Nov 30.

Dow’s adjusted earnings for third-quarter 2016 topped the Zacks Consensus Estimate, aided by its productivity and cost-reduction actions. However, profit (as reported) slid year over year, hurt by charges related to the Dow Corning ownership restructure. Revenues rose year over year, and beat expectations.

Dow should benefit from its productivity and aggressive portfolio management actions as well as strategic investments in the U.S. Gulf Coast and the Middle East. The company is also moving forward with its planned mega-merger with DuPont DD, which is expected to create significant synergies. Dow should also gain from cost synergies associated with Dow Corning Silicones business in 2016.

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

Other Stocks to Consider

Better-ranked companies in the chemical space include The Chemours Company CC and FMC Corporation FMC, both 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 growth of 15.5%.

FMC has an expected long-term growth of 10.88%.

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