Covestro Chief Sees Recession Looming
A principal reason for his pessimism, Steilemann told Düsseldorf-based Handelsblatt, is the rapid rise in energy prices, especially for natural gas. Longer-term, Europe will face energy prices higher than in any other region, and this will weaken its industry. While the US, too, will face recession, it won’t be as protracted, he believes.
With production facilities in the Rhine region that draw gas from North Sea gas pipelines, Steilemann said Covestro is better off than some of its German competitors, but the structure of the country’s gas network bars sharing any of its resources with producers in regions dependent on Russian gas.
With a view to the coming winter, the plastics industry executive appealed to the German government to reverse the phase-out of nuclear power in an effort to make up the potential gas shortfall. But the fallback on nuclear does not mean that Covestro will give up plans to progressively switch to renewables, he stressed.
At the former Bayer MaterialScience, projects have been in place for months to convert generators to run on oil, while production processes are being adapted to the changed energy picture, Steilemann noted. There are limits to what can be done, however.
The need to maintain current production levels would prevent much additional change, the Covestro chief asserted. “Every percentage point” of a production cutback would reduce the plastics producer’s EBITDA by a low double-digit million sum.
Beyond the financial impact on individual chemicals and plastics producers – Covestro has lowered its 2022 forecast twice – Steilemann said reduced output could have knock-on effects for the economy as a whole, as it would remove links in the already weak industrial supply chains.
In the first half of 2022, the Leverkusen-based company was able to pass on its higher costs for energy and raw materials to customers for polyurethanes and polycarbonate, with selling prices 21% higher, but the CEO said this may change in the coming months.
Author: Dede Williams, Freelance Journalist