Covestro Chief Financial Officer Thomas Toepfer said that following the outbreak-related shutdown in Shanghai, the situation in China continued to stabilize, while basic demand elsewhere remained stable. The company also expects to make a final decision on its planned 500,000-ton/year MDI plant late this summer.

Covestro cut its full-year EBITDA guidance by 500 million euros in early May, about 18 percent less than the midpoint of its previous forecast. About half of the cuts are related to the impact of the coronavirus lockdown on the Shanghai region, where Covestro operates its largest manufacturing plant in Caojing, and the rest is due to higher raw material and energy costs and an expected slowdown in economic growth.

Thomas Toepfer said: "The demand in the market is still healthy at the moment. The second quarter had a good start in the US and Europe. The good news is that China is returning to normal. Covestro has resumed full production in Caojing, But the recovery of the supply chain has been slow. Our expectation is that logistics conditions should return to normal by the end of the second quarter. The signs we are seeing now are quite promising as lockdowns ease. Our customers are slowly Back on track. While we are producing at 100%, shipments have been constrained due to some logistical bottlenecks still to be resolved. Development is in line with expectations when we adjusted our financial guidance.”

“Demand remains generally solid due to global supply chain challenges and shifts in consumer markets, but there are some weak links. Production in the automotive sector, which accounts for 17% of Covestro’s sales in 2021, continues to be constrained by shortages of chips and other supplies The forecast at the beginning of the year was for the auto industry to grow at a double-digit rate in 2022, and the current expectation is that 5% is the best it can achieve.” Thomas Toepfer said, “This is not because demand has dropped Instead, supply is constrained. If you want to buy a car in Germany now, you have to wait a year. In my opinion, pent-up demand is building and it will eventually materialize.”

The MDI market in the U.S. was also weak as consumer spending shifted post-pandemic: “The home furnishing market seems understandably a little slow. Consumers are turning to leisure and vacation spending, where they used to be There has been no consumption in this area for two years."

"Energy and raw material costs have stabilized in recent weeks, but are at very high levels," Thomas Toepfer said. "Covestro's energy expenditure was 500 million euros in 2020, 1 billion euros in 2021, and now expects 2022 1.5-2 billion euros a year. At the beginning of the Russo-Ukrainian war, the volatility was very high, and the price jumped up and down every day. I would say that in the past 4 to 6 weeks, the price has stabilized at a high level. And that will help us get more stable pricing for our end customers."

Investment decision on MDI nears

Thomas Toepfer said Covestro is about to make a final investment decision on MDI and plans to announce it before the end of the summer. Covestro, which announced the project in October 2018, plans to locate it in Baytown, Texas, USA, where the company already has two MDI lines with a combined capacity of 330,000 tonnes/year. The company expects to bring the additional facility online in 2024, with an investment of around 1.5 billion euros ($1.6 billion). However, in January 2020, Covestro suspended the project, citing difficult market conditions.

Last September, the company restarted the project and said it would consider moving to its Caojing plant. The plant will use Covestro's AdiP technology, which is already used to produce MDI at the company's plant in Brunsbüttel, Germany. The technology can reduce steam usage per ton of product by 40%, electricity by 25% and CO2 emissions by 35%.

"We're evaluating the business side, we're evaluating the business case, and of course we're looking at the geopolitical situation," Thomas Toepfer said. "It's still uncertain whether the investment is in Baytown or Caojing. I'm not going to state any preference for a particular location. It's definitely an open decision."

Capital costs have risen since the initial announcement and are also being re-examined. "I think this order of magnitude (1.5 billion euros) may apply to China now," Thomas Toepfer said. "For the US, it will be higher than that. However, this is an asset that we will run for 30 to 40 years. The up-front investment cost is only one part of the equation.” Regardless of the location, Thomas Toepfer believes it will come online in 2026, noting that plans are well underway, with design and front-end engineering complete and some preliminary work in Baytown. Done before pausing. "The utilization rate of MDI will tighten, which is already at 90%. Demand is growing faster than supply," he said.

The economic environment has become more uncertain, but Thomas Toepfer says results are meeting expectations: "I wouldn't rule out Europe technically entering a recession in 2022. It's possible. From what we've seen As things stand, things are going as expected. Overall demand for our products continues to be strong. It's hard to predict what's going to happen, but what we're seeing is not too negative for Covestro."