November 20, 2018 / 1:41 PM / a month ago

Covestro cuts 2018 profit outlook on competition, shipping costs

FRANKFURT (Reuters) - German chemicals maker Covestro (1COV.DE) warned it expected a slight decrease in earnings this year compared with a gain seen previously, leading its shares to slump to a two-year low.

Earnings before interest, taxes, depreciation and amortization (EBITDA) are expected to come in slightly below last year’s level of 3.44 billion euros ($3.9 billion), it said in an unscheduled brief statement on Tuesday.

The former Bayer subsidiary cited stronger-than-expected competition and low water levels of the Rhine river causing production losses and higher shipping costs, as well as provisions for an efficiency program.

It did not name the rivals but companies including BASF (BASFn.DE), China’s Wanhua (600309.SS) and SLIC Ltd, as well as Sadara, a joint venture between DowDuPont (DWDP.N) and Saudi Aramco, are scrambling to build new plants.

The shares plunged 8.6 percent to 51.12 euros at 1330 GMT, compounding a 2.3 percent drop in the STOXX Europe 600 Chemicals .SX4P.

Covestro had already warned last month that rapid earnings growth over the last two years, driven by supply shortages mainly in chemicals that go into rigid insulation foam and mattresses, were leveling off.

At the time it unveiled plans to cut 900 jobs globally, aiming to reign in an increase in expenses from an investment push to widen output capacity.

The maker of transparent plastics for panoramic car roofs and headlights is stepping up annual investment expenditure, taking up a challenge posed by rivals’ growth plans.

Shares in rival BASF fell 3 percent on Tuesday after Europe’s largest chemical maker announced cost cuts to counter slower profit growth.

Reporting by Ludwig Burger, editing by Riham Alkousaa and Michelle Martin

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