Global capacity expansion to strengthen leading position in MDI

Covestro to invest EUR 1.5 billion in new worldscale MDI plant in Baytown, USA

  • Highly attractive MDI market with long-term growth prospects
  • New 500 kilotons MDI plant to satisfy demand and accompanyindustry growth
  • NAFTA MDI capacity to reach 740 kilotons per year by end of 2024
  • Extending Covestro´s regional and global MDI leadership position

 

Covestro accelerates its investment activities to capitalize on the strong MDImarket growth. Today, the Supervisory Board of Covestro has approved aninvestment of around EUR 1.5 billion to build a new world-scale MDI plant inBaytown, USA. This investment at the existing site in Baytown is the largestsingle investment in the history of the company. Total capacity of the new trainwill be 500 kilotons MDI per year, start of production is expected in 2024. At thesame time an older, less efficient MDI unit of 90 kilotons production capacity willbe closed. Thus, total MDI capacities of Covestro in the NAFTA region will reacharound 740 kilotons per year making Covestro the industry capacity leader inthe region by 2024. With that, Covestro will also strongly underline its globalindustry capacity leadership position.

“Demand for innovative MDI materials will continue to grow for the foreseeablefuture and likewise promises attractive capacity utilization rates. We havealready announced a significant increase in capital expenditures, now it’s time toput it into action”, said CEO Dr. Markus Steilemann. “With the new MDI train inBaytown, we will further strengthen our global leading position in Polyurethanes,even better serve our customers and create long-term shareholder value.

”MDI market with attractive prospects

The global MDI market is expected to grow by about 5% per year in the longterm,outgrowing the world’s global domestic product (GDP) by about2 percentage points. Key MDI market drivers include the substitution of lessperforming and less sustainable materials as well as global megatrends such asan increasing demand for energy efficient insulation solutions. MDI is aprecursor for rigid foam, which is an excellent insulation material and is used, forexample, in buildings and refrigerators. The expected global MDI demandgrowth translates into the need for approximately one additional world-scaleplant per year.

Although Covestro is already doubling its MDI production capacity inBrunsbuettel (Germany) from 200 to 400 kilotons per year in the second half of2019, the strong growth in demand creates further significant marketopportunities. Therefore, the investments – which are part of the alreadyannounced investment increase of up to EUR 1.2 billion per year for the nextthree years – will help Covestro to maintain and strengthen its leading positionand support further profitable growth. Moreover, Covestro aims at furthercapitalizing on its technical and innovation capabilities as well as on its leadingcost position.

Cost-effective CAPEX (capital expenditures) approach with superior returnon investment

CFO Dr. Thomas Toepfer explained: “Even with all capacity increaseannouncements considered, the projected industry supply is not sufficient tofully balance the expected demand growth. We are therefore confident that wewill reach high utilization rates of our new capacities soon after the start-up,making the investment highly efficient. Building on existing infrastructure andprocesses, it will be a prime example of our value creating investmentapproach.”With its global MDI investment program Covestro follows a cost-effectiveCAPEX approach by leveraging existing infrastructure and supply networks toachieve lower specific investments and higher ROCE (Return on CapitalEmployed). The program also includes the continuation and expansion ofCovestro’s Tarragona (Spain) and Caojing (China) sites as well as investmentsinto the company’s production site in Antwerp (Belgium).

Baytown with ideal conditions

The decision to build the new world-scale plant in Baytown was taken followinga thorough analysis of different options. Besides the attractiveness of thedomestic market, main advantages of Baytown are leading cash costs as wellas significant benefits in terms of available infrastructure and logistics. Thesuperior cost position is mainly driven by economies of scale and a high degreeof vertical integration. Furthermore, low energy and shipping costs due to highdomestic demand in North America add to the Baytown case. With the newplant, Covestro’s future MDI capacities in North America of 740 kilotons per yearby 2024 will also catch up to the company’s future capacities in EMEA(820 kilotons per year by 2022) and APAC (670 kilotons per year by 2021).

About Covestro:

With 2017 sales of EUR 14.1 billion, Covestro is among the world’s largestpolymer companies. Business activities are focused on the manufacture of hightechpolymer materials and the development of innovative solutions for productsused in many areas of daily life. The main segments served are the automotive,construction, wood processing and furniture, and electrical and electronicsindustries. Other sectors include sports and leisure, cosmetics, health and thechemical industry itself. Covestro has 30 production sites worldwide andemploys approximately 16,200 people (calculated as full-time equivalents) at theend of 2017.

Find more information at www.covestro.com.

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Forward-looking statements

This news release may contain forward-looking statements based on current assumptions and forecastsmade by Covestro AG. Various known and unknown risks, uncertainties and other factors could lead tomaterial differences between the actual future results, financial situation, development or performance ofthe company and the estimates given here. These factors include those discussed in Covestro’s publicreports which are available at www.covestro.com. The company assumes no liability whatsoever toupdate these forward-looking statements or to conform them to future events or developments.