The 2Q volume driver of Kuraray’s earnings recovery was substantial, partly because end-market demand is strong and because this more mid-stream and specialty portfolio has significant operating leverage, much more than you would see from the commodity producers. We find this as a notable downstream sector trend to keep in mind. As seen below, increased selling prices are an important driver of Kuraray full-year profit growth expectations, but the volume piece is the most critical component, in our view. As discussed in our daily report today available in LINK, we continue to see volatile but elevated basic chemical prices.
This development can be seen in the raw material headwinds that Kuraray saw in 2Q and is expected to see in FY2021 per the operating segment chart from its latest earnings call presentation below. Despite the current US propylene price run-up, we see a late 2021 and 1H22 scenario for the specialty companies where they could get the double benefit of continued strong demand and falling raw material values. Of course, the US hurricane season could quickly reverse an easing of commodity prices in the US, but current commodity chemical economics favor increased production and eventual length in most basic chemical markets.
Source: Kuraray 2QFY21 Earnings Call Presentation, August 2021