Dow talks to business people, residents

www.ourmidland.com Kathie M. Marchlewski , The Midland Daily News 03/21/2003     There soon will be increased earnings and steady growth at The Dow Chemical Co., its leader told Tri-City business people and residents Thursday.     The company has struggled through eight quarters of poor performance and negative cashflow, but Bill Stavropoulos, chairman, president and CEO, at a community meeting assured an audience of about 175 that a turnaround is in sight.     "There’s no doubt these are challenging times for the chemical industry," Stavropoulos said. "I like to think these are exciting times for Dow."     Turnaround strategy     In place is an aggressive strategy that in the near term will increase profit margins, improve cash flow and reduce debt, Stavropoulos said. "We’re making progress and progress is rapid."     But before the company can break out of its earnings slump and achieve those goals, costs need to be cut.     The task, in the short term, will continue to affect Dow customers and employees.     Expenses have been reduced across the company, a goal that is "on track," Stavropoulos said.     Price increases are in place at 15 Dow businesses to compensate for energy costs that doubled in the last year. About 13 underutilized and non-competitive sites with combined 2002 revenues of $2.5 billion have been identified and will be shutdown or sold.     The businesses include the Tungsten Carbide site in Midland, which will be closed in April. Employees will be moved to other jobs within the company, Dow spokeswoman Holly LaRose-Roenicke said.     Other shutdowns will take place in Texas, West Virginia, New Jersey, Louisiana, Canada, Italy, Venezuela and Puerto Rico. Sales and shutdowns will eliminate 3,000 to 4,000 jobs. The reduction in employment in the short-term will spur future growth for the long-term, Stavropoulos said.     "A company constantly has to change to stay ahead," he said.     Obstacles to overcome     Part of the Dow struggle in recent months has been with high and volatile energy costs, slow global growth rates and uncertainty about the economy.     Stavropoulos addressed the controversial Union Carbide merger that to some has appeared a mistake. He assured people that despite the residual legal disputes brought into Dow by the merger, including asbestos lawsuits and lingering aftereffects of a 1980s industrial disaster in Bhopal, India, that teaming with Union Carbide was a wise move.     "We were aware of the situation," he said. "It’s something that we have to deal with."     It takes at least five years to realize the benefits of most acquisitions, and the Union Carbide deal is no different, Stavropoulos said. He expects the merger will save money later, particularly energy expenses.     "You’re going to see big-time earnings potential," he said.     Keeping Midland     globally competitive     To address how changes and strategies impact Midland, Gary Veurink, vice president and site manager, took the stage.     While Michigan Operations still struggles to attract new business, the gap between the site’s prime controllable costs and the cost of comparable locations is shrinking.     "Over time we will in fact attract new business," Veurink said.     In 2000, the cost for a new business to locate in Midland was 4 percent higher than at other existing Dow sites. Today, Midland costs are 1.5 percent higher.     "We’ve been trying to get this site into the game," Veurink said.     Layoffs and voluntary departures have reduced costs, along with outsourcing.      Local 12075 United Steelworkers of America President Kent Holsing said union workers understand the importance of keeping Michigan Operations competitive with other markets.     "We understand it and we do support any initiative to bring new investment and add more jobs," he said, adding the union has not agreed with all of Dow’s cost-cutting measures.     "I guess that’s the cost of business," Holsing said.     Midland is in the running for new investment, Veurink said.     Dioxin in Midland     Veurink also discussed dioxin issues, noting that health statistics show the community is healthy and that the health of the Tittabawassee River continues to improve.     The Midland Dow site now emits nearly no dioxin into air and water, he said. The most recent tests show .063 of a gram per year of emissions, meaning that accumulation of a gram, or the amount of sugar in a restaurant-style packet, would take more than a decade.     The dioxin existing in Midland, a problem the company is working to resolve, is from historical manufacturing, Veurink said.     A health study still is in the works, he added.

Dow talks to business people, residents

www.ourmidland.com Kathie M. Marchlewski , The Midland Daily News 03/21/2003     There soon will be increased earnings and steady growth at The Dow Chemical Co., its leader told Tri-City business people and residents Thursday.     The company has struggled through eight quarters of poor performance and negative cashflow, but Bill Stavropoulos, chairman, president and CEO, at a community meeting assured an audience of about 175 that a turnaround is in sight.     "There’s no doubt these are challenging times for the chemical industry," Stavropoulos said. "I like to think these are exciting times for Dow."     Turnaround strategy     In place is an aggressive strategy that in the near term will increase profit margins, improve cash flow and reduce debt, Stavropoulos said. "We’re making progress and progress is rapid."     But before the company can break out of its earnings slump and achieve those goals, costs need to be cut.     The task, in the short term, will continue to affect Dow customers and employees.     Expenses have been reduced across the company, a goal that is "on track," Stavropoulos said.     Price increases are in place at 15 Dow businesses to compensate for energy costs that doubled in the last year. About 13 underutilized and non-competitive sites with combined 2002 revenues of $2.5 billion have been identified and will be shutdown or sold.     The businesses include the Tungsten Carbide site in Midland, which will be closed in April. Employees will be moved to other jobs within the company, Dow spokeswoman Holly LaRose-Roenicke said.     Other shutdowns will take place in Texas, West Virginia, New Jersey, Louisiana, Canada, Italy, Venezuela and Puerto Rico. Sales and shutdowns will eliminate 3,000 to 4,000 jobs. The reduction in employment in the short-term will spur future growth for the long-term, Stavropoulos said.     "A company constantly has to change to stay ahead," he said.     Obstacles to overcome     Part of the Dow struggle in recent months has been with high and volatile energy costs, slow global growth rates and uncertainty about the economy.     Stavropoulos addressed the controversial Union Carbide merger that to some has appeared a mistake. He assured people that despite the residual legal disputes brought into Dow by the merger, including asbestos lawsuits and lingering aftereffects of a 1980s industrial disaster in Bhopal, India, that teaming with Union Carbide was a wise move.     "We were aware of the situation," he said. "It’s something that we have to deal with."     It takes at least five years to realize the benefits of most acquisitions, and the Union Carbide deal is no different, Stavropoulos said. He expects the merger will save money later, particularly energy expenses.     "You’re going to see big-time earnings potential," he said.     Keeping Midland     globally competitive     To address how changes and strategies impact Midland, Gary Veurink, vice president and site manager, took the stage.     While Michigan Operations still struggles to attract new business, the gap between the site’s prime controllable costs and the cost of comparable locations is shrinking.     "Over time we will in fact attract new business," Veurink said.     In 2000, the cost for a new business to locate in Midland was 4 percent higher than at other existing Dow sites. Today, Midland costs are 1.5 percent higher.     "We’ve been trying to get this site into the game," Veurink said.     Layoffs and voluntary departures have reduced costs, along with outsourcing.      Local 12075 United Steelworkers of America President Kent Holsing said union workers understand the importance of keeping Michigan Operations competitive with other markets.     "We understand it and we do support any initiative to bring new investment and add more jobs," he said, adding the union has not agreed with all of Dow’s cost-cutting measures.     "I guess that’s the cost of business," Holsing said.     Midland is in the running for new investment, Veurink said.     Dioxin in Midland     Veurink also discussed dioxin issues, noting that health statistics show the community is healthy and that the health of the Tittabawassee River continues to improve.     The Midland Dow site now emits nearly no dioxin into air and water, he said. The most recent tests show .063 of a gram per year of emissions, meaning that accumulation of a gram, or the amount of sugar in a restaurant-style packet, would take more than a decade.     The dioxin existing in Midland, a problem the company is working to resolve, is from historical manufacturing, Veurink said.     A health study still is in the works, he added.

Vincent Boland: This bull isn't running

news.ft.com Published: March 21 2003 17:35 | Last Updated: March 21 2003 17:35

It looks like we've had our "war rally". In the few days since it became obvious that diplomacy at the United Nations had failed and that a US-led attack on Iraq was inevitable, the S&P 500 index has risen 9 per cent, the Dow Jones Industrial Average 9.6 per cent and the Nasdaq Composite 10 per cent.

These figures are impressive enough to be 12-month returns, though they apply only since March 12. Tobias Levkovich at Salomon Smith Barney has written about how the market can expect "short but vigorous rallies" in what is essentially a war environment (Iraq, Afghanistan, terrorism).

This week's was one, based on the view that the imminence of war suggested the beginning of the end of the Iraq crisis; there will be more in the weeks ahead. It was also the longest daily winning streak for nearly three years, which shows just how volatile trading has been since the start of the bear market.

And that is not the only good news: oil prices have fallen by 20 per cent; the yield on long-dated US Treasury bonds has risen by 40 basis points; and the US dollar is improving against the yen and the euro. Financially, when it comes to war, what is not to like?

Rather a lot, according to a queue of Wall Street observers. For a start, they point out that stock prices are going nowhere. Market rallies such as the one we saw this week are the equivalent of running to stand still. Since the start of the year, the Dow and the S&P 500 index are slightly down (roughly 0.5 per cent each).

Only the Nasdaq stock market has posted a gain - of a respectable 5 per cent, symptomatic of the short- term, trade-the-volatility nature of the market in the past few months.

According to David Bowers, the chief investment strategist at Merrill Lynch, investors are still extremely risk-averse, though sensitive to any change in the perception of that risk. He ascribes this week's rally to just such a change. "Any slight reduction in risk will see money go into the market," he says.

According to Merrill's latest survey, investors believe the US market is the most expensive relative to other major regions, in spite of an ostensibly improving outlook for corporate profits. Some 46 per cent of investors say the US market is fairly valued and 22 per cent believe it is overvalued. This is not the basis for a resumption of the equity bull market.

Investors consider that stocks elsewhere are cheap, but not necessarily a "buy". They also are "unambiguously bearish" about long-term interest rates and the economy. Almost two-thirds of the investors surveyed believe that global bond markets are over- valued.

This suggests that the end of the bull market in bonds may simply have been postponed rather than cancelled, because of the current uncertainty.

On the broader economic front, there is little evidence that capital spending is being increased; there is even less reason to believe that an end to the war will be the stimulus required to get it going again.

So, with little basis for the view that the market is about to benefit from a post-war recovery, the attack on Iraq is entirely marginal to the fate of stock prices.

The post-UN rally has already in effect run out of steam as investors were reminded that some of the longer-term problems that plague the market have not gone away.

The crisis in Venezuela is merely on hold while North Korea bubbles in the background. There is also the unsettling prospect of what the rift in transatlantic relations means in the longer term.

www.yorkdispatch.com Article Last Updated: Friday, March 21, 2003 - 12:02:44 PM EST By RICHARD FELLINGER Harrisburg bureau

Responding to high motor fuel prices, state regulators have applied a special premium on milk prices to help dairy farmers cover the cost of shipping milk.

The Milk Marketing Board has added a 15-cent premium to every hundred pounds of milk. The premium, approved unanimously by the three-member board, will take effect in April and last through June.

Farming advocates including the Pennsylvania Farm Bureau petitioned the board for the special fuel premium because of soaring diesel costs, and the board agreed to it after holding an emergency hearing March 5.

"It's going to help a little bit," said Richard Waybright, co-owner of Mason Dixon Farms in Freedom Township, Adams County.

Waybright said his diesel fuel costs have nearly doubled since November. He now pays a wholesale price of $1.42 per gallon, compared to just above 70 cents in November. Retail diesel prices in the Harrisburg area averaged $192.8 yesterday, according to the Pennsylvania AAA Federation.

A dairy farmer with about 100 dairy cattle should receive nearly $360 extra per month from the 15-cent premium, said farm bureau spokeswoman Jayanna Yeakle. Though the farm bureau sought a 15-cent fuel premium, Yeakle said "nobody's getting rich off it."

The extra premium comes as the state is scaling back its over-order premium, which is the amount farmers receive for milk above government-mandated prices, in an attempt to keep Pennsylvania milk competitive with milk from other states. The over-order premium, now at $1.40, is down from $1.65 in December 2002.

The board's latest action means dairy farmers will receive a special fuel premium for the first time in more than a year. Farmers received a 25-cent premium from April 2000 to January 2002, said Milk Marketing Board spokeswoman Tracey Jackson.

Fuel prices have spiked in recent months because of the potential war with Iraq, a recent strike in Venezuela, cold temperatures and low inventories.

But there are signs that gasoline prices already have peaked, said Ted Leonard, executive director of the Pennsylvania AAA Federation. Crude prices dropped this week as producers cranked up supply and Saudi Arabia announced it would make up any shortfalls from Iraq, Leonard said.

"And I think some of the situation in the Middle East is becoming a little clearer. There will always be some volatility until that issue is settled, but I think we're on the road to settling it," Leonard said.

The Milk Marketing Board is expected to consider in May whether to extend the fuel premium past June. The over-order premium also expires in June, and they will likely be asked to extend the fuel premium as they consider setting the over-order premium for the last six months of 2003, Jackson said.

www.forbes.com Reuters, 03.21.03, 11:40 AM ET By Tim Ahmann WASHINGTON, March 21 (Reuters) - U.S. consumer prices posted their biggest gain in more than two years in February as energy surged on the march to war with Iraq and food costs jumped, the government said on Friday. But the government's Consumer Price Index showed inflation well-contained apart from volatile food and energy costs. The CPI, the main U.S. inflation gauge, rose 0.6 percent last month, the Labor Department said. It was the biggest gain since a matching rise in January 2001 and was a touch above the O.5 percent increase expected on Wall Street. Energy prices shot up 5.9 percent, the largest increase since June 2000, while food costs staged their biggest climb since June 1996, gaining 0.7 percent. However, the so-called core CPI, which strips out food and energy, edged up just 0.1 percent, a notch below the 0.2 percent economists had expected. That meager gain brought the 12-month rise in core prices to just 1.7 percent, the smallest in nearly 37 years. In contrast, the overall CPI has risen a strong 3.0 percent over the last 12 months, mostly on higher energy costs. Markets shrugged off the data, focusing instead on the progress of the U.S. conflict with Iraq. "Most people should not be concerned about inflation," said Lynn Reaser, chief economist at Banc of America Capital Management in St. Louis, noting that oil prices have receded sharply in recent days on optimism the U.S.-led war in Iraq would lead to little disruption in supplies. A separate report released on Friday suggested the fate of the U.S. economy depends on a quick resolution of the U.S.-led war in Iraq. The Economic Cycle Research Institute said its weekly leading index fell to a 10-week low due to war worries. "If it is quicker and more decisive, we have a chance at tipping away from a recession," ECRI Managing Director Lakshman Achuthan said. "If something goes wrong and things get bogged down, we can tip toward more vulnerability which would lead to recession." OIL One big factor coloring the U.S. economic outlook has been the price of oil, which many economists warned could take a big bite out of the wallets of the consumers who have kept an uneven recovery afloat. The cost of gasoline rose 9.9 percent in February, the largest monthly gain since June 2000, while the cost of fuel oil spiked up 15.8 percent, the sharpest increase since February of 2000. While pump prices for gasoline hit a record high of $1.73 a gallon this week, relief may be on the way soon. Oil prices had climbed steeply through February after a now-ended workers' strike in Venezuela cut into supplies and as the United States prepared for war with Iraq. But as war began to appear inevitable and bombs started to drop, prices reversed course, shedding a quarter of their value from recent highs. Crude oil futures extended a week-long plunge on Friday as U.S. and British troops captured key Iraqi oil facilities intact. Crude futures in London traded near a three-month low. Most economists focused on the benign underlying inflation picture presented by the core CPI. The scant increase in core prices reflected a 0.2 percent drop in apparel costs, a 0.1 percent decrease in new vehicle prices and a 0.3 percent plunge in prescription drugs prices. Another factor holding core prices down was an unchanged reading in shelter costs, which had been rising sharply. WHAT NEXT? Federal Reserve policymakers think inflation will likely drift lower this year given a high degree of slack in the economy, minutes from a January rate-setting meeting released on Thursday showed. However, officials spoke about a number of "crosscurrents" that made the inflation picture hard to judge. Still, the recent rise in oil and gold prices has eased fears that the United States could face deflation -- an outright drop in the general price level. "Inflation is in existence. We are nowhere near close to a deflationary environment," said David Durrant, chief currency strategist at Bank Julius Baer in New York. Rising service prices have ensured a modest inflation in the United States despite falling goods prices. Fed officials held interest rates steady at 1961 lows this week and said that given the high degree to which war clouds had shrouded the outlook, they could not "usefully" characterize whether economic risks were weighted toward inflation or weakness or balanced between them.