US Ashland sees raw material costs recouped by end-September

27 April 2010 15:38  [Source: ICIS news]

HOUSTON (ICIS news)--US specialty chemicals producer and distributor Ashland has only recovered around 40% of the cost increases in raw materials in its first fiscal quarter ended 31 March, company officals said on Tuesday.

Assuming prices for raw materials such as base oils, polypropylene and styrene stabilise, some of those costs would be recovered in the current quarter and the remainder in the quarter ending 30 September, they said.

"At the moment there is a lag, but some pricing (increases) are getting through," said James O’Brien, Ashland’s chairman and chief executive officer.

"You try to recover what the market will allow you to recover," O'Brien said.

"Margins will recover to what they were last quarter, as a percent of sales, by the end of September," he predicted.

Another company official said that Asia-Pacific remained the most difficult market for recovering raw materials costs, and that "Europe also remains tough due to the competitive environment".

Ashland had been trying to move some customers on to pricing indexed against raw material costs, the officials said.

"We have indexed a third of the products in key product lines, that will help recover costs," one official said. He did not give details of these products or how the index calculations work.

A key factor would be whether and when upstream producers brought back idled capacity to ease supply tightness in chemical streams, the officials said.

Ashland's net income for its second fiscal quarter fell 54% from a year earlier to $22m (€16.5m) despite a 13% rise in sales, partly due to the group incurring heavy costs associated with debt refinancing.

The officials were generally upbeat about the outlook for the company, citing the $40m in annual savings to be realised from the debt refinancing; cost savings from the acquisition of US water and paper chemicals firm Hercules in 2008; and an improving economic scenario.

Volumes improved in all lines of business compared with the year-earlier quarter, including 6% in chemicals and 10% in plastics, they said.

Ashland has the potential to raise its dividend payout over the next several quarters, O'Brien said.

The company might also undertake a share buy-back scheme that would at least offset the amount of new shares that have been issued under executive incentive schemes, he said.

"We believe Ashland has a significant upside potential as we move into an improved economic environment," O'Brien said.

Ashland shares had risen around 19% from the start of this month through last week, but in trading early Tuesday on the New York Stock Exchange, the stock was down 52 cents, or 0.8%, at $61.79/share.

($1 = €0.75)

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By: Stephen Burns
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