“Because the customers practically ripped the products out of our hands, we had to go to our safety stocks.”
(Photo: Covestro)
Dusseldorf The plastics manufacturer Covestro is not feeling any deterioration in the economy and is preparing for further growth in the coming year. “We can barely meet the demand and are optimistic about the further development in the markets that are important to us,” said CEO Markus Steilemann in an interview with the Handelsblatt.
For 2021, the Dax group raised its targets again on Monday. Covestro now expects an adjusted operating profit of between 3.0 and 3.2 billion euros. That would be twice as much as in 2020 and could be the second strongest financial year after 2017 since the company was spun off from the Bayer Group in 2015.
Covestro is benefiting from the persistently tense market situation for soft and hard foams and for the transparent plastic polycarbonate. Since demand far exceeds supply, prices have skyrocketed. As a result, operating profit increased by 89 percent to EUR 862 million in the third quarter.
In this situation, the manufacturer was able to pass on the increased raw material and energy costs to the customers without any problems. Nothing will change in this situation for the time being. “We see that the margin trend will continue in the fourth quarter,” said Steilemann. For the customers, there is no easing in sight in terms of prices.
Top jobs of the day
Find the best jobs now and
be notified by email.
This is also due to the fact that Covestro itself has to limit production. For one thing, the storms in Texas last winter, which affected the chemical centers there, are still having an impact. Then there are the consequences of the pandemic and the rapidly increasing demand for plastics since the beginning of 2021.
Covestro is currently practically sold out. Now the group will replenish internal stocks to ensure supplies in the coming months. Reason: Covestro is carrying out numerous maintenance and efficiency work on the systems that initially had to be postponed due to Corona. This is one of the reasons why the supply on the market will initially remain scarce.
This work will be the basis “for a boost in the coming year,” says Steilemann. He does not yet want to give a specific forecast for 2022, especially with regard to price developments. But the Leverkusen-based group is gearing up for further growth.
Covestro wants to benefit from the green restructuring of the economy
Because Steilemann rates the general economy as persistently strong. “As far as China is concerned, my positive view has not changed,” he said. Covestro was only affected selectively by the recently state-ordered power shutdowns at industrial companies in the country.
Overall, Covestro is counting on products for the green transformation of the global economy, regardless of the economic situation. The Leverkusen company supplies rigid foam for building insulation, for example. Even if the construction industry loses steam, it will remain a growth business. The same applies to electromobility. According to estimates, electric cars need three times as much polycarbonate compared to combustion engines, for example for lightweight construction and battery housings.
Analysts believe Covestro will have another strong year – even if the record values of 2021 will be hard to beat. On average, the experts are assuming an adjusted operating profit of 2.7 billion euros. From the point of view of Baader Bank, the result could be around 14 percent above this consensus value in 2022.
Investors remained cautious on Monday, however. The Covestro share was unable to benefit from the renewed forecast increase. The price was just under one percent in the red on Monday afternoon at around 54 euros and thus remained within the range of 53 to 59 euros in which Covestro has been moving since spring.
Different development of the corporate divisions
For the first time, Covestro presented the quarterly results in accordance with the new Group structure that has been in effect since July – and they show the different situations and challenges for the two new segments.
In the case of mass-produced plastics (“Performance Materials”), Covestro is demonstrating that prices can be raised immediately in order to pass on raw material and energy costs. In the segment, the volume produced fell by twelve percent in the third quarter due to the restrictions. The profit, however, soared from 288 to 755 million euros.
“Solutions and Specialties” presents itself differently. This is where Covestro bundles innovative specialty businesses based on long-term customer relationships. There the production volume rose by 23 percent, among other things due to the acquisition of the coating division of DSM.
The profit, however, fell by 16 percent to 173 million euros, because the higher raw material costs can only be passed on with a delay. Covestro wants to drive price increases here in the coming weeks and months.
More: “We do not need any overarching politics” – Covestro is investing billions in green technologies