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* Q2 EBITDA 848 mln euros vs Rtrs poll avg 772 mln * Sees EBITDA up substantially in Q3, sticks with FY aims * To further invest in plants, battle bottlenecks - exec * Shares rise 1.8 pct in pre-market trade (Adds executive's comment, industry background) FRANKFURT, July 25 (Reuters) - Covestro <1COV.DE>, the plastics maker that parent Bayer <BAYGn.DE> plans to sell, reported a larger-than-expected earnings increase for the second quarter, commanding higher prices for foam chemicals used in the construction industry as rivals struggle to boost supplies. Quarterly earnings before interest, taxes, depreciation and amortisation (EBITDA), jumped 57 percent to 848 million euros ($989 million), above the 772 million euros expected on average in a Reuters poll of analysts, [nL5N1KC2A7] Competitors have suffered a number of technical setbacks amid growing demand. BASF <BASFn.DE> is struggling to ramp up a major new plant in Germany for the production of a chemical known as TDI for soft foams for mattresses and car seats. [nL8N1G01S5] An explosion in September last year at a Chinese plant has disrupted Wanhua Chemical's <600309.SS> supplies of rigid foams for insulation. Covestro reiterated it was targeting 2017 EBITDA clearly above 2016 levels, helped by substantially higher earnings also in the third quarter. But analysts have predicted tight supplies in the industry would ease, likely putting an end to more generous mark-ups later this year. BASF is getting ready to overcome its output shortfalls while Saudi Arabia's Sadara chemical complex, a $20 billion joint venture between Saudi Aramco and Dow Chemical <DOW.N>, is expected to begin producing foam chemicals later this year. With output near its capacity limits, Covestro "will further invest in our production plants and take steps to eliminate bottlenecks", Chief Commercial Officer and CEO-designate Markus Steilemann said in a statement. Covestro, listed separately in October 2015, has pledged it would return cash to shareholders if it cannot find a suitable major takeover target within two years as it eyes 5 billion euros in total operating cash flow after investments over the next five years. [nL8N1JQ0WL] ($1 = 0.8578 euros) (Reporting by Ludwig Burger; Editing by Maria Sheahan) ((ludwig.burger@thomsonreuters.com; +49 69 7565 1311; Reuters Messaging: ludwig.burger.thomsonreuters.com@reuters.net)) Keywords: COVESTRO RESULTS/ (UPDATE 1) http://www.nasdaq.com/article/covestro-q2-profit-up-more-than-50-pct-on-higher-prices-20170725-00029