The Urethane Blog

Covestro Profit Up 50%

Covestro Q2 profit up more than 50 pct on higher prices


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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)
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