UpdateUS Ashland doing good job on margin recovery - spokesman

12 April 2011 22:30  [Source: ICIS news]

(updates and releads with Ashland's comment on analysts' note)

TORONTO (ICIS)--US specialty chemicals producer Ashland is "doing a good job" in recovering margins in its Valvoline automotive lubricants business amid rising base oil costs, a spokesman said on Tuesday.

"Margin recovery takes some time… there's typically a bit of lag in terms of recovery [of margin]" as it takes time to pass through higher base-oil costs to customers, Ashland spokesman Jim Vitak said.

However, "we have done a good job, overall, of recovering the margins", he said.

Vitak was speaking with reference to a report by analysts at US investment firm Jefferies, which said the recent round of US base-oil price increases could delay Ashland’s efforts to recover margins in its Valvoline automotive lubricants business.

The analysts pointed to base-oil price increases by Holly Refining and Chevron, respectively, and said they expected ExxonMobil and other large producers to follow suit.

“The recent rise in base oil prices, coupled with other raw material pressures, will likely prompt Ashland to implement another round of price increases,” the analysts said in a research note to clients.

“A key issue on [Ashland’s] upcoming earnings call will be whether Valvoline's margin recovery should be considered delayed to the fourth quarter,” they added. Ashland's fiscal 2011 fourth quarter ends on 30 September.

According to Jefferies, Ashland purchases an estimated 170m gal/year (643m litres/year) of mostly Group II and III base oil.

Ashland's Vitak said he would not directly address Jefferies's note as the company does not react to analysts' comments. 

However, the issue would be discussed on Ashland's fiscal 2011 second-quarter conference call, "if merited at that time", he said.

"We have talked very openly in our quarterly earnings about our activities with pricing in Valvoline," he added.

Ashland is due to brief analysts on its fiscal 2011 second quarter ended 31 March on 26 April.

ICIS reported this week that US paraffinic base oil producers, including ExxonMobil, are increasing prices, largely because of higher crude oil costs.

In Europe, ExxonMobil informed its base oil customers of $60/tonne (€41/tonne) price increases across its Group I range, effective from 23 April.

Higher crude oil prices and the rising cost of vacuum gasoil, the main feedstock for Group I base oils, have eroded refiners’ margins.
Many base oil buyers said they are expecting further price increases.

For more on Ashland and other producers visit ICIS company intelligence

($1 = €0.69)

By: Stefan Baumgarten
+1 713 525 2653

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