The plastics manufacturer, which is listed in the DAX, is therefore looking for potential savings and ways to increase efficiency.
“All measures aimed at increasing efficiency have high priority,” said Covestro CFO Thomas Toepfer, referring to the company’s efforts to reduce energy consumption, especially natural gas, in its plants in Europe.
Covestro also plans to use oil to generate steam at some locations in Germany. In addition, work is being done to accelerate an existing program to increase efficiency in the Group’s operational processes and structures.
The company expects to spend about €2.2 billion on energy and raw materials this year, compared to €1 billion in 2021 and €600 million in 2020.
Annual cost savings of 50 to 100 million euros are to be achieved. In addition, some of the additional costs are to be compensated for by price increases. In the second quarter, Covestro passed on around 75 percent of the cost increases to its customers, compared to around 90 percent in the first quarter.
The company buys most of the energy and raw materials it needs on the spot markets, so higher prices have a direct impact on the company’s cost base. “What you see on the market is what we have to digest,” says Toepfer.
The group has contingency plans in place in case German authorities ask the company to reduce its energy consumption in the fall or winter, which Toepfer said is a common concern among companies in energy-intensive industries.
While Covestro would likely be able to increase its overall efficiency, it’s not clear by how much, said Berenberg analyst Sebastian Bray. “I believe Covestro has limited cost-cutting opportunities in the near future,” said Bray.
By Nina Trentman
NEW YORK (Dow Jones)
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