Zacks_Analysts' Blog : Dow Enters into a Joint Venture - Analyst Blog

Chemical giant The Dow Chemical Company (DOW) entered into a joint venture with Befar Group Co. Ltd. to make a key refrigerant chemical in China.

The 50:50 joint venture will produce perchloroethylene, a building block for refrigerants used in industrial, automotive, consumer, building and other cooling applications, the Midland, Mich.-based Dow said in a statement

According to Dow, the companies will explore the development of a new factory in Binzhou, China that could produce 40 kilotons of perchloroethylene per year with the possibility of doubling production later. The companies estimate that production would begin in 2014, according to the statement.

The financial details were not disclosed as the deal is subject to government approvals.

The memorandum of understanding with Befar will help the company grow in China and meet the world's rapidly expanding need for more sustainable product offerings.

Moreover, Dow Global Technologies LLC (DGTL), a subsidiary of Dow Chemical announced the invention and development of a new, high molecular weight brominated Polymeric Flame Retardant (Polymeric FR), a ‘next generation industry standard’ flame retardant for use in both extruded polystyrene (XPS) and expanded polystyrene (EPS) foam insulation applications globally.

The development of the new Polymeric FR is the result of Dow’s continuing search for more sustainable products and in this case for a flame retardant that can replace hexabromocyclododecane (HBCD).

Dow continues to deliver cost synergies from the Rohm & Haas (ROH) acquisition, which is expected to consolidate the higher margin and higher growth specialty businesses while reducing volatility in earnings and cash flow.

We believe that management’s strategy of selling equity interests in commodity assets is appropriate, though these units continue to produce good results as the global economy strengthens.

However, we are wary of the macro trends. We believe a slower recovery in the developed markets of the US and Europe, and excess supply conditions in key commodities and higher raw material costs, could restrain growth.

Dow faces stiff competition from BASF SE, EI DuPont de Nemours & Co. (DD) and Exxon Mobil Corporation (XOM).

We maintain our long-term Neutral recommendation on Dow Chemical. Currently, it holds a short-term Zacks #1 Rank (Strong Buy) on the stock.