Dow (DOW)

The Integrated Ethylene Benchmark

Dow makes ethylene in its own crackers and turns much of it into polyethylene (PE), the most common plastic, which makes it the reference case for integrated ethylene economics in a downturn. FY2025 Operating EBITDA was $3,256M. Management called FY2025 an "unprecedented industry downturn" and halved the dividend in response to the "prolonged industry downturn" (FY2025 10-K).

Dow gave investors a yardstick at its May 2024 Investor Day. Around its 2021-23 average Operating EBITDA it drew a trough line below $6B and a peak line above $12B, and marked a mid-cycle level between them with no value given. FY2025 fell below the trough line.

Operating EBITDA excludes what Dow calls significant items, $2,220M in FY2025 and mostly restructuring, closures and impairments; the reported vs adjusted EBITDA guide takes them apart.

Dow's feedstock is cheap by global standards. More than 80% of its cracking runs on light feeds such as ethane, a natural-gas liquid; roughly 65% of its capacity sits in the cost-advantaged Americas; and management puts ~80% of its cracking in the top quartile of the global cost curve (Q3 2025 earnings presentation). Part of the advantage is yield: ethane turns 80-84% of its weight into ethylene, naphtha 29-34%. When integrated PE margins compress, plants like these lose less per tonne than naphtha crackers in Europe and Asia, but they still lose.

Dow does not publish an industry margin series; LyondellBasell does. Its Q4 2025 earnings slides, using Chemical Market Analytics data, put the North American integrated PE margin at $580/t in 2025 against a $830/t average for 2013-22, 30% below (calculated). The Excel model that comes with the Selborne primer uses $650/t as its long-run figure, between the two.

Net Debt on a Downturn Year

Net debt was $13,960M at 31 December 2025 (total debt $18,161M less cash $3,816M and marketable securities $385M), 4.3x FY2025 Operating EBITDA (calculated). That ratio uses a downturn year's EBITDA. Leverage is better judged on mid-cycle EBITDA, and because Dow's slide marks mid-cycle without a figure, that has to be built from capacity, utilisation and a mid-cycle spread.

How You Would Value a Business Like This

Commodity chemical producers are valued on mid-cycle earnings. FY2025 sits below the trough line Dow drew itself, so a multiple on it would mislead. The method first rebuilds EBITDA at long-run spreads, which the spreads guide lists, and only then applies a multiple or a DCF. The mid-cycle EBITDA guide sets Dow's lines beside the other companies' frameworks and works the arithmetic on fictional producers.

What to Watch in the Financials

Operating EBITDA against the trough line. The annual figure shows whether Dow climbs back above the line it drew in 2024.

Net debt. Dow halved its dividend in response to the downturn; year-end net debt shows whether the cash kept is bringing debt down.

The industry PE margin. LyondellBasell's series is the closest published benchmark for Dow's chain; its move from the 2025 level shows whether spreads are recovering.

Key Risks

Prolonged oversupply. Management calls the downturn unprecedented and prolonged. When spreads recover matters more to earnings than where Dow sits on the cost curve.