Leverkusen, Germany - In its third quarter results, Bayer Group's MaterialScience business showed a "mixed" picture, according to chairman Marijn Dekkers. Sales of the BMS high-tech materials business climbed by 3.9 percent (full year & portfolio adjusted 7.4 percent) in Q3, to Euro 2768 million ($3862 million).
And while BMS implemented selling price increases in all business units and regions, volumes as a whole were level year on year, with increases in the Latin America/Africa/Middle East and North America regions fully offsetting declines in Asia/Pacific.
For polyurethane foam raw materials, sales improved by 7.1 percent, while sales of raw materials for coatings, adhesives and specialities grew by 3.2 percent (both figures Fx & portfolio adjusted).
Earnings (EBITDA before special items) of MaterialScience were down by 14.7 percent in Q3, to Euro 348 million, mainly from higher raw material/energy costs, which were largely -- but not fully -- offset by selling price increases. Dekkers also noted that increases in project-related operating costs and downtime costs had a negative impact on earnings.
Dekkers said sales of MDI (methylene diphenyl diisocyanate) increased due to higher selling prices in all regions, although volumes were slightly low. Sales of TDI (toluene diisocyanate) came in below the prior year level.
"In the TDI industry, where we have introduced new capacity, than the market dynamic isn't quite so strong," said the Bayer chairman, saying this is because in Asia, the construction industry is down, hence the furniture industry is down and the biggest use of TDI is primary in the furniture cushioning industry.
In a conference call with analysts, Patrick Thomas, chairman of the MaterialScience business, noted that "increasing interest rates in China and the type of credit lines means that a lot of customers have reduced inventory during the last quarter and that's fairly clear across most sectors."
He added BMS's TDI capacity has been rising as it begins to start-up its 300 kilotonnes per annum gas-phase TDI plant in China, but said that at the same time, the market has cut back on orders, some of this in anticipation of lower TDI pricing.
That TDI material will start coming onto the market during the third quarter but the plant will only reach its full operating rate during the end of quarter two next year, Thomas said, noting that he thinks TDI demand will recover in the third quarter.
Thomas pointed out that TDI growth rates from 2009 to 2010 were above 13 percent, so at the end of 2010 demand was 6 percent above pre-crisis levels. Hence TDI has been growing strongly and above historical norm levels.
TDI growth is now back to the historical norm of 1 percent or 2 percent above GDP, or 4 percent to 5 percent growth, Thomas said, noting that the slow-down in construction in China has impacted furniture, affecting the TDI market and the wood coatings market.
Thomas also commented that it is very difficult to forecast when the destocking in TDI in China will finish. A lot of traders are involved in the TDI supply chain and several have taken positions in TDI, and may be destocked soon, he said.
He also noted that in MDI supply and demand, prices will remain "fairly solid," with the possibility of some increases, and also that in polyether polyols, the market is "relatively tight," with BMS pushing through large price rises at the moment.
For MDI, Thomas also noted an issue in China currently -- all organic insulation materials are being re-assessed for fire performance in construction, which may slow the penetration of polyurethane, polystyrene and others into that market.
(Conference call transcript courtesy of www.seekingalpha.com).