Covestro, a bad sign for Arkema and Solvay ?, Corporate News

This is a very “chemical” week in the stock market. Tomorrow, Wednesday, Solvay will present its data for the first quarter, namely on Thursday Arkema will take part in the same exercise. Meanwhile, Germany’s Covestro was on deck on Tuesday, and the stock market’s perception of the polymer manufacturer’s prospects is not very encouraging for the sector as a whole.

In Frankfurt, Covestro lost more than 6%, the biggest drop in the Stoxx 600 major European stock index, after lowering its financial forecasts for fiscal 2022 to take into account the impact of recent restrictions in China (particularly the Shanghai region), a country that is a quarter of its turnover. Rising energy and raw material prices are another brake on the industrial sector, with the chemical sector being one of the most demanding in this area, as well as less stable expected growth rates in the world economy (assuming 3.1% vs. 4.1% previously).

Half of China, half of growth

At the end of December 2022, the chemist forecasts pre-tax profits, interest, depreciation and amortization, a kind of gross operating profit, the most popular operating figure in the profession, in the range of 2 to 2.5 billion euros from 2.5 to 3 billion previously. Half of the impact is on imprisonment in China, where production continued at facilities but shipments were severely limited. The other half comes from assumptions about lower growth. Another downside revision for free operating cash flow is now estimated at € 400 million to € 900 million, compared to a range of € 1 billion to € 1.5 billion.

However, in the first quarter the gross operating surplus amounted to 806 million euros. This is 4% better than the consensus forecast of 774 million. The 8% year-over-year increase was 39 million volumes, while prices were 63 million. This gross operating surplus is expected to fall to 430-530 million for the months from April to June, ie 480 million euros in the middle of the range, ie 1.28 billion for the half-year and reflects expectations of 1 billion euros for the second half.

China, 10% of Arkema and Solvay sales

The warning, which is not without its impact on Arkema, is declining, albeit more limited, by 0.8%, but the market has risen by almost 1%. China accounts for about 12% of the group’s accounts and about half of the turnover achieved by the French chemist in Asia. It is present there, in particular, in the areas of new mobility (batteries) and electronics with 5G. To meet the high market demand for lithium-ion batteries for electric vehicles, the Changsha-based company has increased production capacity of high-performance fluoropolymer (PVDF) for its market by 50% in 2020. and announced in early 2021 a new expansion of 35% this year.

The same ambition is for Solvay, also present in Changshu, which also has to put into production a production unit this year, which will allow it to double the production of LDPE in its Chinese place. For the Belgian chemist, this is China, where he accounts for about 10% of his invoices, which has limited the decline in turnover, which is 10% less than last year. In the fourth quarter, its sales in the Middle Kingdom increased by 5%, showing an acceleration from 3% for the whole year. A chemist there for about forty years; it has 11 production sites in the country and has set up its first research center there. Shares of Solvay also lost nearly 1% on Tuesday.