Tag: dow

There is now no reason to sell Dow Ag unless Dow Chemical (DOW) CEO Andrew Liveris intends to commit career suicide.

From the press release (emphasis mine):

Midland, MI – August 4, 2009 – The Dow Chemical Company (NYSE: DOW) today announced that it priced a $2.75 billion underwritten public offering of debt securities, including $250 million aggregate principal amount of floating rate notes due 2011, $1.25 billion aggregate principal amount of 4.85% notes due 2012, and $1.25 billion aggregate principal amount of 5.90% notes due 2015.

Dow intends to use the net proceeds of the offering to repay borrowings under the Company’s bridge loan, and for refinancing of other outstanding indebtedness. Borrowings under the bridge loan were incurred to pay a portion of the purchase price for Dow’s acquisition of Rohm and Haas Company.

Together with previously announced asset sales totaling $3.3 billion of gross proceeds (expected to be completed by year-end), today’s capital raising efforts will enable Dow to completely retire the outstanding balance of the bridge loan facility well ahead of its end-of-year commitment.

“Once again, investor confidence in Dow’s long-term strategic direction has been underscored with the completion of yet another oversubscribed debt offering,” said Andrew N. Liveris, chairman and chief executive officer. “When combined with proceeds from the asset sales we have already announced, this offering will enable us to fully pay down our bridge loan. It is further evidence of the Company’s commitment to enhancing liquidity and financial flexibility. At the same time, this provides us with more options in how we execute future non-core divestitures in order to further de-lever our balance sheet and free up capital for ongoing investments in our advanced materials, agricultural sciences and performance portfolios.”

There is no reason to throw that last line in unless you are signaling to the world that you intend to invest heavily in these areas and there is no reason to invest heavily in an area that you intend to sell soon. Why? Any investment in Dow Ag will not bear fruit for some time (years). That is simply the nature of the business. On does not discover a new genetic trait for corn to make it more drought resistant and bring that product to market in less than 2-4 years. That being said, there would be no reason to continue to make these investment if the possibility of a sale was definitive….none.

CSFB analyst John McNulty wrote the following:

• DOW took yet another step (the 7th one since their acquisition of ROH) towards their de-leveraging goal, this time with the issuance of $2.75 billion of debt securities, and is now well ahead of their original debt reduction targets
• This debt issuance along with the roughly $2.8 billion of proceeds from all of the pending asset sales essentially eliminates all of DOW’s near-term maturities ($4.1 billion on the bridge loans and $1.9 billion of legacy DOW debt coming due) and increases the company’s financial flexibility
• DOW has dramatically improved its B/S since the ROH acquisition by reducing its risk tied to near-term maturities and now has greater financial flexibility for ongoing investments in its core business
• There are also further catalysts in DOW’s horizon including the monetizing of the old K-DOW assets and/or Styron

This news follows successful debt and equity offerings in May when Dow raised $2.25 billion in new equity and $6 billion in new long-term debt. The latter was three-times oversubscribed.

Through a combination of these capital raises and asset sales, the company will be able to repay it well ahead of its year-end target date to repay the $9.2 billion bridge loan that it had used to complete the Rohm and Haas acquisition. Dow has announced asset sales totalling $3.3 billion of gross proceeds, including the sale of Morton Salt, its stake in the Dutch refinery TRN, and its calcium chloride business to Occidental Petroleum.

In other words, no Dow Ag sale…..

Disclosure (“none” means no position):Long DOW

Thankfully this is looking far less likely every time the subject comes up…..

From the Q2 earnings call:

Don Carson – UBS

Thank you. Andrew, question on Dow AgroSciences. You mentioned that, you are now thinking that you, because of its growth, it should be an ongoing part of the Dow portfolio. Is that really reflect the fact that you are not able to get the kind of strategic premium that you think the business is worth?

Andrew Liveris

Don, we have obviously always carefully positioned ourselves here on Dow AgroSciences and that continues on this call. Dow AgroSciences is a very, I would say valuable property to everyone we’ve talked to and of course that includes, how we view Dow AgroSciences and we were very, very deep into a full divest process, because frankly, there was no choice a few months ago.

During that period of time, we had to make a lot of decisions about how much of that process would go all the way versus our alternatives. As we undertook that process, it was clear there were buyers out there that viewed this property with the same value that we viewed it, but obviously, negotiations didn’t get down to an exclusive. We believed that, if it went that far, that we would definitely realize a good valuation on Dow AgroSciences.

The key question really, is would that be good for Dow’s shareholders and when I say that, the EBITDA potential of Dow AgroSciences demonstrated and into the future feeds our income stream and our ability to be an earnings growth company and helps us on our gross debt-to-EBITDA ratios. So, it’s counterintuitive to sell it at anything less than a full premium and I think that’s really the mindset we are in right now.

We are still having ongoing discussions. They include part monetizations and they include strategic alliance with key players in the sector and we are still maintaining full optionality on that unit and at this point in time, though as I said on the remarks, my personal preference is to retain it in the portfolio and seek enhanced collaborations with others.

Don Carson – UBS

As a follow-up, do you think if you retain it in the portfolio that it will be properly valued in what’s really not obviously in Ag portfolio or is that why you also consider options like a partial monetization, partial IPO?

Andrew Liveris

Yes, I think your question answered your question. I mean, in essence the way you phrased the answer is exactly the way we think about it, Don.

Here are my thoughts from the May when the initial possibility of selling Dow Ag was announced.

Bottom line, it cannot and will not be sold even at “full value”. Right now the only scenario I see that may happen is a partial IPO. I would be a buyer of that IPO as the products in Dow Ag’s pipeline are simply awesome and will propel earnings for years. That is a scenario I could live with, it is not ideal, but I could stomach it as long as I could participate in the IPO.

Disclosure (“none” means no position):Long DOW

There are two main items here:

1- The businesses Dow is retaining are profitable at these levels
2- The possibility of a Dow Ag sale seems to be slipping farther away almost daily

The cheat sheet:

Second Quarter 2009 Highlights
• Dow reported a loss of $0.47 per share. Excluding certain items and discontinued operations
in the quarter, the Company earned $0.05 per share, driven by favorable volume trends,
management’s accelerated cost interventions and the Company’s ability to maintain price
from the prior quarter.

• The Company is ahead of its commitments to reduce structural costs, with a decrease of more
than $375 million in costs in the quarter and more than $600 million year to date due to
ongoing cost reduction and restructuring efforts, as well as cost synergies achieved as a result
of the acquisition of Rohm and Haas. To date, the Company has achieved more than
70 percent of its 12-month cost synergy run rate goal, which began on April 1.

• Volume and price were each down 20 percent on a pro forma basis versus the year-ago
period. Sequentially, volume increased five percent with growth of at least 20 percent in
Electronic and Specialty Materials, Coatings and Infrastructure, and Performance Systems.

• Dow’s global operating rate improved seven percentage points to 75 percent versus the prior
quarter, driven by double-digit volume growth (compared with pro forma sales) in Asia
Pacific; India, Middle East and Africa (IMEA); and Latin America.

• At a company level, EBITDA excluding certain items improved sequentially by 64 percent
on a pro forma basis. This was driven by increases in the Advanced Materials and
Performance Products and Systems segments, which were up by $634 million; and Basic
Plastics, which improved by $284 million. Health and Agricultural Sciences decreased by
$238 million due to declines in agricultural chemicals.

What to look for in the future?

1- Dow Ag sales officially comes off the table
2- The dividend……does it get raised?
3- Operating rates creep above those of last year
4- Basics division, does it get sold?

Pretty simple. Management is great at controlling costs and is very proactive in that area. I would not expect the any dividend action this year or even into next depending clearly on what happens with additional asset sales. But it is something to watch that is a clear determinant of the general health of the company and managements outlook.

Shares are up 46% this year (down 30% for the past 12 months). When shares cratered in March to $6 it was the buying opportunity of a lifetime in shares (no I did not get them there, we bought at $8-$9). Dow’s overall business environment continues to improve so I will hold shares.

Full Report:
Dow Chemical Q2

Disclosure (“none” means no position):

Dow Ag is not acting like a division of Dow Chemical (DOW) about to be sold……..good.

From the IBJ.com:

Dow AgroSciences has signed a 15-year lease that will spur construction of an 80,000-square-foot research-and-development building, to be erected adjacent to its headquarters in northwest Indianapolis. As a result, the company plans to hire dozens of additional researchers.

Dow AgroSciences’ new two-story building will be developed and owned by Indianapolis-based Browning Investments Inc., which also will be general contractor on the project. It will be in Browning’s Northwest Technology Campus.

Terms of the deal were not disclosed. The Indiana Economic Development Corp. offered Dow AgroSciences up to $2.4 million in performance-based tax credits and $120,000 in training grants based on the company’s hiring plans.

The local office of Los Angeles-based CB Richard Ellis served as leasing agent. The building was designed by Indianapolis-based BSA Lifestructures and will house laboratories for about 100 researchers—a combination of existing employees and new hires.

Groundbreaking will occur next month. Dow AgroSciences anticipates occupying the building by mid-2010.

The deal strengthens Dow AgroSciences’ local roots. Its parent, Midland, Mich.-based Dow Chemical Co., this year has been evaluating whether to divest the agricultural chemicals and biotech business. Dow Chemical is expected to announce its intentions for the business this summer.

Dow AgroSciences CEO Jerome Peribere declined to comment directly about whether a sale is off the table, saying it’s not his decision. But he went on to note that Dow Chemical’s financial position has improved since the first quarter, when the company was “fairly stressed.”

“Dow AgroSciences is clearly a strategic asset for the Dow Chemical Co. And the divesture of Dow AgroSciences would be, as [Dow Chemical CEO] Andrew Liveris has said several times, counter-strategic,” Peribere said.

“Therefore, the fact that Dow Chemical has restructured its balance sheet and is continuing to proceed with nonstrategic divestures, I would only comment this is all very good news for Dow AgroSciences.”

“We love being here,” Peribere added.

Peribere noted that Dow AgroSciences has been regularly expanding. Its headcount was less than 1,000 three years ago, he said, and now stands over 1,200.

This comes on the heals of a recent acquisition, and comments from the company that seemed to back off their original statements about it being on the block.

Perhaps this is some of the reason for the recent price run from $14 to $20 (up from $8 at its low), the confidence by the market this growth engine for Dow will remain not only part of it but a substantial contributor to earnings as we go forward.

Now of course until they actually come out ans say “Dow Ag is of the block”, anything is possible. But given recent statements and actions, one would have to think an outright sales at this point is remote.

Disclosure (“none” means no position):Long DOW

Simply put, this will be ” the largest introduction of a corn biotech seed product in the history of agriculture.”

From the release:

U.S. and Canadian farmers are one step closer to realizing the greater whole farm corn yield advantages of a new corn seed trait combination that will provide the most comprehensive insect and weed control and allow farmers to significantly reduce their refuge. These benefits will be realized through SmartStax™, which is the outcome of a cross licensing agreement and research and development collaboration signed in 2007 between Monsanto Company (NYSE: MON) and Dow AgroSciences LLC, a wholly owned subsidiary of The Dow Chemical Company (NYSE: DOW).

SmartStax, the agriculture industry’s most advanced, all-in-one corn trait platform, received registration from the U.S. Environmental Protection Agency (EPA) and regulatory authorization from the Canadian Food Inspection Agency (CFIA) and remains on track for a 2010 commercial launch. SmartStax combines each company’s industry-leading corn traits to provide farmers the absolute broadest spectrum of above- and below-ground protection available against insects and weeds versus any product in the market today.

Using multiple modes of action for insect control is the state-of-the-art proven means to reduce structured refuge and maintain long-term durability of corn trait technologies. SmartStax uniquely features a combination of insect control traits that significantly reduces the risk of resistance for both above- and below-ground pests. As a result, the decisions by the EPA and CFIA will allow reduction of the typical structured farm refuge from 20 percent to 5 percent for SmartStax in the U.S. Corn Belt and Canada, and from 50 percent to 20 percent in the U.S. Cotton Belt.

As part of today’s announcement, the companies noted that the new corn seed technology is expected to be offered to farmers on 3 million- to 4-million-plus acres in its first year of availability. The product’s launch would represent the largest introduction of a corn biotech seed product in the history of agriculture.

“Farmers are the real winners with SmartStax,” said Robb Fraley, Monsanto Chief Technology Officer and Executive Vice President. “The 5 percent refuge for SmartStax will give farmers a tremendous advantage to increase whole farm corn yield 5 to 10 percent. This is a key early step in our commitment to helping farmers sustainably double yields by 2030 to meet the increasing demands for grain for food, feed and fuel. This reduced refuge will be easier for farmers and will further reduce insecticide use while reducing grower risks and enhancing the long-term durability of the technology.”

If we haven’t talk enough here about the reasons for Dow NOT to sell Dow Ag, here is another. Let’s also not forget that Dow and Monsanto have a 10yr. agreement to develop more products by sharing each other seed lines. That means this is the first of more to come.

It is also true that the significance of this is being ignored/not understood by the media and investors. We live in a time in which we are being told “buy farmland” because the world population is on a relentless surge and folks need to eat, inflationary pressures should the develop favor physical things and biofuels are here to stay and corn is their principle feedstock. So, we now have an item that has shown to boost yields 5%-10% and there is not much being said about it? For those not sure, a 10% yield boost to a farmer is simply massive…

Again, after the year Dow has had, it is safe to say people are in a “prove it” frame of mind before taking the plunge. Who can blame them. It does mean that when it is proven, piling in will occur and we know that leads to rapid share appreciation. So
be patient and hold on when it happens.

SmartStax

Disclosure (“none” means no position):Long Dow ,None

Simply put, this will be ” the largest introduction of a corn biotech seed product in the history of agriculture.”

From the release:

U.S. and Canadian farmers are one step closer to realizing the greater whole farm corn yield advantages of a new corn seed trait combination that will provide the most comprehensive insect and weed control and allow farmers to significantly reduce their refuge. These benefits will be realized through SmartStax™, which is the outcome of a cross licensing agreement and research and development collaboration signed in 2007 between Monsanto Company (NYSE: MON) and Dow AgroSciences LLC, a wholly owned subsidiary of The Dow Chemical Company (NYSE: DOW).

SmartStax, the agriculture industry’s most advanced, all-in-one corn trait platform, received registration from the U.S. Environmental Protection Agency (EPA) and regulatory authorization from the Canadian Food Inspection Agency (CFIA) and remains on track for a 2010 commercial launch. SmartStax combines each company’s industry-leading corn traits to provide farmers the absolute broadest spectrum of above- and below-ground protection available against insects and weeds versus any product in the market today.

Using multiple modes of action for insect control is the state-of-the-art proven means to reduce structured refuge and maintain long-term durability of corn trait technologies. SmartStax uniquely features a combination of insect control traits that significantly reduces the risk of resistance for both above- and below-ground pests. As a result, the decisions by the EPA and CFIA will allow reduction of the typical structured farm refuge from 20 percent to 5 percent for SmartStax in the U.S. Corn Belt and Canada, and from 50 percent to 20 percent in the U.S. Cotton Belt.

As part of today’s announcement, the companies noted that the new corn seed technology is expected to be offered to farmers on 3 million- to 4-million-plus acres in its first year of availability. The product’s launch would represent the largest introduction of a corn biotech seed product in the history of agriculture.

“Farmers are the real winners with SmartStax,” said Robb Fraley, Monsanto Chief Technology Officer and Executive Vice President. “The 5 percent refuge for SmartStax will give farmers a tremendous advantage to increase whole farm corn yield 5 to 10 percent. This is a key early step in our commitment to helping farmers sustainably double yields by 2030 to meet the increasing demands for grain for food, feed and fuel. This reduced refuge will be easier for farmers and will further reduce insecticide use while reducing grower risks and enhancing the long-term durability of the technology.”

If we haven’t talk enough here about the reasons for Dow NOT to sell Dow Ag, here is another. Let’s also not forget that Dow and Monsanto have a 10yr. agreement to develop more products by sharing each other seed lines. That means this is the first of more to come.

It is also true that the significance of this is being ignored/not understood by the media and investors. We live in a time in which we are being told “buy farmland” because the world population is on a relentless surge and folks need to eat, inflationary pressures should the develop favor physical things and biofuels are here to stay and corn is their principle feedstock. So, we now have an item that has shown to boost yields 5%-10% and there is not much being said about it? For those not sure, a 10% yield boost to a farmer is simply massive…

Again, after the year Dow has had, it is safe to say people are in a “prove it” frame of mind before taking the plunge. Who can blame them. It does mean that when it is proven, piling in will occur and we know that leads to rapid share appreciation. So
be patient and hold on when it happens.

SmartStax

Disclosure (“none” means no position):Long Dow ,None

Dow Ag (DOW) is not acting like a company that is up for sale…

The Indianapolis Business Journal Reports:

Dow Agrosciences LLC said today it is acquiring the majority of assets of Illinois-based seed corn company Pfister Hybrids.

A sale price was not disclosed.

Under the terms of the agreement, Indianapolis-based Dow AgroSciences, a subsidiary of Dow Chemical Co. in Michigan, will acquire the Pfister brand and the sales and marketing areas, as well as the warehousing and administrative services. The Pfister brand will continue, and the company still will be headquartered in El Paso, Ill.

Pfister President Linda Brown will assume the title of general manager.

The addition of Pfister Hybrids will further expand Dow AgroSciences’ current seeds business in the United States as it anticipates introducing insect protection and weed control, and herbicide tolerance, technology within the next few years, the company said in a written statement.

“At Dow AgroSciences investing in innovation is the key to our future, and we look forward to building upon the Pfister tradition,” said Stan Howell, vice president, North America regional commercial unit for Dow AgroSciences.

Dow AgroSciences has global sales of $4.5 billion.

Pfister Hybrids was founded in 1936.

I’ve been adamantly opposed to a Dow Ag sale since it was first broached back in May. Since then Dow has risen funds through alternative channels and seems to be backing off the outright sale talk. These are all very good development.

So, what would be acceptable? A partial IPO of Dow Ag would do should it be absolutely necessary. What would be even better would be if they offered it to current shareholders first then sold any excess to the public (there would not be any).

Anyway, not often do we see a company about to be sold making acquisitions. That is the good news. It says to me that the “sale” of Dow Ag is becoming a more remote possibility as each days passes….

Disclosure (“none” means no position):Long Dow

BIO

Ken Caldeira – Ken Caldeira is the head of the Caldeira Lab at Stanford University, which conducts research to try to improve the science base needed to allow human civilization to develop while protecting our environmental endowment.

David Harrison – David Harrison is a practicing water resources lawyer in Boulder, Colorado, of counsel with the firm of Moses, Wittemyer, Harrison and Woodruff, P.C. He works as a consultant to The Nature Conservancy acting as senior advisor to the Global Freshwater Team, formerly the Freshwater Initiative, of which he was one of the co-founders. In that connection, he leads the strategic group on Ecologically Sustainable Hydropower. He is currently focusing on the application of that approach at several demonstration projects including the YangtzeRiver Basin in China and the ZambeziRiver Basin in southern Africa. In addition, he is working with the International Hydropower Association in examining ways to transform global standards and practices for sustainable hydropower.

Peter Murdoch – Pete Murdoch is a Research Hydrologist with the Watershed Research Group of the US Geological Survey in Troy, New York. Since 1982 he has lead research projects on watershed biogeochemical processes, and the effects of acid rain and climate change on aquatic systems. In the mid-1990s he served as the DOI representative to the White House Committee on Environmental and Natural Resources (CENR), and lead a pilot of a multi-agency collaborative assessment of the Delaware River based on the CENR ‘Framework for Environmental Monitoring and Research”. In 2004-06, Murdoch served as the DOI representative to an interagency committee that oversees the North American Carbon Program. He now is leading a multi-agency study on the effects of permafrost thawing on the hydrology, energy, and carbon budgets of the Yukon River Basin.

Michael P. Totten – Michael Totten has nearly three decades of professional work in promoting ecologically sustainable economic development at the local, national and international levels. At Conservation International’s Center for Environmental Leadership in Business (CELB), he focuses on engaging the business sector in opportunities to shrink the ecological footprints of their operations and products and advising them on ways to take action to offset these footprints with positive steps, such as preserving threatened biodiversity habitat.

Vijay V. Vaitheeswaran – Vijay V. Vaitheeswaran is a global correspondent for The Economist. He joined the magazine’s staff as the London-based Latin America Correspondent in 1992. Two years later, he opened its first bureau in that region in Mexico City. He wrote about political, financial and cultural developments in that part of the world until 1997, when he returned to the editorial headquarters in London. As the newspaper’s Global Environment & Energy Correspondent, he covered the politics, economics, business and technology involved in those topics from 1998 to 2006.

Disclosure (“none” means no position):

The release:

The Dow Chemical Company (NYSE: DOW) announced today that on June 30, its Board of Directors approved a restructuring plan which calls for the shutdown of a number of manufacturing assets, including ethylene and ethylene-derivative assets in the Company’s basics portfolio.

Consistent with the Company’s $1.3 billion synergy commitment related to the acquisition of Rohm and Haas Company, the restructuring plan includes a charge for the elimination of approximately 2,500 positions, which has been previously announced.

Dow will also recognize an impairment charge due to an expected loss on the divestiture of certain acrylic monomer and specialty latex assets, which is required for United States Federal Trade Commission approval of the Rohm and Haas acquisition.

“Consistent with Dow’s practice of active portfolio management, we continue to take quick and aggressive action to right-size our manufacturing footprint, particularly in our basics portfolio,” said Andrew N. Liveris, Dow chairman and chief executive officer. “These actions are also aligned with our strategic transformation, which focuses on preferentially investing for growth in our performance and advanced materials portfolios. In addition, we are making excellent progress on

achieving $1.3 billion in cost synergies from the acquisition, and today’s steps demonstrate our speed and determination to deliver these savings.”

Specific sites in the Company’s Basics portfolio that will be impacted include:
Ethylene Production
• An ethylene cracker in Hahnville, Louisiana
Ethylene Derivatives
• An ethylene oxide/ethylene glycol production unit in Hahnville, Louisiana
• An ethylene dichloride and vinyl chloride monomer facility in Plaquemine, Louisiana

These shutdowns are in addition to numerous other ethylene-derivative closures that have occurred as part of a restructuring program announced in the fourth quarter of 2008, specifically:
• A production unit in Seadrift, Texas, for the manufacture of NORDEL™ hydrocarbon rubber ceased production in the first quarter of 2009
• A low density polyethylene unit in Freeport, Texas, ceased production in the first quarter of 2009
• A production unit in Plaquemine, Louisiana, for the manufacture of TYRIN™ chlorinated polyethylene ceased production in the first quarter of 2009
• A styrene monomer production unit in Freeport, Texas, ceased production in the fourth quarter of 2008

These shutdowns, when taken in total, will reduce the Company’s ethylene demand by approximately 30 percent on the U.S. Gulf Coast. As a result, Dow expects to eliminate its purchases of ethylene from the merchant market (approximately three billion pounds annually), improving the Company’s cost position while fully integrating ethylene production with internal demand in order to better meet customer need

What does it all mean? Dow is essentially exiting the ethylene market save for what it need for internal uses. It is a good move in that domestic ethylene production cannot compete with what is currently being produced in Asia in term of cost. With the upcoming glut of the product expected on the market, Dow would be selling product at or near a loss as prices plummet while still importing it for marginally profitable businesses. Dow will eliminate its purchases of ethylene from the merchant market, roughly 3 billion lbs/year, due to the shutdowns, matching its ethylene production with internal demand.

The really good news here is the reduction in necessary capital expenditures for marginal businesses.

Some analyst comments:

P.J. Juvekar of Citi said, “Today’s announcement underlines DOW’s leadership in cutting production to better align supply and demand; the company showed similar leadership in the last trough in 2002. We view the news as incrementally positive for the oversupplied commodity chemicals space.”

David Begleiter of Deutsche Bank said the news “… reflects Dow’s focus on executing its transformation strategy of growing its performance products and specialty materials portfolio (while downsizing its basic chemicals business) in order to deliver more consistent earnings growth.

The move is not big news, just affirmation that the company is still moving forward on its goal, successfully.

Disclosure (“none” means no position):Long Dow

The other day we looked at railroads and their “green” impact. Today we look in another direction.

From the NY Times:

Dow Chemical & Gazprom recently signed a memorandum in which they agreed to look at opportunities where Dow technologies could be used to reduce carbon emissions, thus generating the emission credits. The companies agreed to look at opportunities worldwide.

Dow could then use some of the credits to offset its own industrial activities while Gazprom’s trading arm in Britain could market any excess.

In other words, by using Dow technologies, companies can generate carbon credits that they can then sell or use as currency to offset the purchase of the technology.

Additionally:

However, the true promise for this business is in carbon credits that come, like the gas, from Russia. Companies in Russia and elsewhere in Eastern Europe are among the world’s big producers of greenhouse gases. But they stand to benefit under the climate treaty by selling their rights to release carbon dioxide into the air, if they invest in greater efficiencies.

The statement said the companies would also explore projects in the small carbon market in the United States.

As a country, Russia possesses the credits in abundance under the Kyoto Protocol, which set a baseline in 1990 for emissions, before a sharp contraction in the Russian economy greatly reduced carbon emissions. Russia can transfer those benefits to its companies to sell.

In 2004, when Russia ratified the protocol, officials estimated Russian companies could earn $6 billion to $9 billion selling credits created from investments in emissions-reducing technologies.

Now, lets put aside that the largest polluters will benefit the most from the cap/trade program because of the 1990 baseline. Is it wrong? Yes. A joke? Yes. But, it is what it is and wishing it wasn’t won’t change anything.

Cap/Trade is shaping up to be a massive market. Personally, I’ll avoid anything in Russia as their recent history of respecting property rights is poor to say the least. However, if you have the stomach for it, the potential for nice profits is there as a large additional revenue stream will appear for those Russian companies. That being said, companies that have the technologies polluters (for lack of a better word) will want to generate the credits will be in high demand.

Why? Using a baseline of 1990 when Russian /Eastern Europe were coming out from a century of Communist rule means that even token upgrades ought to generate huge credits. In all reality many operating facilities probably now already produce less than 1990 levels of pollutants so the impetus to “do something” to qualify for large numbers of credits will assuredly be there. That assures demand for products.

It also means that the potential impact of cap/trade on some industrial companies may not be as great as originally thought as the products they produce may offset the emissions they produce. They may not realize the full potential profits from the sales of these products as credits may be used as currency, but the downside is reduced. Sadly, companies whose products do not lower emissions will pick up the tab for the rest.

A company like Dow looks to benefit as their products will be used by Gazprom and US energy companies to lower their emissions. The credits generated can be used by Dow to reduce their own emissions tab. Again, everything depends on base levels, requirements etc. but that is the basic theory. Other possible beneficiaries could be GE (GE) and BASF (among others) who make emission control systems.

Again, until final legislation/treaties are signed and finalized, making investments here is guesswork. But, seeing that the market will be huge and knowing early entrants into markets tend to benefit the most, it is time to begin looking into possibilities.

Disclosure (“none” means no position):Long DOW, GE, none

I thought we had put this to bed but this little item in the South China Morning Post caught my attention:

China National Chemical Corp, the mainland’s largest chemicals maker, has returned to the bidders’ table after Dow Chemical (DOW) restarted an auction for its agricultural chemical unit, Dow AgroSciences, which could fetch as much as US$7 billion, market sources said pitting ChemChina against Monsanto and Switzerland’s Sygenta, the world’s biggest farm chemicals maker. Sources told the paper that the odds are against a successful acquisition by ChemChina, as Monsanto (MON) and Sygenta’s businesses are more in line with those of Dow AgroSciences. ChemChina has previously rejected offers of a minority stake in the unit, favoring a takeover or joint venture. Chinese chemical firms such as Sinochem, Sinopec and ChemChina have been pursuing overseas acquisitions to expand their product offerings.

We need to look back here. Originally, Dow had planned have the Rohm purchase bridge loan of $9.5 billion down to a balance of $4.2 billion in 90 days. As of last mid-May, the loan is now down to $3 billion, meaning $1.2 billion additional has been paid off 55 days ahead of schedule according to the company.

Dow said it continues to look at its options to sell units. In addition to over $3 billion from the sale of Morton Salt, TRN, Calcium Chloride and other units, Dow is considering raising $4 billion to $6 billion from businesses in a successor to the K-Dow Petrochemicals deal or regional agreements; $1 to $2 billion from aromatics and derivatives.

Dow has also since then announced another $900 million in asset sales

Based on that, there is no reason to sell Dow Ag, none. If the goal is truly to turn Dow into a stable earnings growth company, the Dow Ag must be an integral part of the finished product. Further, when one considers the current market we are in, selling an asset like Dow Ag into it is not going to garnish full value for the seller. If the unit must be even partially sold, doing it a year from now when we are further into the recovery would reap far more value for shareholders.

Now, this still may just be taking bids to see if an “offer we can’t refuse” is submitted or to garner concrete value for a partial IPO. Still, when perhaps the most valuable part of a company is even being mentioned in a sale process, investors are wise to keep close tabs on it.

Disclosure (“none” means no position):Long DOW ,none