Good day, and welcome to the Dow Chemical Company Second Quarter 2015 Earnings Results Conference Call. [Operator Instructions] Also, today’s call is being recorded. I would now like to turn the call over to Mr. Jack Broodo. Please go ahead, sir.

Good morning, and welcome everyone. This is Jack Broodo, Vice President of Investor Relations for Dow Chemical. As usual, we are making this call available to investors and the media via webcast. This call is the property of the Dow Chemical Company; any redistribution, retransmission or reforecast of this call in any form without Dow’s express written consent is prohibited. On the call with me today are Andrew Liveris, Dow’s Chairman and Chief Executive Officer; and Howard Ungerleider, Executive Vice President and Chief Financial Officer. Around 7:00 a.m. this morning, July 23, our earnings release went out on Business Wire and post on the internet on dow.com. We have prepared slides to supplement our comments in this conference call. These slides are posted on our website and through the link to our website. Some of our comments today include statements about our expectations for the future. Those expectations involve risks and uncertainties. We cannot guarantee the accuracy of any forecast or estimate and we don’t plan to update any forward-looking statements during the quarter. If you would like more information on the risks involved in forward-looking statements please see our SEC filings. In addition, some of our comments reference non-GAAP financial measures. A reconciliation to the most directly comparable GAAP financial measure and other associated disclosures are contained in our earnings release and on our website. Unless otherwise specified all comparisons presented today will be on a year-on-year – year-over-year basis. Sales comparisons exclude divestitures and hydrocarbons and energy, EBITDA, EBITDA margins, return on capital and earnings comparisons exclude certain items. Some of our comments may also contain statements about our announced agreement to separate a substantial portion of our Chlor-alkali and Downstream Derivatives business and merge it with a subsidiary of Olin Corporation. In connection with that transaction, Dow and Olin have filed with the SEC that contains important information and we advise you to read them. These filings are available free of charge from the SEC or Dow or Olin as applicable. The agenda for today’s call is on slide three, and I will now turn the call over to Howard Ungerleider.

Thank you, Jack, and good morning, everyone. Turning to slide four, simply put Dow delivered strong financial results with year-over-year increases in operating EPS, EBITDA and EBITDA margin expansion, all for the 11th quarter in a row. Our business discipline and financial objectives remain firmly on track and are reflected in our performance. Earnings per share rose 23% to $0.91 on an operating basis. Operating EBITDA increased to $2.5 billion, a record second quarter for the company, and driving first half EBITDA also to a record $4.9 billion. Operating EBITDA margins expanded 396 basis point from the year-ago period to 19%. Sales declined 13% year-over-year primarily as a result of currency and the effects of lower oil price. However, on a sequential basis sales were up 4% as local price improved, offset by currency, while volume grew 4%. Excluding the impact of divestitures on a year-over-year basis, sales volume has increased for the past seven quarters. Sequentially we saw increasing demand across most geographic areas led by Greater China, the U.S., and Latin America. Year-to-date our cash from operations increased more than $700 million year-over-year, reaching $2.7 billion. And we returned $1.5 billion to shareholders so far this year. Our performance over these last many quarters highlights the strength of our structurally hedged integrated portfolio. The power of growing demand for our innovative products which enable margin expansion in our targeted markets, the benefit of our geographic footprint to capture demand where is around the world, and the value of our integrated low-cost positions and feedstock flexibility to overcome volatile crude oil pricing, all of which are enabling us to drive higher and more consistent earnings. You can see on slides five and six progress on our key financial goals as outlined at our Investor Day last fall. We are…

Yes. Thank you, Howard. Our overall outlook is on slide 15, and if you go through the points, global growth remains volatile and uncertain despite a growth in some economies. And our overall global GDP [audio gap] is approaching around 3%. Now the U.S. remains the one consistent bright spot and our view is that the consumer has begun to spend some of those lower oil price bonuses with our order loading remaining strong as we enter Q3. China remains a mixed bag; a very solid Q2 for us is not necessarily a harbinger of Q3, but note that we have targeted our products and our product mix to sectors that are truly domestically driven, like automotive and construction, and we see good growth in those areas. Volatility and softness do prevail in other sectors. Western Europe remains a positive for Dow with further [ph] demand despite the situation that unfolded in Greece. And emerging markets are all strong with the exception of Brazil. And Dow has positive exposure to all of these growing markets, nearly 35% of total revenue, and we see decent demand in places like Southeast Asia, the Middle East, India, and Eastern Europe. Overall we are growing where growth is. That’s our strategy and our execution is very focused on growing share of demand in those markets, which for us means true value growth. We are doing this predicated on the assumption that the world economy will remain in its current volatile condition and we have to find growth while continuing to focus on productivity and our key projects. So turning to slide 16, this brings me to our earnings growth drivers, both in the second half of this year and beyond. Our discipline and our emphasis on EVA, and portfolio management continued to release further…

Thank you, Andrew. Now we will move on to your questions. First however I would like to remind you that my comments regarding forward-looking statements and non-GAAP financial measures apply to both our prepared remarks and the following Q&A. Rochelle, would you please explain the Q&A procedure?

Thank you. [Operator Instructions] We’ll take our first question from David Begleiter with Deutsche Bank.

Thank you. Good morning. Andrew, very strong first half for ethylene and polyethylene. What’s your expectation for the back half of the year in terms of reduced Agis [ph] and potentially some lower polyethylene prices off the lower oil prices?

Yeah, look, operating rates, David, are strong on the derivatives and on the crackers. You know there’s a lot of aged fleet out there. And we certainly had some of our own outages in the quarter. And we achieved the results you saw despite that. With the age of the fleet, unexpected outages are out there as a harbinger of constrained supply. There’s not a lot of new supply coming on as a consequence with GDP around 3%. And let’s say that the global ethylene growth rate is a multiple of GDP, somewhere between 1.1 and 1.5. It’s very hard to call them in 90 day slots, but we will see some price slippage with the oil prices staying low and continuing to have a full cost that keeps it low, but you know all of us are reading the same sort of material. But I would tell you that this snugness, this potential for outages, we have a price increase for polyethylene in August. We had one in June. It does speak to the tightness in a pre-cycle run-up that we’ve been talking about for some time.

Very good. And, Howard, just on equity earnings, they were up year-over-year and sequentially. Can you discuss what drove that and what were the Sadara start-up costs sequentially? What was the impact in Q2 versus Q1 from Sadara?

Yeah. Good morning, David. So yeah, you’re right, equity earnings were up. They were up about $46 million versus same quarter a year ago, about $100 million sequentially. What really drove the year-over-year was the naphtha chain margins with our tied JVs and sequentially we saw a little bit of a boost there as well as increased earnings from our Kuwaiti JVs. But actually if you look at it on a first half over first half, we got no help from equity earnings. First half the equity earnings were actually down about $37 million. Relative to Sadara, we don’t release the actual number but I would say it was in line, Q2 was in line with Q2 costs. So that will ramp as we head into the back half of the year.

And next we’ll hear from Vincent Andrews with Morgan Stanley.

Thanks, and good morning to everyone. Andrew, I’m just trying to get a sense sort of where you are in terms of your outlook today versus three months ago. Are you feeling better? Are you feeling about the same? And I guess maybe you could put that in perspective with sort of the performance of the consumer in the infrastructure segments during the quarter. Was it uniform throughout the three months of the quarter or was there some months better than others, did you finish stronger? And how are things trending so far in the third quarter?

Yeah, I think – thank you very much, Vincent. I think there’s no question that the six months is a better read on the go-forward economy than three month slices. If you look at sequential numbers, actually Building Construction for example was up sequentially and stayed strong, and I made note of that in my prepared remarks as well as on the TV interviews today, that Building Construction and Automotive are doing quite well in the global economy, especially in North America or U.S. particularly and Europe. But there’s some headwinds that we have seen that became bigger headwinds in Q2, mostly in and around our Performance Monomers unit which as you know gets tagged along with Coatings. Coatings itself did very well. Performance Monomers continues to be oversupplied. So that’s specific to that little – that business; not a little business, a big business. And then Energy and Water, Water did well but Energy, the oil and gas market itself as you know with low oil prices is quite depressed. So if you pull those numbers out of there and make a statement around the whole company, Performance Materials end use demand, Performance Plastics end use demand, and then consumer and infrastructure trending in the right direction in terms of global demand. And again I made a big point of saying we have built a portfolio that has targeted demand drivers. In other words, we’re no longer a vanilla commodity supplier. We are targeted now in use. Our China numbers are a good example of that. Our volumes in China are up despite everyone thinking China is softer down. Where we play in China is where China’s needs are domestically driven such as Automobiles, Construction, and frankly water and food safety and all those things that are drivers. So look, I haven’t really changed. We haven’t changed our outlook from three months ago. I think different parts of the portfolio will play in 90 day slices, but we are still trending. We’ve had seven quarters in a row of year-on-year volume growth in the company. That’s a big statement under all these conditions quarter-to-quarter. We’re structurally hedged as our prepared remarks – I think Howard said in his prepared remarks.

And just as a follow-up, you mentioned the Sadara cost ramping in the back half of the year. How should we think about them going into next year? Because I’m just thinking, I think you had four plants starting up this year and I think another 20 or 22 to complete over time. So it’s sort of the – is it sort of going to move in a straight line the way – from this year’s trend? Or does it level out? Or how should we think about it?

Yeah. We’ll give more details as the end of the year approaches, but the way I would think about it is Performance Plastic – first product which is at this point about 99% complete. First product will start to – is focused in Performance Plastics, right? So you’ll start to see the headwind in cost in Performance Plastics turn into a tailwind between now and the end of the year. That will ramp the – the cost headwind though will ramp in Performance Materials because those products will be starting to launch in 2016.

And next we’ll move on to Frank Mitsch with Wells Fargo Securities.

Hey. Good morning, gentlemen. Forgive me, I saw you two in concert last night, and with your results this morning it really is a beautiful day. So thank you so much for starting us off...

Did you just call Andrew Bono?

Well...

Leave it alone. Go ahead, Frank.

Hey, honestly with these results you are a rock star, Andrew. Hey, how – explain to me how your Performance Plastics business had volumes of 5%, 9% ex-hydrocarbons and energies. I mean I would have thought last year you were running pretty much flat out. What’s going on in that business?

Well, remember, there’s a fairly large rebound going on in Europe, Frank, that I – Western Europe, and overall for the company our Western Europe results have been pretty, pretty strong. And we did a couple things in Europe that gave us even more competitive advantage and enabled us to take share and really pump up those operating rates even higher into their 90s. And that’s because of our propane crack. I mean we have now got propane flexibility not just into Newson [ph] but also in Tarragona. That’s a big deal in terms of our end market cost competitiveness in Europe, and frankly enabled us to really gain share and run those assets even harder. And they’ve been running very, very well. We did have some operating rate issues here in the United States with around some cracker trips that we just basically had to cope with throughout the quarter that actually was a higher – a little bit of a cost flip for us. But still operating rates were in the high 80s early 90s. So look, when you run this, I said around the earlier question, when you run them this hard you stand the chance of being – tripping out not just our assets, everyone else’s assets. But our reliability and our manufacturing people are doing a bang-up job in running our assets more reliable and getting more asset capability out of them as a result, and as a consequence of that we’ve had this volume growth that you pointed out.

I thoroughly agree in terms of the potential for unplanned outages when everybody’s running their assets so hard. So just hope it’s not you and you just expanded on that. On the propane flexibility side, you’ve quietly kind of improved your exposure, your ability to crack propane. Where do you stand right now in North America and where do you stand in Europe on the propane flexibility?

Yeah. So the U.S. number is around 67%, close to 70. And Europe is around 55% to 60%.

And next we’ll move onto Jeffrey Zekauskas with JPMorgan.

Hi. Thanks very much. I think in the first quarter you said that your equity income would be down in the second quarter. And it turns out to be strongly up. What was the thing that was unexpected that happened in the quarter and do you expect these sorts of numbers to be sustainable?

Yeah, I’ll take the first part of your question first. I mean what surprised us on upside was the strength of the naphtha chain margins. We knew they were going to come up. We didn’t expect for them to come up as strongly as they did. And the Sadara spending was actually a little bit better than we expected it to be as well.

And double up, Howard, the naphtha point really came home with Thailand

Exactly right.

Thai JV’s really had a great year-over-year quarterly comparison that may not be sustainable for the back half but certainly in the comparison for Q2 was very strong.

How much was the benefit from propane cracking both in the United States and elsewhere this quarter versus either the first quarter or last year at this time? How much did that benefit your EBITDA?

Yeah, Jeff, I would say we’re not going to give you an exact number, but what we can say is it was well north of $100 million. And don’t, also don’t forget the Andrew point that we did also have some unplanned events which were probably in the range of $50 million, maybe slightly higher than $50 million. So that’s – at least I give you a couple of points to titrate from.

And next we’ll move on to P.J. Juvekar of Citi.

Yeah. Good morning, Andrew.

Good morning.

So in this tough Ag environment, there is a lot of consolidation that is being attempted. Would you be a buyer or a seller of assets here? And sort of can you differentiate your comments between crop chemicals and seeds? Thank you.

Yeah, look, certainly the last few months that question’s becoming top of mind for a lot of people given the obvious Monsanto Syngenta discussion. As you know, P.J., as everyone on this call I’m sure has heard, we’ve been very consistent value growers of Ag. And we have a strength not just in Crop Protection and our integrated Chemistry business there and all the launches that I even had on the prepared remarks, Arylex, ISOCLAST, et cetera, but also we are a very strong trait developer. And that Enlist permit approval for Contesta [ph] and soy E3 was a big deal that Howard talked about that just came yesterday for the soy market in China. As you know, we’ll play big in soy. So we have two very large value drivers. If you look at the value of the buyout of Dow Lanco [ph] in the late 90s, we had an Ag business worth about $3 billion based on that transaction. If you look at the multiples that are out there right now, we have taken that business and made it basically somewhere near a $20 billion to $25 billion business. We doubled the value in the last five years. We can double it again in the next five. But consolidation and this integration between crop chemistry and traits and germplasm, we’re a big believer in. That’s what Enlist, Enlist Duo’s all about. So we understand what’s going on out there in this round of consolidation. And as I said on TV this morning, we’ll be at the table and we could go either way depending on what creates the most value for our shareholders.

All right. Thank you for that. And just in Ag on the near term, you talked about missed applications by farmers in June due to rains. Can you get that back in July? And what does that mean for inventories going forward? Thank you.

Look, it’s going be tough. I mean I would tell you that, and I think Howard had it in the prepared remarks, what keeps us expanding margins is our new product introductions, so that’s the differentiator for Dow. But the market, high inventories, currency headwinds, economic issues in Argentina, highly competitive product and pricing environment, this is not going to – this is going to be a down year for AgroSciences as a market, and certainly for us in the second half it’s going be tough to maintain the year-over-year beats that we’ve had in the Ag business. Look, that’ll clear itself out. I mean one year does not make an Ag driver, an Ag market, but it’s going to be tough to sustain it through the second half, given the conditions of the marketplace.

And next we’ll hear from Bob Koort with Goldman Sachs.

Hey. Good morning. It’s actually Brian Maguire on for Bob today.

Good morning.

I see in the appendix it looks like your global operating rate ticked up to 84%; looks like it was the highest second quarter rate on that chart. Just wondering if that – what that means for your ethylene operating rates? And do you think we’re now at the point of the cycle where we’re firmly in that upcycle where prices aren’t really going to be set by marginal costs and we shouldn’t really think about oil prices as driving the prices of ethylene and polyethylene going forward?

Yeah. I think it’s a great astute observation. I’ll kind of – probably answered it on an earlier question. Those ethylene operating rates and the potential for trips and outages like Frank Mitsch was also talking about really means that cycle dynamics are approaching. I mean we call them 2016 as up cycle opportunity based on non-outage driven demand. If there’s outages you’re going to get opportunities for price increases independent of the feedstock input. This is not yet a cycle discussion, but it’s starting to mimic one with outages. I think that’s really what we saw in 1995, we need a historian on the phone, where supply outages really created a mini cycle on the up. But not a lot of new capacity. Not a lot of upside coming in terms of supply side. Decent demand around 3%. You’re going to be able to keep those operating rates into those pre-cycle dynamics. Remember though, we’re not a cycle story. We’re structurally hedged to take low cost inputs and add value to the outputs. We’re not a peanut butter over bread or toast plastics player anymore. Most of our product mix is very, very, very targeted and very, very up market value add.

Okay. Thanks. And just as a follow-up, in the slides it also mentioned that you’re still working on addressing your two major JVs; assume that’s Dow Corning and then some of the Kuwaiti JVs. If you just maybe provide an update on how business trends are going in those businesses and whether those are businesses where you’d like – where Dow would benefit from getting some more exposure?

So the two major JVs are the obvious ones. Dow Corning is doing very, very well. They’re coming back as the market comes back, and their base Silicones business is doing very well. Polysilicon still has got major issues, flat demand. The whole solar discussion between the U.S. and China and resolution to the Judy [ph] question has kept their demand suppressed. But look, overall I think they’re starting to recover like many of our Downstream businesses have begun to recover based on consumer pull, construction pull and the key drivers like transportation that I referenced in the Dow mix. Kuwait, look, Kuwait is a great low-cost producer and that’s a big contributor of our equity earnings but it will swing compared with the commodity market with like oil pricing being a big driver there and like oil pricing is on a downward swing right now. It’s an up and down business but of course what makes money over any condition is a slow cost. We’ve already said we’re not going to continue to be investors in those businesses. We’re going to be redirecting our resources through the value add, low cost integrated plays like Sadara for example.

And we’ll hear from John Roberts with UBS.

Thank you. You mentioned your China strength was automotive and construction. And I can understand automotive. Construction seemed a little bit peculiar there. What’s driving that?

No question, John. It’s infrastructure spend. I was just in China. I mean, they pivot the big bubbles that they created in the housing market. They’ve pivot on really trying to figure a way to continue the economy to grow at a reasonably decent rate until they get strong domestic consumption, they’ll be getting all of the good example. But in some not all areas as well. They’re investing in upscaling their water treatment plant so our sales of water treatment products are going up. That’s also construction. So I would say it’s an infrastructure driver. We particularly saw it in our Performance Materials business as well in China not just our water business. The Water Performance Materials, mostly polyurethanes as well as of course the plastics points especially in packaging and specialty plastics and elastomers in transportation. These were all strong drivers and again very targeted. And not your normal housing construction spend.

And our Ag business was also...

[indiscernible]

Our Ag business was also up almost 10% on a volume basis versus a year ago in...

Thank you. And then you can’t buy back stock until after the Olin distribution. But what’s your thoughts on capital deployment again once we get past that milestone?

Yeah. So we’ve got – we announced at our investor day last fall a $5 billion program. As you know we did $500 million in the first quarter prior to Olin transaction. If you use the current Dow and Olin share price that will be another $2 billion of the 4.5 that we have remaining. That would leave 2.5. And what we’ve said the way to think about it is that 2.5 will be done. It’s an open program. 2015, 2016, 2017 is how you should think about it and we’ll do it in line with our earnings growth as well as our portfolio.

And moving now we’ll hear from Peter Butler with Glen Hill Investments.

Good morning. Good morning.

Good morning.

Looking ahead, if this was the second quarter conference call in 2016, what would Andrew be talking about? What would be the Dow-related positives and negatives that would be highlighted in your conference call next year?

Successful – hi, Peter. Good morning. Successful start-ups of PDH. Successful start-ups and, of course, producing positive EBITDA for Performance Materials mostly polyurethane as well as acrylic acids and reduced mostly in coatings. Successful start-up on the first units in Sadara by end of the year. The second quarter next year we’ll have quite a few more. So headwind becoming tailwinds on the EBITDA line for the Sadara enterprise which is a big deal. Places [ph] relates to Plastics side. A very, very low cost Plastics coming out of those units which is very material to the cash flow projection of Sadara. And then of course continue recovery of the global economy and Dow’s operating rate starting to get mid-80s and beyond. Probably in the high 80s by then. That capacity then will be very important to us. Some other markets in some of our key businesses not the least on being Plastics giving us price power and more EBITDA coming from that. Our productivity program which we’ll deliver on a run rate basis $300 million a year of cost savings. And then our new innovation launches and we have 5,000 of these a year right now, Peter, but we review the 50 at our board and our top 5 and their ability to produce bottom line impacts, we’ll be highlighting those. And here’s the punch line, there are going to be different ones every quarter. We have so many new innovations that we have a proliferation of new high margin products so our percent of PAM [ph] predicted sales is increasing as we speak, and so that’s enabling higher margins. So that’s just a snapshot and I’m sure I could add more. Oh the closure of Olin. I shouldn’t forget that one. That’s a biggie. Further realization of our JV consolidation strategy without being specific just to name a few others. And then we’ll see where we are with the Ag business at that point in time as well.

Yeah. You’ve partially answered my follow-up but the full question would be obviously a company’s key resources are people, financial resources and technology and does Dow see any major changes in any of these three inputs in the next year?

Yeah. Look, for sure I answered probably the technology question. Remember that we’re in maxed cap of tier in terms of resource deployment this year and into next year. The market is asking us over and over about how you’re going to deploy excess cash flows to the shareholder, and I repeat it, to the shareholder. We’ve got funding of all of our organic growth programs including hiring of lots of new skills for our new portfolio. We’ve hired 22,000 new people in the last five years, 12,000 of them are under the age of 30. We’re making the generational change here at Dow and that will be very, very evident as we go into 2016 in terms of their ability to keep running this company over the next decade and beyond.

Next we’ll hear from John McNulty with Credit Suisse.

Good morning. Thanks for taking my question. So the first one with regard to the second quarter heat map that you had put in the appendix. There’s certainly a lot more green on it than almost anything else. I guess any major pockets in terms of end markets whether it’s packaging or durables, industrials, et cetera, that you’re seeing a noticeable change as you go into 3Q either to the positive or the negative side? Can you kind of walk us through your thoughts on that?

Yeah. Look, thanks for referring to heat map. I was wondering if people would notice its return. Yeah. Look, I think the areas of agriculture which I’ve already talked about and oil, oil-related fuel services and products that go into that like Dow microbial control, these are going – trending negative so I’d put those into the negative category. Turning positive are the ones that I’ve talked about which are packaging, construction, and automotive. I’d say automotive has had a good run up here based on our technologies. The market itself may be looking pretty saturated but in terms of our position in the market our share of wallet that’s turning positive. And Electronics as we see the pivot in products in the fablets as they’re called which is a smartphone tablet combination, new [indiscernible] technology, new product introductions we should start to see the display business coming more to the positive. The semiconductor business is already doing very well. Those are the ones that come top of mind. Do you have anything else?

No. You covered it. Thanks.

Great. And then just as a follow-up, I guess with propylene down as much as it is and other raws for some of your more specialized businesses also down, I guess, I was a little bit surprised to not see maybe a little bit more margin lift in areas like consumer solutions and even infrastructure solutions businesses. So can you walk us through how to think about that? Is it a timing issue or are there just other offsets that may be weighing on those businesses now whether it’s Performance Monomers weakness that you’d highlighted or what have you?

Yeah. It’s the offsets to be very blunt. I mean, the acrylic acid and [indiscernible] business is way oversupplied and quite troubled with new capacity. And our strategy is very clear. We’re converting more and more of that into coatings. Coatings actually had a very good sequential quarter and we’re doing quite well on our coatings business. But Performance Monomers is just too much of it that supplied into a commodity like market. We’ll get a bit of help with PDH coming on for that business but it won’t help the supply demand balance. That’s a major upset and I’ve already mentioned the energy business.

And next we’ll hear from Don Carson with Susquehanna Financial.

Yes. Andrew, I want to go back to your Ag comments. You’ve said in the past you’re willing to be an investor in Ag. I guess question is, is how big because seed businesses could be expensive and, I guess, they could also complicate potential joint venture discussions as well. So how much capital would you be willing to put into the Ag business to grow it?

Yeah. Look we have been very clear that we’re not spenders in big M&A and that’s a very important question in terms of resource deployment. As we go narrow and deeper in key markets, I think, what’s going to have to happen here is we’ll look at the opportunity to play up or play down in the Ag space and make a resource decision based on the playing up or playing down. So it’s less about the absolute amount and more about our resource deployment priorities which our shareholder remuneration and organic growth and small volume M&A. So that’s going to factor into our conversation there without revealing our hand at this point in time.

And then a follow-up on Ag. You’re down about 10% year-over-year in the first half on EBITDA. How much of that is due to Brazil, and when do you see Brazil turning? You made comments that you think this excess pipeline is continuing rather than shrinking.

Yeah. Look, it wasn’t as much Brazil in the first half. It was really Europe and the weather situation and commodity prices through the oversupply, mostly here in the U.S., but warehouses are full. The Brazil factor will really play in the second half. And that, of course, the oversupply issue will hurt the ability to obviously reduce as much or plant as much and produce as much as we would normally see in the season. So, look, I think Brazil and Argentina, don’t forget Argentina, will loom large in the second half comparisons as I said earlier.

And next we’ll move on to James Sheehan with SunTrust Robinson Humphrey.

My question, just wondering about some of the strength in your Performance Materials. You noted polyurethanes demand was quite strong. Could you talk about some of the drivers there? I know you’ve done a lot of work internally. What are you seeing on the macro front in polyurethanes?

Well, there’s two major macros, one on the supply side, which is – obviously there was major competitor outages that enabled us to expand margins because of supply shortages. That will disappear in the second half. But the demand side of it, as I mentioned already on China, we started up a new poly-all [ph] plant in Thailand and that’s a specialty poly-all [ph] plant that fed the Chinese market and started up and it’s flat out right now. So it is demand and it’s in demand in the areas I mentioned like construction and bedding and furniture, which is local consumption, back to the domestic drivers in China, but also our competitive position here on propylene in the United States, which means we can run the PO chain flat-out which is one of the other reasons. Isocyanates remains challenged, in particular TDI. But look, demand and tight supply especially in the PO chain.

Thanks. And on slide 19 you’ve got some interesting supply-demand balances in NGLs. Just wondering if you could comment on the propane outlook for the second half. Do you think prices have reached a bottom here, or do you see continued tailwinds in the propane area?

I think propane fundamentals remain bearish, so we’ve been actually pretty consistent in saying that. I think I’ve given Mr. Broodo accolades a few times on this comment in the last several quarters and I would do it again. When he was running the hydrocarbons group, we – full share [ph] of this several years ago, which is why – excuse me, we ended up spending the capital we did to convert over to propane flex. I think they’re going to stay fundamentally a tailwind for us for the next many quarters if not many years, and that also applies to butane by the way.

And next we’ll move on to Duffy Fischer with Barclays.

Yes. Good morning, guys. In the acrylic acid chain, sitting at trough, where do you worry about that kind of infecting some of the downstream derivatives, or do you think those are pretty well walled off and it won’t kind of infect its way down into the chain?

Yeah, it depends on your strategy, I think. There’s no question that if you’re going in a more commodity-like – emotions, F as in [ph] emotions, you’re going to see some price knock-on effect. It won’t be walled off to use your term [indiscernible], but certainly the strategy of Coatings is being innovation-led. And if you look at their work to be with the winners, end-use customers who are making a difference in premium Coatings, whether it be architectural or nonresidential, you’d see that that strategy’s working. I think we’ve got margin growth going on differentiation that is walling off the upstream, if you like, oversupply effect, and that strategy has been deliberate. It’s been hard to get there, but we have and we’ve got sales of new commercial grades of [indiscernible] is a good example of new product launches in the Coatings business.

Great. And then if we could just jump back to Ag, kind of on the strategic side. If the Monsanto Syngenta deal happens, do you think that forces either the industry or yourselves to do moves, or would the industry be able to continue to compete kind of as-is, even if Monsanto and Syngenta did come together?

Well, I think it would force other moves. I don’t think – I think the whole consumption base to pharma [ph] is going to look at that and say, we need some alternatives here. This creates an incredible company should it combine which speaks to its integrated strategy which we’re a fan of and we’ve been a fan of as I mentioned earlier.

And we’ll move on to Hassan Ahmed with Alembic Global.

Good morning, Andrew.

Good morning, Hassan.

Obviously very interesting slides in the ethane and propane supply demand side of things and obviously in this quarter you benefited a fair bit from cheaper propane. As I look at those slides, you obviously have the ethane surplus coming down quite steeply by the end of the decade. Obviously, in my mind that’s partly some exports and to a large extent ethylene [ph] firstly coming online in the U.S. But along the same time horizon propane’s rising quite steeply as well in terms of surpluses. So can you give us your views about this interplay between ethane and propane going forward?

I think it does speak to the earlier question, Hassan, on maximizing propane flex and especially in market Europe which we’ve done and here in the United States keeping our fleet able to flip within a day or two between ethane and propane on the in the moment decision or the balanced decision which you just talked about. As this comes to pass and I think we’d all look at that ethane supply-demand balance one and say grain of salt. I don’t think the market will let that happen based on the other consumption of let’s call it low carbon fuel in the United States. Remember, natural gas is a preferred fuel for low carbon emissions as you start to look at that from a carbon emissions point of view, you can see more of the power fleet going over to natural gas with time. So there will be natural gas production. We’ll all be dry. Probably not. Especially the shale gas. So I’d say that interplay is something we’ve strategically invested for. The way we have pure naphtha crackers left is really only the Taiwan and pretty much our Dow central Germany facility. But – we’ll look at that from a propane point of view both of them very strongly. But we’re okay on the [indiscernible] propane in a mix and in a balance on how we can manage it. We’re probably one of two or three who can do it.

One more point on that is, is that propane’s going put a lid on ethane. They’re going to compete for a cracker to get in the cracker and so there’s competitive economics between them.

Fair enough. As a follow-up to that, obviously the next step to this is your very long propane over here. You’re cracking more and more propane over here. So obviously producing more propylene co-product, right? So propylene partly goes into over supply because of sort of more propylene co-product coming on stream here. And then if global utilization rates pick up as well that means naphtha based ethylene or breaking [ph] rates go higher which means again further exacerbation of the propylene side of things. So now with that in mind assuming for a second propylene is massively oversupplied, I mean, that would mean higher ethylene prices as well, right, because you will not be getting as much propylene co-product credit as you historically would. Is that fair?

Very fair. Very fair.

Excellent. Thank you, Andrew.

Good job.

I try.

And at this time we have no further time for questions. I would like to turn the call back over to Jack Broodo for any additional or closing remarks.

We appreciate your time today. Andrew, would you like to make some closing comments?

Yeah. I just like to repeat that this Dow is now there are 11 quarters of execution, seven straight quarters of volume growth year-on-year, 11 quarters of EPS growth and EBITDA growth. So volume, margin, self-help, portfolio management, aggressive portfolio management, the closure of the Olin deal here in the next few months, our big projects coming online and our balance sheet in great shape. We’ve never ever had such high quality earnings. In fact, this EBITDA margin we haven’t seen since the bubble economy of 2005. And so if you think about this, this company’s quality of earnings, and all of the things in front of us, the approval of Enlist and launching that is a big product launch next year, and of course, Sadara and gulf stream our big Texas assets and buy-backs. Shareholder buy-backs and shareholder dividend increases, this is the company that we have and you can count on us to keep delivering these quarters.

Thank you, Andrew. We appreciate your questions today. As always we appreciate your interest in the Dow Chemical Company. For your reference, a copy of our prepared comments will be posted on Dow’s website later today. This concludes our call for today. We look forward to speaking with you again soon.

And that will conclude today’s call. We thank you for your participation.