Russia – a Key Element of Global Dow’s Strategy

THIS POST WAS ORIGINALLY PUBLISHED AUGUST 06, 2007

Russia – a Key Element of Global Dow’s Strategy

The Dow Chemical Company (NYSE:DOW) is expanding its presence in Russia. The company operates in Russia since 1974 and according to some reports currently there about 90 people involved with support of its activities. While conducting business in Russia is somewhat risky, the Dow’s average annual growth rate (about 30%) is worth it. In January, the company started up its first ever production facility in Russia. The plant, located at Kryukovo, outside Moscow, will produce polystyrene insulation boards for Dow Building Solutions, one of Dow’s market-facing business units (this is nicely described in the Around Dow Newsletter). And back in August 2006 Dow had formed a JV - Dow Izolan, in the polyurethane systems business. The JV shall provide customer-tailored, polyurethane systems products when the big plant is scheduled to start its operations in Vladimir Oblast, 170 kms North of Moscow. The company cites Kostas Katsoglou, business president, Dow Building Solutions, "Our strategic aim is to establish Dow as an important and integral player in the building industry in Russia. This strategy is built upon our global expertise combined with a strong brand and in-depth product and application knowledge." Construction industry is booming in Russia and Dow is fitting nicely in the picture with its products.

Dow is evaluating further investment opportunities, in partnership with key domestic energy producers. In particular in 2006 Andrew Liveris, Dow’s President & CEO, met with top Gazprom (LON:GAZP) officials. The company notes in its 2006 10-K that both Gazprom and Dow are working “jointly on energy-related projects both inside Russia and elsewhere in Europe.” Now it seems that efforts had intensified and the next project would be construction of a petrochemical plant in Russia. Gazprom has been indicated as a possible partner in the plant construction. Dow representatives note that Russia currently produces less ethylene than any of Dow Chemical's plants around the world.

From investor point of view, some experts note that fact that Dow historically seems to take advantage on the “commodity cycles” and the company’s earnings plummeted during the end of these cycles. Thus, there is a good reason to believe that Dow shall be feeling pretty nice with implementation of its global strategy - JVs all over the world (Saudi Arabia, Brazil and now Russia).