The company is still struggling to restore capacity hit by the twin impacts of hurricanes Gustav and Ike earlier this year, which together affected more than 50 per cent of its PEG production.
The effects of Hurricane Gustav, which made landfall on the Louisiana coast on September 1, were direct. Dow operates its two PEG production plants in the state, one (St Charles) just outside New Orleans, and the other at Plaquemine, about 100km north of the city. While neither suffered significant damage in the storm, both were affected by power outages lasting almost three weeks.
Hurricane Ike, which made landfall in Texas two weeks later, had both direct and indirect consequences. Dow’s own plants had to shut down because of power and utility problems. But damage to the wider Texas petrochemicals industry has caused significant interruption in supply of the raw materials – ethylene and ethylene oxide feedstock - needed to make PEG.
PEGs are used in hundreds of pharmaceutical applications as excipients, said Tom Frazier, global marketing manager for Dow’s polyglycols and surfactants business, during an interview at the CPhI show in Frankfurt last week.
“We are struggling to come back to health,” he said, noting that the cost of that level of downtime represents millions of dollars in lost business. The sites are still running at below half capacity, but “are getting better every day.”
“We declared force majeure on September 9 and that was a dark day for the business,” said Frazier. “We remain under force majeure.”
It is inevitable that customers have had to source their PEG ingredients elsewhere, and other suppliers such as BASF, Clariant and Huntsman and smaller players in Russia, Mexico and Asia have probably benefited from Dow’s problems in the short term, although some will have been affected by the hurricanes too.
Prices have also been driven upwards, mainly as a result of escalating feedstock and energy costs.
“First quarter 2008 feedstock costs leapt 42 per cent compared to the same period the year before,” said Harold Nicoll, public affairs leader for Dow Chemical.
“To put this in perspective, Dow spent $8bn for hydrocarbon based feedstocks in 2002. If current trends continue, costs could rise as high as $32bn in 2008.”
That aside, Frazier is adamant that Dow’s customers will return.
“We recognise our customers need to make their business decisions and by declaring force majeure we effectively have had to concede that we cannot meet our contractual commitments,” he said.
“But we align with the our customers on a strategic level, and they are aligned with us. In the majority of cases we are figuring it out through communication, forecasting, and modification of relationships – we’re moving forward together.”
Part of that recovery process involves a commitment to hike solid (high molecular weight) PEG by 30 per cent compared to 2006/7 levels before the end of the year.
No additional equipment is being installed, according to Nicoll. Rather, work has been undertaken to boost the efficiency of the existing plants through the use of different manufacturing methodologies.
European approval
Aside from the capacity problems, there was some welcome news for the Carbowax Sentry brand as well at CPhI. Nicoll noted that Dow has now been awarded a certificate of suitability (CEP) from the European Directorate for the Quality of Medicines (EDQM) for two products in its PEG range.
The solid grades of Carbowax Sentry PEG 3350 and PEG 4000 now have CEPs covering their use in laxative and colonic lavage applications.
“This CEP offers an attractive alternative to Dow’s country-specific European Drug Master Files, which require API customers to file country-by-country as they expand their products’ marketing authorisations into additional EU countries,” said Dow in a statement.