INSIGHT: Arkema and Lanxess push prices higher

14 May 2008 17:51  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--If this is a race to have your house in order before times really do get bad then it is being run to the wire.

Arkema’s boss Thierry Le Henaff was forthright enough in his remarks on Wednesday after the French company posted a strong set of first-quarter financial results.

Arkema has been one of the best performing chemical companies so far this year he declared, following its near doubling of quarterly operating profits.

The markets reacted positively to the French speciality company’s results and the shares were pushed close to 10% higher on the news that further productivity measures, price increases and new product introductions had created a heady mix.

Arkema is battling with the already more difficult polyvinyl chloride (PVC) business but in the first three months of the year did a lot better in industrial chemicals and performance products.

It has a broadly-based portfolio which puts it at an advantage in more difficult economic times. And it also has more work to do to lift productivity so still has some wind in its sails.

The company has benefited from the consolidation of the Coatex flow additives business but in the first quarter managed to lift product prices by 6.1%. In that respect it is doing something right and a lot better than most of its Europe based specialty chemicals peers.

The group’s first quarter sales were just 0.3% after a 4% negative currency translation effect and changes in the scope of business that shaved a further 1.9% off growth.

Price increases were pushed though in the industrial chemicals and performance products segments.

Demand was solid for caustic soda, hydrogen peroxide, some fluorochemicals and specialties which helped to offset the impact of the US construction downturn on additives.

Arkema can’t be too confident but its 10% earnings before interest, tax, depreciation and amortisation (EBITDA) margin target is achievable. Most of the businesses can continue to do well with the pressure remaining on vinyls.

It should not be that surprising perhaps that the two new kids on the chemicals block in Europe are continuing to make gains while others, such as Ciba Specialty Chemicals and to a lesser extent Rhodia find the going tough.

In the current period of sky-rocketing raw material and energy costs, companies need more room to manoeuvre and put pressure on customers to accept price increases.

The debate across the chemicals sector has become focused on whether volumes can be sustained sufficiently to keep the upward pressure on prices.

Specialties maker Lanxess also reported on Tuesday with numbers well above the consensus forecast from Europe’s chemicals financial analysts. And Lanxess management, perhaps not unexpectedly, issued a positive outlook.

CEO Axel Heitmann said he was optimistic given the robust demand expected in Asia-Pacific, parts of Europe and Latin America for the company’s speciality chemicals.

Crucially, Lanxess has been able to pass on raw material costs to the market in key product lines. Significant raw material cost increases, for instance, in performance polymers, which includes the firm’s rubber products, were passed on in full. Performance polymers sales prices in the quarter were up 7%.

Lanxess’s operating profits did not climb markedly year on year but the EBITDA margin improved to 14.3% from 12.8% in the first quarter of 2007. Net income for the 2008 quarter was 13.2% higher.

The results have impressed analysts with Credit Suisse noting despite further weakness in the US auto and construction markets the Lanxess businesses remained strong with high growth in emerging markets.

In the current environment it really is a question of being in the right markets at the right time.

By: Nigel Davis
+44 20 8652 3214

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