We reflect back on our BASF comments of last week and see Covestro falling into the same trap, by underestimating the potential slowdown in discretionary spending in Europe (and the US) and consequently putting too much hope into revised guidance. At the same time, we are not sure what would be gained by painting a picture of doom and gloom, but we would hedge much more overtly if we were offering guidance around the business outlook today.
The Lanxess guidance below is likely the right way to go for now. The medium-term effects of the Russia/Ukraine crisis are unknowable today and all companies can monitor is the immediate impact on their businesses. Most had entered 2022 seeing very strong demand growth and the promise of a much better year as COVID restrictions were lifted and economic activity picked up generally. Now all bets are off, as it is not just the primary impacts that matter – such as a companies’ direct exposure to Russia or Ukraine – note McDonald's is suggesting that pulling out of Russia will cost the company $50 million a month, for example – but also the secondary impacts of what the conflict is doing for supply-chains and pricing. Higher hydrocarbon pricing in Europe, for example, will impact the economics of all production, not just the products sold to Russia or Ukraine. There will also be some demand adjustments directly related to the conflict – disaster relief for example – more PPE – more spending on defense and defense-related materials – DuPont’s kevlar business should be seeing a benefit for example.