OREANDA-NEWS. The Dow-Dupont merger and subsequent spin-off of its commodity chemicals business will streamline US production of olefins and polymers, but will not result in fundamental changes to the domestic supply and demand balance any time soon.

The deal would first combine the two companies into a $130bn giant, then split it into three independent, publicly-traded companies with a focus in agriculture, material science and specialty products 18-24 months after closure of the merger.

DuPont's Performance Materials segment will be combined with Dow's Performance Plastics, Performance Materials and Chemicals, Infrastructure Solutions, and Consumer Solutions divisions. Dupont's division saw $6bn in revenue in 2014, while the Dow units saw $45bn in revenue. The combined materials science company would see roughly $1.5bn in cost synergies, the companies estimate.

By creating the world's largest supplier of packaging materials, the deal gives Dupont greater access to Dow's storage facililities for low-cost feedstocks, including NGLs used in ethylene and propylene production.

"The merger gives both companies complementary access to niche specialty end products and performance plastics that typically have high margins in addition to synergies across manufacturing and access to raw materials," said Paco Rangel, a petrochemical consultant for Argus DeWitt.

Dow currently operates 8.26bn lb/yr of ethylene capacity at its Freeport, Texas, Plaquemine and Taft, Louisiana, crackers. The deal will add Dupont's 1.3bn lb/yr cracker in Orange, Texas, to that mix.

The deal will also add Dupont's 500mn lb/yr of low density polyethylene (LDPE) production in Orange and an additional 240mn lb/yr of LDPE capacity in Victoria, Texas, to Dow's 425mn lb/yr of LDPE production in Plaquemine and 386mn lb/yr of production in Freeport, coupled with another 500mn lb/yr of LDPE production in Seadrift, Texas.

The merger will also combine lines of linear low density and high density polyethylene, and gives Dow access to Dupont's 575mn lb/yr of vinyl acetate production in La Porte, Texas.

Neither Dow nor Dupont has announced plans to shutter any production facilities following the merger. Both companies face lower pricing for commodity chemicals, particularly ethylene and propylene, as more US production is slated to come online in the next several years to take advantage of low-cost ethane and propane. Still, much of this olefins production is used internally for derivatives products, and the merger will help both companies sell each other's products in end markets for packaging and the automotive sector in particular.