LEVERKUSEN, Germany (Reuters) - Bayer (BAYGn.DE) suggested there was room to lift prices at its high-tech plastics and chemicals business this year to counter soaring raw material costs that squeezed first quarter margins.
The diversified healthcare group’s MaterialScience division, global market leader in polycarbonate plastics used in blu-ray discs and car lights, lowered its outlook last month as a result of the soaring costs of petrochemicals such as benzene.
But on Friday the unit’s top executive, Patrick Thomas, told Reuters it had leeway to combat the problem by raising prices.
“We’re in markets where you can recover as long as the supply-demand balance is at appropriate level,” Thomas said in an interview. “The elasticity in the market place is sufficient.”
“The real concern would be if high benzene prices were to structurally make our materials uncompetitive. That’s not true.”
The unit, which also makes chemicals for insulation foam, constitutes the higher-margin chemicals business that remained after Bayer spun off what is now synthetic rubber maker Lanxess AG (LXSG.DE).
But it continues to be eclipsed in terms of profitability by Bayer’s healthcare and pesticides units. Bayer, which celebrates its 150th anniversary this year, cut the division’s 2012 outlook last month to flat adjusted core earnings.
MaterialScience’s first-quarter adjusted core earnings margin narrowed to 7.4 percent from 10 percent a year earlier.
Unlike its sister units, the MaterialScience division - with 11.5 billion euros ($15.1 billion) in annual sales - has recently not earned its cost of capital, a deficit Thomas said he aimed to just about overcome this year.
“We would be right on the edge this year, based on the guidance that we’ve given,” Thomas said.
There has been speculation in the industry that Group Chief Executive Marijn Dekkers may sell MaterialScience to fund a major healthcare or crop science takeover but he has recently focused instead on a slew of smaller acquisitions.
Thomas said high-tech products like panoramic plastic roofs for Daimler’s (DAIGn.DE) Smart or Mercedes SLK convertible would keep its main competitor in the polycarbonate market, Saudi Arabia’s Sabic 2010.SE, at bay.
And inventions such as new microcellular insulation foams that allow for thinner fridge walls would keep MaterialScience at the frontier of technology - a precondition that Dekkers has set each of Bayer’s divisions if they are to remain part of the conglomerate in the long term.
“We have a good track record of innovation that satisfied the market but we must clearly improve efficiency, getting higher utilization rates from our assets,” Thomas said.
($1 = 0.7637 euros)
Editing by Sophie Walker