HOUSTON (ICIS)--Business for Trinseo showed signs of recovering in January, but the outlook for the rest of 2019 is still unclear, the CEO of the US-based styrenics producer said on Thursday.Image by Shutterstock
That uncertainty is why Trinseo's guidance for the year is so wide, said Chris Pappas, CEO. He made his comments during an earnings conference call.
Like many petrochemical producers, Trinseo saw a sharp decline in demand and margins during the end of November and in December.
Customers had destocked because of sharp declines in oil prices.
Demand in China was weak across a number of end markets, Pappas said. For the automobile and tyre markets in general, demand was also weak.
However, it appears that December was the bottom for several of Trinseo's end markets, Pappas said.
Styrene prices have risen by more than $50/tonne from their lows in December, he said.
Volumes in January resemble levels in October versus the depressed ones in November or December, Pappas said. He noted the performance of polystyrene (PS), synthetic rubber and acrylonitrile butadiene styrene (ABS).
"Our early first-quarter results are showing some signs of improvement," Pappas said. "This leaves us cautiously optimistic about improving business conditions as we progress through the year."
The company is still cautious because of the uncertainty about recovery in China, the health of the automobile and tyre markets and the outlook for the global economy.
Reflecting this uncertainty, Trinseo's guidance for 2019 is especially wide. Net income in 2019 should be $248m-318m. Trinseo expects to report $500m-580m in adjusted earnings before interest, tax, depreciation and amortisation (EBITDA).
Where Trinseo will end up on this wide range will depend on China and automotive markets. It will also depend on margin recovery for polycarbonate (PC) and ABS.
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The midpoint of Trinseo's guidance assumes a gradual recovery, Pappas said.
Under this scenario, the performance of latex, PS and rubber would be flat year on year.
The Performance Plastics segment would be down year on year because margins for PC and ABS would not recover quickly enough to make up for the lost ground in the fourth quarter of 2018, Pappas said.
The company's feedstock business and AmSty joint venture would be marginally up year on year because supply and demand would be tighter, Pappas said.
Margins for a particular product are heavily influenced by average operating rates, and Trinseo gave forecasts for several of these.
Trinseo expects global operating rates for styrene plants to be in the mid to high 80s% in the next three years, assuming there are no delays in the startup of new units in China.
However, the economic challenges in China could cause a slowdown not just in new styrene plants but in new chemical capacity throughout the country, Pappas said.
For ABS, Trinseo expects operating rates should be in the mid 80s%, Pappas said. Whether Trinseo will see ABS profitability return to 2018 levels will depend on the recovery in China, Pappas said. China and Asia account for about 65% of consumption of the material.
For PC, operating rates should reach the low 80s% in 2019, he said. While that is not great, it is better than the fourth quarter, Pappas said.
They had fallen sharply at the end of the year because of lower demand, a large amount of destocking and some new capacity, Pappas said. Earlier in the first half of 2018, they had reached the high 80s%.
For PC, much will depend on China, since it consumes more than half of the world's output.
New PC capacity is scheduled to come on line in the latter part of 2020 and into 2021, almost all of it in China, he said. Where operating rates will stand in the next decade will depend on the quality of the PC coming out of those plants and how well the producers operate those plants.
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The low end of the guidance assumes that China will have a limited recovery, causing low margins for PC and ABS in Europe and Asia. Western Europe would see no recovery in automobile production through 2019. Tyre markets would remain weak.
The high end of the company's guidance expects a strengthening recovery in the first half of the year, Pappas said. That recovery would quicken during the second half.
China's economy would improve under this scenario, causing demand to reach more typical levels in the second quarter, Pappas said. That would lead to higher demand for PC and ABS, increasing margins in Europe and Asia.
Demand from the automotive and tyre industries should start improving in the first quarter under the more optimistic scenario, Pappas said.
Trinseo's performance will depend on the extent of any recovery in the automotive and tyre markets. Image above by Shutterstock.
Focus article by Al Greenwood