Duopoly market structure boosts PC margins - analyst

29 May 2012 16:04  [Source: ICIS news]

LONDON (ICIS)--Polycarbonate (PC) producers in the European and the Americas will enjoy healthy profit margins in 2012 and beyond thanks to a duopoly market structure and a lack of new capacity coming on stream, analysts at Bernstein Research said on Tuesday.  

Bayer MaterialScience (BMS) and SABIC Innovative Plastics between them control over 80% of the PC market in Europe and the Americas and this has allowed the two companies to keep prices above the level expected in a competitive market, according to Bernstein.

“Niche commodities, such as PC, methyl di-p-phenylene isocyanate (MDI) and toluene di-isocyanate (TDI), have a concentrated supplier base and historically have been able to increase margins and generally maintain them even in a weak supply-driven environment,” said Bernstein in a note published today.

It claims BMS was able to achieve earnings growth straight after the 2008 financial crisis though rising raw material costs and very weak demand later in 2011 and in the first quarter of 2012 squeezed margins, especially for PC and MDI.

It added: “We believe consensus underestimates the power of this concentrated industry structure and its importance to attractive, sustainable margins for PC.”

The group also claims that earnings will be supported by a lack of new capacity coming onstream over the next couple of years.

“MaterialScience margins are set to improve through 2012 and beyond since the industry’s capacity surplus is working its way through the system and prices are increasing again,” it said.

Most new capacity came onstream in 2011 and early 2012, with the next wave not due onstream until 2014, Berstein said. Germany’s BASF and Bayer are both building 300,000 tonne/year plants in Germany.

The analyst group today upgraded its target price for Bayer from €60 ($75) to €64 and boosted its outlook for the group to “outperform” from “market perform”.  It also expects positive developments in Bayer’s CropScience and HealthCare divisions.

At 15:57 GMT, Bayer's share price was trading at €52.16 on the XETRA stock exchange, up 2.27% from the previous close.

BMS and SABIC Innovative Polymers did not respond immediately to a request for comments.

The graph below presents the ICIS price history for PC. It shows how PC prices recovered strongly following the 2008 financial crisis.

PC ICIS Dashboard Price History 2012-05-29

($1 = €0.80)

By: Will Beacham
+44 20 8652 3214

AddThis Social Bookmark Button

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly

Get access to breaking chemical news as it happens.
ICIS Global Petrochemical Index (IPEX)
ICIS Global Petrochemical Index (IPEX). Download the free tabular data and a chart of the historical index