Beleaguered Dow Chemical
The country's second-largest chemical manufacturer is hurting thanks to higher prices for oil and other commodities it needs. Weakened demand for its raw materials in the United States isn't helping, either.
Things looked better for Dow as recently as July. Back then, the company expected a solid third quarter and saw earnings above the second quarter's $0.26. Oh, how things changed in the dog months of August and September.
Dow's problems are symptomatic of larger issues, namely current manufacturing weakness in the economy. Echoing what the company reported today, the Institute for Supply Management (ISM) said that manufacturing activity dropped in September for the first time in eight months. ISM's index of business activity declined to 49.5, down from August's 50.5 reading and below economists' expectations of 51.0. A reading above 50 signifies growth; below 50 means contraction.
ISM surveys the purchasing managers at more than 350 companies responsible for buying raw materials. Simply put, they aren't buying, and companies like Dow are feeling it. Other chemical and raw material producers have also warned about their third quarters in the last few weeks.
As if that's not enough, oil prices have risen more than 40% this year, and oil futures are trading near 19-month highs. Dow uses oil to make many of its products. The omnipresent threat of war with Iraq and the effects in the Gulf of Mexico from tropical storms Isidore and now Lili are causing oil prices to rocket up.
That means a one-two punch for Dow, which has been hanging on the ropes now for two years. Don't expect things to improve much for the company in the coming months. Manufacturing wasn't exactly rocking along in the U.S. before September, and there's no evidence that it'll spring back anytime soon. Should we go to war, oil prices will remain frothy for some time to come. All that translates into continued weakness for Dow.