Erste cuts Lenzing rating on weak pricing, higher chemical costs

05 March 2013 14:45  [Source: ICIS news]

LONDON (ICIS)--Erste Group Bank has lowered its recommendation on the stock of Austrian cellulose fibre producer Lenzing to "accumulate" from "buy", citing a weak pricing environment and the rising cost of key feedstock chemicals, the bank said on Tuesday.

“The biggest issue for Lenzing currently is the fact that sales prices are coming down, while major input cost factors, for example caustic soda keep rising; consequently, operating margins are getting squeezed,” Erste analyst Gerald Walek said in a note to investors.

Lenzing's operating profit for the fourth quarter of 2012 looked set to drop 73.1% year on year to €20m ($26m), he forecast.

“We expect that Lenzing’s Q4 2012 average fibre sales prices will decline by 14% year on year to €1.84/kilogram; volumes, however, are expected to increase quite substantially, by 23.5%, to 221,000 tonnes,” Walek said.

Cost-wise, Lenzing is getting squeezed by the tightened supply of key chemicals such as caustic soda, putting upward pressure on prices, the analyst added.

The tightened supply of caustic soda is triggered by weak consumption of PVC, Walek said.

Key chemicals accounted for 13.7% of Lenzing's costs in the first three quarters of last year, compared with 10.6% in the same period of the previous year.

($1 = €0.77)

By: Will Conroy
+44 20 8652 3214

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