September 29, 2021

Covestro raises investment in sustainable growth

Investor Conference 2021: transformation toward a successful future

Sustainability trends boost demand at Covestro
New world-scale MDI plant: investment resumed
EUR 1 billion for circular economy projects over ten years
Mid-cycle EBITDA to rise to EUR 2.8 billion in 2024
Expansion of sustainable portfolio: 45 products based on alternative raw materials already commercialized

Covestro is laying the groundwork for sustainable growth in the future. As part of its new “Sustainable Future” strategy, the Group is continuing to focus on the circular economy and the structurally increasing demand for sustainable solutions. Political initiatives to reduce greenhouse gases, such as in China, Europe and the United States, are driving demand, especially in the fields of energy-efficient construction and electromobility.

In this context, Covestro expects global demand growth for the rigid foam precursor MDI and the flexible foam precursor TDI to increase to 6 percent per year until 2025. For MDI in particular, demand is meeting an already high utilization of industry-wide capacities. At its Investor Conference this year, the Group announced that it would resume the investment project for the construction of a world-scale MDI plant, which was temporarily suspended at the beginning of 2020. Covestro plans to deploy the energy efficient AdiP technology, which is already used at its Brunsbuettel site in Germany. The technology can reduce steam by up to 40 percent and electricity by 25 percent per ton of product in an MDI plant, cutting CO₂ emissions by up to 35 percent. The company is exploring building the new world-scale MDI plant in either the United States or China. A final decision is expected to be taken after the current project stage. Commissioning of the plant is planned for 2026.

“There is growing demand for sustainable solutions worldwide and that offers us significant additional market potential. Our high-tech plastics already enable sustainable innovations in many industries,” stated Dr. Markus Steilemann, CEO of Covestro. “On our path to becoming fully circular, we are increasing our capital spending selectively and are enabling our customers to become more sustainable with tailored solutions.”

Expansion of production capacities

Covestro aims to generate sustainable growth and in the future will align investments and acquisitions even more consistently to the aspects of profitability and sustainability.

“We’re now in very good economic shape. But we must not be content,” said Dr. Thomas Toepfer, CFO of Covestro. “In order to achieve our ambitious objectives and become fully circular, we are planning targeted capex spending of around EUR 1 billion on circular economy projects over the next ten years.”

In addition, organic growth will continue to play a central role. Covestro will invest around EUR 800 million in 2021 but capital expenditure is to raise substantial in subsequent years. Capital expenditure thus grows on average at or slightly above the level of depreciation and amortization. In the “Performance Materials” segment, the planned construction of the new world-scale MDI plant will significantly increase capital expenditures, particularly in the years 2024 to 2026. To meet the growth in demand for TDI as well, Covestro will expand its production capacities for TDI at the German site in Dormagen as early as 2023 through debottlenecking.

The Group is also investing in the “Solutions and Specialties” segment. Around EUR 300 million will be invested in additional capacities in the Coatings & Adhesives entity by 2025 to enable further growth. Covestro is expanding its compounding capacities for the global production of its highly differentiated polycarbonate. Future plans will focus entirely on this growth market in the area of polycarbonates. The company also sees growing demand for its Specialty Films products, particularly in the medical sector and for holographic films. To meet this demand, Covestro is investing around EUR 200 million in additional capacities by 2025.

Substantial increase in mid-cycle EBITDA up to 2024

Under its new strategy, Covestro reorganized its business into the two segments “Solutions and Specialties” and “Performance Materials” in July 2021. As part of that, the Group gave more entrepreneurial responsibility to the business entities and integrated all operational activities throughout the value chain that are critical to success directly into these new entities. As a result, it can better address the requirements of the specific markets and customers’ individual needs. In both segments, the Group expects an increase in core volumes sold by 2025. This is also expected to impact earnings: Whereas margins in the Performance Materials segment are highly supply-and-demand-driven, margins in the Solutions and Specialties segment are to be raised to 17 percent by 2024.

On the basis of the organizational realignment, the successful integration of the “Resins & Functional Materials” business acquired from DSM in April 2021, and sustainability-driven growth in demand, Covestro expects mid-cycle EBITDA to rise from its current level of EUR 2.2 billion to EUR 2.8 billion in 2024.

At the same time, the new Group structure offers significant efficiency potential that Covestro will leverage by 2023. The goal is to create the right basis for the long-term corporate development. As already announced, the company is currently reviewing all activities and processes worldwide to ascertain whether they fit with its vision and strategy. Overall, fixed costs in 2023 are to remain at the 2020 level.

Expansion of the sustainable product portfolio

On its path to becoming fully circular, Covestro is continuing its unwavering commitment to future technologies and constantly increasing its sustainable product portfolio. For example, the company has already successfully commercialized around 45 products based on alternative raw materials and is pressing ahead with almost 90 associated research products.

Key milestones on this path were achieved in 2021. The company now offers mass-balanced sustainable products from three sites (Antwerp in Belgium, Shanghai in China, and Krefeld-Uerdingen in Germany) that have been awarded ISCC Plus certification. This “International Sustainability and Carbon Certification” means Covestro can offer its customers high-performance plastic polycarbonate and the rigid foam precursor MDI both made from alternative raw materials in the same good quality as fossil-based counterparts. Covestro is thereby helping its customers reduce their carbon footprint.

https://www.covestro.com/investors/news/covestro-raises-investment-in-sustainable-growth/

September 29, 2021

Covestro Update

Covestro raises investment in sustainable growth

Investor Conference 2021: transformation toward a successful future

Sustainability trends boost demand at Covestro
New world-scale MDI plant: investment resumed
EUR 1 billion for circular economy projects over ten years
Mid-cycle EBITDA to rise to EUR 2.8 billion in 2024
Expansion of sustainable portfolio: 45 products based on alternative raw materials already commercialized

Covestro is laying the groundwork for sustainable growth in the future. As part of its new “Sustainable Future” strategy, the Group is continuing to focus on the circular economy and the structurally increasing demand for sustainable solutions. Political initiatives to reduce greenhouse gases, such as in China, Europe and the United States, are driving demand, especially in the fields of energy-efficient construction and electromobility.

In this context, Covestro expects global demand growth for the rigid foam precursor MDI and the flexible foam precursor TDI to increase to 6 percent per year until 2025. For MDI in particular, demand is meeting an already high utilization of industry-wide capacities. At its Investor Conference this year, the Group announced that it would resume the investment project for the construction of a world-scale MDI plant, which was temporarily suspended at the beginning of 2020. Covestro plans to deploy the energy efficient AdiP technology, which is already used at its Brunsbuettel site in Germany. The technology can reduce steam by up to 40 percent and electricity by 25 percent per ton of product in an MDI plant, cutting CO₂ emissions by up to 35 percent. The company is exploring building the new world-scale MDI plant in either the United States or China. A final decision is expected to be taken after the current project stage. Commissioning of the plant is planned for 2026.

“There is growing demand for sustainable solutions worldwide and that offers us significant additional market potential. Our high-tech plastics already enable sustainable innovations in many industries,” stated Dr. Markus Steilemann, CEO of Covestro. “On our path to becoming fully circular, we are increasing our capital spending selectively and are enabling our customers to become more sustainable with tailored solutions.”

Expansion of production capacities

Covestro aims to generate sustainable growth and in the future will align investments and acquisitions even more consistently to the aspects of profitability and sustainability.

“We’re now in very good economic shape. But we must not be content,” said Dr. Thomas Toepfer, CFO of Covestro. “In order to achieve our ambitious objectives and become fully circular, we are planning targeted capex spending of around EUR 1 billion on circular economy projects over the next ten years.”

In addition, organic growth will continue to play a central role. Covestro will invest around EUR 800 million in 2021 but capital expenditure is to raise substantial in subsequent years. Capital expenditure thus grows on average at or slightly above the level of depreciation and amortization. In the “Performance Materials” segment, the planned construction of the new world-scale MDI plant will significantly increase capital expenditures, particularly in the years 2024 to 2026. To meet the growth in demand for TDI as well, Covestro will expand its production capacities for TDI at the German site in Dormagen as early as 2023 through debottlenecking.

The Group is also investing in the “Solutions and Specialties” segment. Around EUR 300 million will be invested in additional capacities in the Coatings & Adhesives entity by 2025 to enable further growth. Covestro is expanding its compounding capacities for the global production of its highly differentiated polycarbonate. Future plans will focus entirely on this growth market in the area of polycarbonates. The company also sees growing demand for its Specialty Films products, particularly in the medical sector and for holographic films. To meet this demand, Covestro is investing around EUR 200 million in additional capacities by 2025.

Substantial increase in mid-cycle EBITDA up to 2024

Under its new strategy, Covestro reorganized its business into the two segments “Solutions and Specialties” and “Performance Materials” in July 2021. As part of that, the Group gave more entrepreneurial responsibility to the business entities and integrated all operational activities throughout the value chain that are critical to success directly into these new entities. As a result, it can better address the requirements of the specific markets and customers’ individual needs. In both segments, the Group expects an increase in core volumes sold by 2025. This is also expected to impact earnings: Whereas margins in the Performance Materials segment are highly supply-and-demand-driven, margins in the Solutions and Specialties segment are to be raised to 17 percent by 2024.

On the basis of the organizational realignment, the successful integration of the “Resins & Functional Materials” business acquired from DSM in April 2021, and sustainability-driven growth in demand, Covestro expects mid-cycle EBITDA to rise from its current level of EUR 2.2 billion to EUR 2.8 billion in 2024.

At the same time, the new Group structure offers significant efficiency potential that Covestro will leverage by 2023. The goal is to create the right basis for the long-term corporate development. As already announced, the company is currently reviewing all activities and processes worldwide to ascertain whether they fit with its vision and strategy. Overall, fixed costs in 2023 are to remain at the 2020 level.

Expansion of the sustainable product portfolio

On its path to becoming fully circular, Covestro is continuing its unwavering commitment to future technologies and constantly increasing its sustainable product portfolio. For example, the company has already successfully commercialized around 45 products based on alternative raw materials and is pressing ahead with almost 90 associated research products.

Key milestones on this path were achieved in 2021. The company now offers mass-balanced sustainable products from three sites (Antwerp in Belgium, Shanghai in China, and Krefeld-Uerdingen in Germany) that have been awarded ISCC Plus certification. This “International Sustainability and Carbon Certification” means Covestro can offer its customers high-performance plastic polycarbonate and the rigid foam precursor MDI both made from alternative raw materials in the same good quality as fossil-based counterparts. Covestro is thereby helping its customers reduce their carbon footprint.

https://www.covestro.com/investors/news/covestro-raises-investment-in-sustainable-growth/

September 29, 2021

China Update

China economy to slow as industries struggle from power crunch

Author: Fanny Zhang

2021/09/29

SINGAPORE (ICIS)–China’s economic prospects are being weighed down by an ongoing power crunch in a huge swathe of the country, threatening overall industrial production, with much tighter controls on energy consumption in place in selected provinces in September.

Some investment banks have shaved their GDP growth forecast for the second-biggest economy below 8% as industries struggle from power shortage stemming from high coal prices, and efforts by some provinces to keep within their respective energy consumption targets in the third quarter.

Goldman Sachs now expects China to post a 7.8% GDP growth in 2021, down from its previous forecast of 8.2%.

The US investment bank cited “significant downside pressures” from major industrial output cuts caused by power outages, which affect an estimated 44% of the country’s industrial activity.

China-based investment bank China International Capital Corp (CICC) expects the GDP drag would be 0.1-0.15 percentage point in both the third and fourth quarters, with overall industrial output to be reduced by 1.3%-1.5%.

A prolonged production cut could shave China’s fourth-quarter GDP growth by a full percentage point, according to US-based investment bank Morgan Stanley.

Japan-based Nomura has likewise revised down its full-year GDP forecast for China to 7.7% from 8.2% previously, with third-quarter and fourth-quarter growths projected to come in at 4.7% and 3%, respectively.

Power rationing is now in place at 20 of the 31 provinces/municipalities in mainland China, with coal-based power plants running at reduced rates to stem losses arising from high feedstock costs. https://e.infogram.com/5e89a67b-46d1-4592-9a81-1604a5610c85?parent_url=https%3A%2F%2Fwww.icis.com%2Fexplore%2Fresources%2Fnews%2F2021%2F09%2F29%2F10689696%2Fchina-economy-to-slow-as-industries-struggle-from-power-crunch&src=embed#async_embed

China has been leading the global economic rebound from a pandemic-driven slump in 2020, having successfully contained COVID-19 infections much earlier than the rest of the world.

Its industries have been working double time to accommodate increased export orders, thereby causing unprecedented spikes in energy consumption.

But the country also has a commitment to reduce carbon emissions, with specific annual targets on energy consumption set for each province, in line with the goal of achieving net-zero emissions by 2060, based on China’s 14th Five-Year Plan.

In September, some provinces well in excess of the limits on total energy consumption as well as intensity (consumption per GDP) in the first half of 2021 have moved to rectify the issue, aggravating the effects of the power shortage and hitting downstream industries hard.

Factories are being forced to cut production or shut operations, and in some regions, office buildings, shopping centres and even residential homes are affected.

Power companies are losing money from high cost of coal, said freelance economist Guan Qingyou.

Spot prices of coal – which accounts for 70% of China’s total power generation – nearly quadrupled from 2020 levels to $180/tonne, in line with strong gains in global commodity prices this year.

China’s energy challenges may not be resolved in the short term, Guan said.

Industrial production in China has weakened for five straight months, with the August official purchasing managers index (PMI) reading of 50.1 barely above the threshold for expansion.

Another concern looming in the background for the Chinese economy is the debt-saddled giant property developer Evergrande.

The company, which is China’s second-bigger property developer, has accumulated $305bn in debt, which was about 2% of China’s GDP.

Analysts said that Evergrande’s collapse is threatening stability of the Chinese property market, as well as financial system.

Focus article by Fanny Zhang

https://www.icis.com/explore/resources/news/2021/09/29/10689696/china-economy-to-slow-as-industries-struggle-from-power-crunch

September 29, 2021

China Update

China economy to slow as industries struggle from power crunch

Author: Fanny Zhang

2021/09/29

SINGAPORE (ICIS)–China’s economic prospects are being weighed down by an ongoing power crunch in a huge swathe of the country, threatening overall industrial production, with much tighter controls on energy consumption in place in selected provinces in September.

Some investment banks have shaved their GDP growth forecast for the second-biggest economy below 8% as industries struggle from power shortage stemming from high coal prices, and efforts by some provinces to keep within their respective energy consumption targets in the third quarter.

Goldman Sachs now expects China to post a 7.8% GDP growth in 2021, down from its previous forecast of 8.2%.

The US investment bank cited “significant downside pressures” from major industrial output cuts caused by power outages, which affect an estimated 44% of the country’s industrial activity.

China-based investment bank China International Capital Corp (CICC) expects the GDP drag would be 0.1-0.15 percentage point in both the third and fourth quarters, with overall industrial output to be reduced by 1.3%-1.5%.

A prolonged production cut could shave China’s fourth-quarter GDP growth by a full percentage point, according to US-based investment bank Morgan Stanley.

Japan-based Nomura has likewise revised down its full-year GDP forecast for China to 7.7% from 8.2% previously, with third-quarter and fourth-quarter growths projected to come in at 4.7% and 3%, respectively.