10 January 2007 17:04 [Source: ICIS news]
TORONTO (ICIS news)--Plans by General Electric (GE) to sell its GE Plastics business unit may have been driven by the sober supply/demand outlook for polycarbonate (PC), and not so much by raw material cost pressures, Merrill Lynch said on Wednesday.
The analysts where commenting on intense market speculation that GE is poised to sell the plastics unit, previously considered a core business.
“While many investors continue to focus on raw material pressures in plastics, we believe the increasingly unfavourable demand/supply outlook for global polycarbonate (PC) capacity may actually be driving GE’s decision to sell now
rather than wait for raw material price pressures to ease,” Merrill said in a research note to clients.
Merrill said the outlook for incremental PC capacity additions over the next two years or so could remain a negative for pricing in GE Plastics, regardless of raw material inflation.
“In other words, even if benzene prices start to trend down following the decline in oil prices, the profit outlook for GE Plastics may not necessarily improve,” the analysts said.
According to Merrill’s analysis, the polycarbonates market is the primary driver of GE Plastics, accounting for about 60% of sales and 80% of earnings before interest and tax (EBIT).
Therefore, the forecast increase in global polycarbonate production capacity is particularly problematic for GE, the analysts said.
Merrill, citing industry consultants' data, said that PC capacity would continue to grow through 2009, pressuring utilisation rates to the 80% level.
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