Covestro points to heightened risks to gas supply, possible production cuts

Covestro said it expects a "more challenging" second half of the year and expects Russia's war against Ukraine to continue to affect global supply chains, already high energy and raw material prices, high inflation and a slowdown in global economic grow.

The company pointed to an increased risk of possible disruptions to gas supplies from Russia to Europe, particularly in Germany, and said it could face the prospect of having to shut down chemical production facilities, entire plants or product lines if the situation worsen.

The Russian-Ukrainian war "fundamentally changed the geopolitical situation with widespread repercussions for the global economy," Covestro said in its second-quarter earnings repo.

Covestro said the increased geopolitical risk meant there was significant uncertainty about the continued supply of natural gas to Euro.

Thomas Toepfer, CFO of Covestro, said: “The company benefited from a faster-than-expected recovery in the second quarter following the lifting of lockdown measures in China, and demand for our products was unaffect.

Covestro's production sites in Germany account for around 25 percent of the company's core global production capaci.

However, over the next year, rationing of natural gas could force individual Covestro production facilities to operate at low loads or even shut down completely, depending on how much gas supplies are c.

Based on a roughly 25% reduction in gas supply to its plants, Covestro said this will have an estimated monthly impact on EBITDA of 10-1

However, the company's production sites in Germany's North Rhine-Westphalia (west) and Schleswig-Holstein (north) are well positioned for gas supply infrastructu.

The report added that the Chinese government's COVID-19 clearance strategy, which imposed a lockdown in the first six months of 2022, also put brakes on global economic performan.

Covestro still expects global growth, but now assumes global GDP growth of 6%, down from the 2% expected in its 2021 annual repo.

On July 29, Covestro announced that it had lowered its full-year forecast for 2022 due to a further sharp rise in energy costs recently and continued weakness in the global econo.

Covestro also highlighted its soaring energy costs, with global energy spending now expected to be around 2 billion euros in 2022, up from its original estimate of 5 billion euros for the year, which was raised to 20 billion euros in May billion euros, and then the latest increa.

In the second quarter of 2022, Covestro’s net profit fell by 57% year-on-year to 199 million euros; EBITDA fell by 33% year-on-year to 547 million eur.

In the functional materials segment, revenue in the second quarter increased by 26% year-on-year to 5 billion eur.

Sales in the Solutions and Specialty Products business segment increased by 11 percent year-on-year to EUR 2 billion, also aided by higher selling prices and currency effec.

"Looking back at the second quarter, our overall performance was solid and even slightly exceeded our forecas.

However, we are looking ahead to the increasingly challenging second half of the year," said Markus Steilemann, CEO of Covest.

"The current geopolitical situation It clearly tells us that there is no choice but to transition to a sustainable, fossil-free industrial landsca.

”