INSIGHT: New geographies still drive growth

22 July 2008 16:19  [Source: ICIS news]

LONDON (ICIS news)--Both Celanese and industry giant DuPont have demonstrated that performance in the current climate is all about being able to pass on higher costs and being in the right place to capture growth.

DuPont said on Tuesday that it had seen raw materials, energy and transport costs rise 15% in the second quarter. But it had mitigated the effect by pushing prices up 7% and by capturing greater volumes.

Sales growth came particularly from the company’s increasingly successful agriculture business and strong global demand for corn, soybean and crop protection products.

DuPont’s Pioneer seeds business is the world’s second largest and is in the midst of major product launches.

The Y series soybean launch for the 2009 growing season is the biggest in Pioneer’s 80-year history and expected to boost soybean yields markedly.

The company is capturing growth in Asia and Latin America across its portfolio to help offset the weakness in the US housing construction and automobile markets.

Its second quarter Asia-Pacific volumes were up 11% and volumes were 5% higher in Canada and Latin America.

By driving costs down hard, DuPont is adapting to what chairman and CEO Charles Holliday has called the “new reality” of significantly higher commodity costs.

Fixed costs as a percentage of sales improved 200 basis points from the equivalent 2007 quarter, the company said

DuPont’s agriculture and nutrition profits were up 18% on 23% higher sales.

Pioneer’s soybean seed sales were much higher while higher US seed corn and European seeds profits were higher. Crop protection sales were up significantly reflecting, DuPont said, strong international demand, while profits were higher.

Coatings profits were 9% higher on a 10% sales increase as demand and returns grew in Asia and Latin America. Titanium dioxide sales and earnings were slightly higher on flat volumes but higher prices.

The earnings trend in the other operating segments was down but gains were made in some business lines as price increases and additional volumes were gained, largely outside the US.

DuPont’s challenge, clearly, is to adapt to the new reality of higher oil- and agriculture-based feedstock and energy costs. US markets remain difficult.

The company wants to capture agriculture growth in Latin America in the second half and continue to grow aggressively in emerging markets.

Of real benefit have been the ongoing productivity efforts which are planned to save $400m in 2008 and $1.7bn between 2008 and 2010.

Holliday has talked about “excellent” execution from DuPont’s teams that have made the latest level of performance possible.

Celanese does not benefit from an agriculture business but its presence in materials in Asia and the Middle East has proved to be of real benefit.

It says growth in Asia and certain advantaged raw material positions helped to mitigate the impact of significantly higher overall raw material and energy costs.

Second-quarter operating profit more than doubled to $207m from $71m in the second quarter of last year. The gain was made on 20% higher sales at $1.87bn.

Celanese has developed its integrated production complex at Nanjing in China where new units have contributed to sales.

Increased dividends from the company’s Ibn Sina methanol and MTBE (methyl tertiary butyl ether) ventures in Saudi Arabia have contributed to the result.

The company will be burdened by higher raw material and energy costs and there is growing concern about slowing growth in Europe but the geographic and end-use market diversity can continue to cushion the negative impact of these trends.

In his forward look, DuPont's Holliday maintained that high oil-based and agricultural commodity prices are the new norm.

But he added that the recent downtrends in the US housing, auto and banking sectors will reverse leading to new opportunities for his company.

A focus on energy saving and safety in the first two sectors, particularly, will provide opportunities for existing and future DuPont products.

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By: Nigel Davis
+44 20 8652 3214

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