Unilever Split, Boeing Latest, Intel Grant

Published Mar 22, 2024, 5:57 PM

Watch Alix and Paul LIVE every day on YouTube: http://bit.ly/3vTiACF.

On this week’s podcast, Bloomberg Intelligence analysts Deborah Aitken and Duncan Fox, discuss Unilever separating ice cream business. Madison Muller, Bloomberg News Health Reporter, talks about Oprah’s role with Eli Lilly and Novo Nordisk. George Ferguson, Bloomberg Intelligence Senior Aerospace, Defense, and Airlines Analyst, discusses Boeing predicting a massive cash drain. Mackenzie Hawkins, Bloomberg News US Industrial Reporter, talks about Intel’s grant from the U.S government. Matthew Schettenhelm, Bloomberg Intelligence Media Litigation Analyst, discusses a potential TikTok ban in the U.S. Jim Fitterling, CEO of the Dow chemical company, discusses high power prices in Europe.

The Bloomberg Intelligence radio show with Paul Sweeney and Alix Steel podcasts through Apple’s iTunes, Spotify and Luminary. It broadcasts on Saturdays and Sundays at noon on Bloomberg’s flagship station WBBR (1130 AM) in New York, 106.1 FM/1330 AM in Boston, 99.1 FM in Washington, 960 AM in the San Francisco area, channel 121 on SiriusXM, www.bloombergradio.com, and iPhone and Android mobile apps. Bloomberg Intelligence, the research arm of Bloomberg L.P., has more than 400 professionals who provide in-depth analysis on more than 2,000 companies and 135 industries while considering strategic, equity and credit perspectives. BI also provides interactive data from over 500 independent contributors. It is available exclusively for Bloomberg Terminal subscribers.

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Today we'll look at why Boeing is predicting a massive cash drain.

Plus well discuss how high power costs are impacting the European economy.

But first we dive into consumer products and ice cream. Oh yeah.

Earlier in the week, Unilever set of plants to separate it's ice cream business and cut seventy five hundred jobs. This comes as the company seeks to boost profits and jumpstart sluggish growth in the UK.

For more at guest host Molly Smith and I were joined by Bloomberg Intelligence analysts Deborah Aiken and Duncan Fox.

Debra senior analyst for Global Luxury Goods and Duncan Fox is a consumer products analyst.

I first asked Duncan for more context on what's going on with Unilever.

I think if you go back two years, they thought about it then when they sort of pushed it into five divisions and it was thought that they may sell it off or ipo it. So it's really coming back to the table. I think it was impossible back in twenty two because you had food inflation going not for the charts, So I don't think anybody would do it dead, do anything with it. But it's a business thirty is very capital intensive. They've got an excellent market share twenty percent, so the globe leader by some way. But it's one that I suppose if you want to refocus, you leave as a whole. It's a low margin business. We look at it against the HBC business so I can see why they would consider either selling or ibo in the business.

It does make sense in deep so you've been finding the retail space for a while. What do you make of all this?

I think we can go back to the big offer that you never had and the way that since then, over the last few years, they've had a couple of CEOs that just haven't done what the market had hoped. It's always been a wonder over whether beauty and personal care actually fitted with food and refreshments. And I think the market probably expects. Duncle and I were just talking that nutrition would be the next to go, actually, but they can't both go at the same time. So it really does make sense because you're left with businesses which quickly they say end of twenty twenty five. So it's typical a little bit slow churn from Unilever in the way that they operate. But under the new CEO, Heinz Schumacher, combined with trans and Nelson Pelts on the board and the way that he turned around P and G, Mondalize and others, that we would expect to see this business returned to hopefully the top end of a three to five percent organic cells growth and two high teams. Digit are just at operate in margin, which is where they used to focus until a few years ago, until that inflation came in and until they just couldn't pass it through in developed markets. They do much better in developing.

So duncan talk to us about the ice cream business. Is it a good business?

Well, I think so. I mean you can't be to a magnumh and you're on the way home, but'll say it is a global leader pretty much in every geography. I think so only number two in Latin America they have leadership. And you said it's capital intensive because about half of that global I think it's about an eighty seven billion dollar business globally, and half of that is through food service or impulse buying. So that's why you've got to get everything right on the distribution. On my whole, it looks like a Unilever holding or gaining market share in most of the regions. So they're running it well. But it does come down to innovation and actually that distribution. We've just got to get it right making sure that we can buy particularly impulse that product when you wanted on the way home generally, so it can be a bit weather dependent, and that's what makes it tricky, I think to sell because if you're the leader, are there to be shot at, So they've got to make sure they keep investing. Current management team seems to be doing that so good business. So I think an IPO seems the most sensible way to go forward.

To be fair, I mean personally, I would say ice cream is a twenty a year round to treat exactly.

Maybe that's just why I agree with exightly. It tends to start at Easter, would you believe so for two weeks time is the start of the season, So.

We're getting into high season for ice cream, I might say. I mean the flip side of all this, though, is the job cuts looking at about seventy five hundred, A lot of those in middle management. I mean, how many companies have we seen that that's really where so many of the job cuts are targeted at. Can you tell us a little bit about that deb and the productivity gains that Unilever's looking to get from these job cuts.

Yeah.

I think in October Unilever did highlight that they had a growth action plan and part of that was to drive top line and to really look at how they were implementing their productivity gains, so already ahead of this announcement on ice cream, there's been a new strategic group in place making not to change not just in ice cream but across the four of the businesses, but particular cularly ice cream and refreshments when they separated from three business units over to five in twenty twenty two, ice cream in terms of profitability, and also actually homecare, which they have there for now in which they need to do much with with two lowest margin areas. So in terms of what they're doing and the way forward, I think that we see that productivity savings. They had a one percent savings project one percent sales as a project cost savings project in place. They say that they will drive eight hundred million of savings for one point two percent productivity on the cost side of sales over three years. I worked that out on MODL to come in and around a zero point four billion net positive but over a three year period. And on the back of that, actually I think there'll be more savings to be had, but a deeper disposal plan across the four of the businesses too.

Are Thanks to Bloomberg Intelligence analysts Deb Achon and Duncan Fox.

We move now to weight loss drugs. It looks as if the drug makers Novo Nordisks and Eli Lilly have a powerful new allies. They conquered the eighty billion dollar obesity shot market, and that ally is former Weight Watchers spokeswoman Oprah Winfrey.

Winfrey recently appeared on ABC special with executives from Novo Nordisk and Eli Lilly for more on what all of this means. Guest host Molly Smith and I were joined by Madison Muller, Bloomberg News health reporter. We first asked, what's Oprah's role here with these drugmakers.

We're used to seeing Oprah as the face of weight Watchers obviously for the last almost a decade, and she said recently that she was exiting the board of Weight Watchers and then she said that it was to avoid potential perceptions of conflict of interest. And then she's doing this special now which was all about weight loss.

She did special on ABC Television.

Yeah, on ABC.

Was it a paid promotion or it was not?

Novo Nordisks said that they didn't have any you know, financial anything to do with Oprah really, and she's not you know, two, our knowledge doesn't have a partnership with either of the drug manufacturers. But you know, people that were watching the show and were on Twitter sort of reacting to it said that it watched and seemed sort of like an infomercial for the drugs.

Yeah, tell us a little bit more about who was on it. You were telling us that there were some doctors, but maybe they kind of glanced over the side effects a bit and that this was really just a big, you know, hype up moment for these weight loss drugs.

Yeah, so they heard from patients, There were doctors, There were executives from Nova Noordisk and Eli Lilly on the program as well. The majority of the program was sort of centered on patient experiences with these drugs, but it really didn't get into details about the side effects, sort of glossed over them, and the doctor that they had on talking about them said that the side effects were overhyped.

Really, So again that kind of goes to the editorial integrity of it.

I mean, I'm not a journalist, but really, yeah, I mean, are real journalist. Yes, there was definitely I think that it served and Oprah is on these drugs. She's had a great experience with them, so she says, and that's sort of what the program was centered around, and really spoke to that positive experience on the drugs.

So what are Oprah's feelings toward weight Watchers right now? I mean, this is, like you said, she has been the face of that company for so many years and now just like really seems to be doing like, you know, a total one to eighty and that weight Watchers would probably be on the losing end of the success of these drugs.

Yeah, yeah, and she asked, I mean, weight Watchers CEO was on this program, and she asked a very pointed question, you know, what is the role and what's the point of weight Watchers now that we have these medications, which I think is sort of the question that the whole industry has been asking, and the diet industry and analysts and everyone, and you know, weight Watchers CEO said that there is still a role for them to play in supporting the community of sporting people's weight loss journeys. But I guess that still sort of remains to be seen.

I really I hesitate to ask this question, but since you reported on it, what is ozembic face.

Yes, so Ozembic face is another sort of trend that we're seeing happen right now, especially here in New York. People who have rapid weight loss from the weight loss drugs are getting this hollowed out look in their cheeks, which I mean, it happens with weight loss. It's not just from the drugs, but it's the rapid weight loss that sort of makes it more noticeable. So then they're seeking out plastic surgery clinics, medspots to get botox or facelifts and sort of help offset those effects.

Add that to the list of all the winners and losers off what comes out of ozempic. I mean we've I mean the original kind of knock on effect was like, oh, you know all the potato chip companies, right, maybe not so good for them, And now plastic surgery coming up. So it's just like the hollowing out of your face. You've got the saggy skin.

There and yeah, yeah, like the extra loose skin. Ab View, which makes botox has said that this could be a potential, you know, boon for botox sales going forward, said that at earnings last quarter.

So it's like I can't keep up.

Yeah, So on these GLP drugs. Where are we in terms of, let I know someone who has a prescription, but this person cannot get it filled because there's not enough supply where and it is not me? Where are they not ensured?

Right?

Yeah, so that two questions, Yeah, where are we on ramping up supply to meet demand? And then secondarily who pays for this stuff? Yeah?

I mean the supply problem has been a huge issue and Nova Noordas, Skinnela, Lily are investing billions of dollars to ramp up supply to try to meet demand. But you know, I've seen an analyst notes they're like the demand for these products just seems like it's insatiable. And at this point they're already coming from behind. So and all of these investments in production capacity like take a couple of years to come online, so we're sort of just still racing to keep up with it. It's you know, probably Lily said, is probably going to be you know, not this year that they're able to meet supply, maybe next year. So we're still still trying to ramp up the supply there and then and in terms of paying for it, we have like I think fifty percent of commercial plans cover the drugs for obesity. A third of state health plans through Medicaid cover the drugs. Medicare does not cover weight loss drugs, so it's very patchy still and a lot of people are paying out of pocket.

Our thanks to Madison Muller, Bloomberg News Health reporter.

All right, coming up, we're going to break down why Boeing is predicting a massive cash strain.

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Move next to the aerospace industry and Boeing. This week, Boeing predicted a massive cash strain for the first quarter.

Boeing Chief financial Officer Brian West said cash out flow will reached four billion to four and a half billion in the first quarter. Analyst had expected five billion.

C Yelller reflects a shifting priorities over at Boeing, the company's grappling with the aftermath of a near catastrophic fuselage failure on a seven thirty seven Max nine aircraft earlier this year.

For more in all of this, we were joined by George ferguson Bloomberg Intelligence, senior Aerospace, Defense and Airlines analysts. We first asked George for context on what's going on at Boeing.

Well, I mean, I.

Think we heard it from Brian West, you know. Besides, I think the cash flow guidance he provided he provided few details about anything else. And so he describes a lot of processes, you know, processes at the FAA to get airplanes certified, processes and refining, the manufacturing process, curing, you know, the excess outsourcing they've probably done over the last couple of decades. I think what you really get is a sense of a company that's in a state of a lot of flucks. The market likes the fact that he talked about casual being positive by the end of the year, so it sounds like they've got a pretty nice ramp up in you know, sort of resuming build rates at their factories across the year. That was better than what I expected. But again, the storyline inside the company is still one that's all about flux and not about details. So I just wonder, I think I got a sense there's some risk in that cashalow projection.

So, George, you've covered Boeing for decades here, can you recall a time when maybe they're they've had these quality issues before? Is this how unprecedented is these you know, last couple of years, Really.

I think thoroughly unprecedented. Right, So, even as I was leaving Blackrock, you know, the during the global financial crisis, I remember Boeing stock was down at thirty three dollars a share, pretty cheap than what it is today. That the discussion then was just about like a defense portfolio, who products really weren't that modern, and angst about the company's future, but not these kind of problems inside their manufacturing business, which is the core business of this company. Right, it's an engineering and manufacturing company. If you can't manufacture things well in aerospace, that's a bad sigen. So I don't think it's ever been this bad ever.

So just to recap at a Bank of America conference in London, the CFO, so the cash outflow is going to reach four to four and a half billion in the first quarter. Analysts we're looking for maybe five billion plus and like you said that maybe we'll get cash flow positive by the end of the year. That was the indication from Boeing, do we believe Okay, that's not the right question. How did they come up with this estimate? Like what are the factors that go into this kind of estimate.

That's exactly we don't know, right, And so some of you it's all about deliveries. It's all about deliveries of commercial airplanes. I heard. What I thought was, we're going to be at rate thirty eight by the end of the year, which is the rate they should have probably built out all year long, and then we'll move to the next higher rate that's thirty eight a month, sorry on the seven thirty seven, and we'll move to the next higher rate when the FAA lets us. So our view at Bloomberg Intelligence of what we think build rates were, I can tell you we have factored in a fourth quarter at rate thirty eight. But it sounds like quarter one is going to be a really rough quarter, so they'll have to pull a lot of things back together to get rate back to thirty eight by the end of the year.

I think it's feels like everything has to go right, yeah, for that to happen, Paul, And as we.

Know, that never happened. Never happens. But George, you've told us in the past, in the airspace business, there is no hey, we did a pretty good job on this plane. It has to be perfect every single time, otherwise it's disastrous. And they from their customers perspective, Georgie, if I'm a big buyer, like a Southwest or United, what am I saying to these guys? I mean, I fly thousands of these planes every single day in my fleet. What am I telling the Boeing these days?

Yeah, so you're watching very very closely. Of course you're telling Boeing the quality is job one. Safety quality is job one. But if you're especially if you're like a Southwest or a Ryanair where you're a pure fleet, right, you really can't afford your most important supplier to have problems like this. So I think you're quietly coaching them to improve things hoping for better. But you're probably biting your nails a little bit, right because if there's it continues to be serious problems. You're not switching to airbus, you know, overnight. And I don't know that those people are considering it. I'm not saying that they are, but you got to be concerned. You've got to be watching very closely.

George. Let's talk about the other half of your research coverage, which is the airlines themselves. I just flew Newark to Salt Lake City seven thirty seven Max eight fully packed to the gills both ways. How are the airlines doing these days?

Yeah, so in one queue, I think a bunch of them are going to show losses. They they're filling airplanes because I think the revenue managers never let airplanes go down the runway with almost, you know, being entirely full. But everything what counts, as you know, the most, is going to be the ticket prices. And you know, when we looked at four Q as we closed out of four Q, the biggest challenge to the higher revenue that they were bringing in was all about these higher pilot salaries.

Right.

They gave a bunch away to the pilots and so while we're all paying more for the ticket, the pilot's getting more in the front seat. They probably deserve it. They work pretty hardilot's so happy you do. Actually, So profitability is still challenged compared to what we saw last decade. I think fares would have to go even higher, and we've seen them softening a bit. This summer. Could be a little bit better for the airlines, if you know, if we have a bunch of Airbus A three twenties out of the market because of the gear turbo fan problems, if Boeing deliveries are slowing down capacity gains in the marketplace, it could be a little bit better. But we're not looking at an environment where we think they're going to see twenty nineteen levels of profitability, not twenty nineteen, you know, even last decade levels of profitability this summer. So I'd say profits still a little bit weak. As the airlines recover, I think there might be just too much capacity in the marketplace.

Our Thanks to George ferguson Bloomberg Intelligence senior aerospace, defense and airlines analysts, we move next.

To the chip space. This week, the US Commerce Department announced that it will award the tech company Intel eight and a half billion dollars in grants and as much as eleven billion dollars in loans. It's a preliminary agreement to help fund an expansion of Intel semiconductor factories.

Intel is the first company to land a funding deal from the twenty twenty two Chips and Science Act for Advanced chip making facilities. The Chips Act set aside billions in grants to persuade chip companies to build factories on American soil.

For more on this, we were joined by Mackenzie Hawkins, a Bloomberg News US industrial reporter, and we first asked for some context here on the Intel story.

Biden signed the Chips Act into law in August twenty twenty two. Companies have been waiting for you know, well owned for a year to see those fund start flowing out the door. They haven't actually flowed out the door yet. Intel's awards just a preliminary agreement, and it will be likely until the end of this year that they start to actually see money doled out in tranches. But this is a huge investment in you know, the real leading American ship maker, and I mean these chips will power you know, the AI frenzy. There are the types of chips that go into nuclear missiles and hypersonics, and this is a really significant investment for the company and for the States for their building, including Arizona, Ohio, organ and New Mexico.

So, okay, I love covering energy, so I'm really into the IRA And like what you've seen a lot in the IRA is everyone got super excited, but then actually sort of putting shovels in the ground was a lot more difficult. So there's like, yeah, yeah, we're gonna get the money, It's gonna happen, but it's not happening quite yet. How do we think this plays out from the chips act? Like when does Intel put a shovel in the ground. What other companies are trying to put their shovels in the ground and get the funding and will it actually, you know, happen.

So Intel's already building these facilities. They've had a twenty billion dollar Arizona expansion underway for some time. They're building multiple fabrication facilities there. They're making some progress in Ohio, although there's been reporting that that's slightly delayed. We expect that construction to finish in twenty twenty six. Intel's rivals Taiwan Semi Conductor Manufacturing Company and Samsung out of South Korea are also building plants in the US. Both of their sites have seen some delays that the companies and the Biden administration insists are in line with typical projections, but time will tell on this one. It will be years before these facilities are stood up. The Commerce Department has set a goal that the US will produce twenty percent of the world's advance logic shows by the end of the decade. Currently we're at about zero, so that's a lot of progress to.

Catch up on.

Most of that production's happening in East Asia. The companies announced their projects before they got the funding from the federal government, but it is certainly their expectation that they will receive that funding, and they would like it to happen, probably a little bit faster than it did.

Hem m Caasie. How secure is this funding over time, thinking that we may have a new administration in twenty twenty five, how secure is this funding and particularly you know in the out years.

It's a great question. So there's a due diligence stage and then a final term cheat between Intel and the Commerce Department. That will likely come closer to the time of the presidential election, and the Commerce Department is setting all types of benchmarks that Intel must need for the money to be doled out over time. So it's not that they get the final agreement and then they get eight and a half billion dollars in grants and eleven billion dollars worth of loan guarantees. They have to meet benchmarks related to production, related to workforce development, and there are all types of requirements that Biden's Commerce Department might set that a potential from Commerce Department might not be as interested in. You've seen saying like child care facilities, which Intel and other companies have committed to community development agreements all those types of things. It's entirely possible that that could shift over time. But the reality is once they've got the equipment in the building, these are, you know, machines that cost hundreds of millions of dollars. They're committed to these facilities, but Intel's CEO Podcastingers said, we might need a ship back to two point zero. These companies are buying for a lot more money than they currently have. The events chipmakers together asked for more than double what the Commerce Department has available. So this isn't really something to watch over the next couple of years and decades.

I mean, is President Trump really going to go to Ohio and Arizona and Oregon, New Mexico and be like, just kidding, I'm going to take this development back. I mean, I think that's going to be a tricky proposition, since hearing it is so much money. So I just came back mackenzie from energy conference basically, and I was just telling Paul that all the talk there was that tech companies are finally getting wise to the fact that they're going to build all this stuff they need power and the power isn't as easy to come by as they might have thought. Do you hear that at all on your industrial side, Like, hey, this is great build all these data centers Intel, but like, are you going to get that power? What do you plug it in?

Absolutely, infrastructure is a top concern for these you know, a big part of their ability to apply for chips X funding is to demonstrate commercial viability and that they have buy in from state and local officials to marshal the resources necessary to stand up factories that cost tens of billions of dollars to build sometimes require entire new water pipelines or energy resources. You know, take Arizona, which has not just this massive intel expansion but also a huge factory to factories under construction from PSMC. Arizona does one hundred year water planning. This is a desert and so they've had to very carefully plan their water development, ensure residents that their water supply is not going to be impacted, and I mean down to the land parcels in Arizona, they've planned these industrial parks. You see similar things happening in Indiana, which is expected to get a roughly fifteen billion dollar investment from Spehinex, which is one of the main advanced packaging companies out of South Korea. That announcement hasn't been formally announced yet on Boo Bloomberg has reported on it. So I mean, this is a massive infrastructure effort which, as you know, is coming alongside a lot of other investments in other sectors coming from the Inflation Production Acts, things like UV's batteries, hydrogen wind, solar and sort of more traditional heart infratructure from the Bipartisan Infrodructor Law.

Our thanks to Mackenzie Hawkins, Bloomberg News US Industrial Reporter.

Coming up on the program a conversation with Jim Fiitterling, CEO of the Dow Chemical Company, on consumer demand and power prices.

Over in Europe, you're listening to Bloomberg Intelligence on Bloomberg Radio, providing in depth research and data on two thousand companies in one hundred and thirty industries. You can access Bloomberg Intelligence via b I go on the terminal. I'm Paul Sweeney and.

A Malex Steele, and this is Bloomberg.

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We move next to social media and TikTok, and many US citizens are questioning whether they'll be able to use the app going forward.

A swift passage of a house built last week would force a sale of TikTok or ban the app in the US. The bill would next have to pass through the US Senate.

And this comes as US officials have argued that the Chinese government's relationship with TikTok's parent company, by Dance raises national security risks.

Earlier in the week, guest host John Tucker and I were joined by Matthew Shuttenhelm Bloomberg intelligence media litigation analyst. We first asked him, what's the hold up with the bill in the US Senate.

It's amazing to see the bipartisan support this has. You don't see legislation move three hundred and fifty two to sixty five like we saw last week in the House. You've seen senators on both sides say they want this. You've seen Chuck Schumer in the past, the Senate majority leader, say he likes the idea of requiring a change in ownership of TikTok, So exactly the question now. I think the hold up though, is, look, this is an election year, and even though you've seen President Biden say, look, get it, you know, if it comes to my desk, I'll sign it. He also has one hundred and fifty million Americans using this app, many of them young people. At a time when you have an election coming in November, when every vote matters, in particular young people to President Biden. So I think this legislation has a chance. I only give it a thirty percent chance though this year, And that's exactly because of the political risks of November, at a time when President Biden doesn't want to risk a potential backlash from those young voters. The Senate is controlled by Democrats. Senator Chuck Schumer is the majority leader. He decides how quickly this moves, and I think the looming election is a reason to move slowly. But after that, after this election is out of the way, I'd be a little more nervous if I were taking.

So do we have any clear sense of what TikTok and byteedance how they're approaching this at this point, like what would they presumably do?

Yeah, so that's a great question. I think we've seen indications from China that it would not be willing to support a divestiture. Now that could be posturing on that end, but I think there's the possibility that if the US passes this legislation that requires a divestiture or else there's an effective ban, there's a real possibility that China wouldn't allow any sort of divestiture like that To happen, so you're inevitably in the result of a band. Of course, you're also in courts as soon as Congress passes this. And you saw Montana pass the TikTok ban last year. It got tripped up in court. You saw President Trump before he was against this, he actually signed a ban of TikTok that was tripped up in the court. So once this passes, you still have a tough court challenge coming. And so TikTok's first line of defense is going to be to see you over this, all.

Right, So if this ultimately goes to the courts, you've got to explain to me, what's the legitimate national security threat of me going posting pictures of myself or video of myself, you know, redoing my bathroom or Lisa putting on her mas scare.

That's exactly the question the courts are going to be asking. And the House went into closed session in committee when it talked about this, so so they kind of they were secret on the concerns that motivated this. But then after they had that closed session, all of a sudden it was fifty to zero voting in support. So we don't exactly know. I think the concern is that if this data is you know, not just you looking at at your you know, cat videos or whatever it is, but you know, one hundred and fifty million Americans everything that they are looking at all of this flow of data going to China. Let's China take a look at it. There's also a concern on the propaganda side that if China can impact sort of the flow of videos, can they start to shape thinking and in particular in young people. There's two sides of the concern here looking at the data about how we're using it and also influencing thought potentially by framing messages, by using an algorithm to promote certain ideas.

Our thanks to Matt Sheltenhelm, Bloomberg Intelligence Media Litigation analysts, So Paul.

Earlier this week, I was in Houston and I was joined by Jim Fitterling, CEO of the Dow Chemical Company, and he talked about consumer demand in US and Europe. And he told me that the high price of electricity in Europe is hurting customers, consumers, and the European economy. In the US though very different story. And I began this portion of our conversation by asking Jim if the US economy actually needs the FED to cut interest rates this year.

You know, it's starting to feel like the economy is gaining a little bit of strength the beginning of the year. It's not.

It's not robust.

Maybe a little bit early to tell if this is a a long term trend, but it's been a decent start to the year. Electronics has been a bit stronger than last year. Last year was a kind of a weak spot, so our outlook is good. Automotive had a good year last year, and I think despite the discussion around electric vehicles and some of the flat to negative sentiment that's in the news, the reality is I think it's going to be another good year in the automotive sector. Housing has been the slowest start, but there's been an uptick in single family home starts, which is good. That usually has a ripple effect through a lot of other durable goods manufacturing. We haven't seen that yet. So a modest good start to the year, and we just see how things develop.

So we're getting there.

So that begs the question that if we do, say get two to three cuts this year, for example, from the FED, is your expectation that we see accelerated growth, higher infleation, does that actually start more growth?

Well, I think in the commodity space and in our industry in particular, we tend to lead into a slowdown, and so we started to lead into this eighteen months middle of this year will be twenty four months ago, and we typically tend to lead out, and so it's too early to say we're coming out, but you can start to see shoots that are like when we see a recovery, and of course that demand. You know, what's missing from the economy right now is a durable goods demand and when that and construction demand, and when that comes back, those are high volume applications and that demand pool is going to mean that prices are going to move up a bit. I don't know if I would call that necessarily inflationary, but that's just the cycle.

What do you think it's waiting for.

I think it's waiting for rate reductions, for the mortgage rates to come down. I think that's the next big thing that typically triggers a kind of a shoot up in the housing market, and then that triggers a lot of other services and durable goods demand that comes behind it.

So we may see a second half recovery. I'm hopeful sort of what I'm hearing from it, then hopeful? Is it a similar picture over in Europe? So the chemical sector in Europe is under a lot of pressure. I mean, INPO, costs are high. The economy there is weaker in many sense compared to the US.

What's your take?

European consumer demand is not nearly as strong as it is here in the States, And of course the weight of higher energy costs has hit the consumer a lot of different ways. Now we're seeing an improvement year over year. Obviously energy has come down, but an electricity, you know which most consumers purchase electricity costs are double, maybe a little bit more than what they are here in the US. So I think, you know, there's a big question when I look at my downstream customers in Europe, I'm always questioning how long will they be there? And if you don't have a domestic market to service in Europe, you really can't afford to export from Europe. So if you don't have a domestic market to service, you have to say, you know, what does my footprint need to be? How long can I be there in order to be part of that economy?

That's a big deal. I mean that you're talking about the automotive industry, construction industry, like, is that going to move? What's your best sense?

A lot of technology comes out of there too, I mean beyond just the industry. A lot of the technology that we use around the world starts in Europe. And so you know, exporting technology obviously is a little bit easier than exporting product. But we're already starting to see imports of electric vehicles from China into Europe. We're seeing China has become a lower cost competitor than Europe in petrochemical, so you're starting to see product move into Europe. The Middle East obviously has been a big supplier because of their cost position into Europe. Europe's getting a bit of a reprieve right now because of the Suez Canal situation, so operating rates are up a little bit, but I think that'll once that Israel Gaza conflict has resolved, then we'll see things go back to normal.

Is it fair to say that you wouldn't build a new chemical plant in Europe right now?

Be very tough.

You'd have to be in a very specialized downstream market that you knew could handle the higher input costs, but I would say, in general, be very tough.

So for you, then let's take a look at inmpleation for a second. Where are cost still rising and where are they falling.

You're starting to see some costs, I mean, cost and commodities came off pretty dramatically. I think one of the reasons we announced our final investment decision on our project in Canada at the end of last year was because we were able to lock in a lot of bulk material costs like steel, concrete, cement, all the things we need to build a plan. So I think that's been good now. Obviously, as some of this construction demand and things come back, that'll tend to rise with the cycle. But I think if you looked at the commodity portion, a lot of inflation came out of there. If you look at the concerns like going to the grocery store, some of that hasn't come out yet, and so I think we're starting to see that. With the de stalking that happened last year, no signs of really restocking in the value chain, I think you're going to start to see some of that consumer inflation come out to and I think that's a little bit what the Fed's looking at.

Are you worried about tariffs come I don't know November January from either president.

As a global company and as a company that's been part of global trade for many, many years, teriffs don't stimulate demand anywhere, So I think what would happen under a terraff regime is we might not be happy with the demand result. Global free trade has been a better platform for growth. It's been better for growth, not just for the US, and we're advantaged, of course because of energy among other things, but it's been great for other countries. It's lifted so many people out of poverty, created a middle class. It's allowed technology to transfer around the world.

So it also just mean that you would have to produce and use the products in country.

Right.

You have to produce and do a crunchry be totally separate from each other.

Right when we have a supply chain today that is not US centric and hasn't had time to reshore, so that would become inflationary in and of itself. So I think, you know, the thing we're trying to fight and the tool we're using, they both could end up being inflationary. I don't know the tariffs is the answer.

Let's turn to if you're building a new plant today, what are you going to power it with in the next ten to fifteen years, Like, what's going to be that thing?

Well, we're all building a new plant in Canada and the purpose for going up there was to build the world's first zero scope on and two emissions ethylene complex. We will power it with hydrogen. It's a pretty elegant solution because we actually take ethane and natural gas liquid, we crack it to make ethylene and we make two byproducts methane and hydrogen. Lindy will come in and build an autothermal reformer that'll convert that to pure hydrogen, and that pure hydrogen will fire the furnace. So it's a very closed loop system that will allow us to capture all the CO two off the autothermal reformer and sequester that and maybe zero scope one and two ethylene and plastics there. It'll be the biggest hydrogen carbon capture project of its kind in the world, and it'll be the first one. First phase will be up in twenty twenty.

Seven, all right.

Thanks to Jim Fitterling, CEO of a Dow Chemical company.

This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, ten am to noon Eastern on Bloomberg dot com, Thehart Radio app, tune In, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Journal

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Alix Steel and Paul Sweeney harness the power of Bloomberg Intelligence to analyze market news and p 
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