For Covestro's CFO, the US tariffs deal is „a very important step“
Mr. Baier, has the German chemicals industry, and thus Covestro, been fooling itself for too long by claiming that the direct impact of tariffs is minimal because production takes place regionally for regional markets? In other words, did you underestimate the indirect effects?
The indirect effects are definitely highly relevant. If you look at the second quarter, it's clear to anyone how much of a difference both the tariffs and the overall sentiment have made. Planning certainty has dropped significantly due to the nature and scope of the tariffs. We were aware that there could be meaningful consequences. The extent to which products remain within specific regions and the resulting pressure on margins are substantial. We’re actively working to optimise our global product flows to ensure compliance with tariff regulations and to minimise the impact on our operations. At the same time, we cannot completely decouple ourselves from the global economy.
You lowered your forecast before the tariffs agreement between the EU and the US was finalised. Is there now a risk of another revision?
Predictability is an extremely valuable asset in times like these. That’s why the tariffs deal is a very important step. From our perspective, it provides a basis on which to further develop and strengthen transatlantic relations. Just as important, however, is how relations between the US and China evolve going forward. The best tariffs deal between Europe and the US won’t help if the barriers between China and the US remain extremely high. In that case, large volumes of products will be redirected to Europe. These must first be absorbed through additional demand in order to maintain margin attractiveness.
Market capacity is so high at the moment that we are facing an oversupply.
How are you dealing with the oversupply in the global market?
Despite the challenging situation, our sales volumes remained stable in the second quarter – particularly in our Specialties & Solutions segment. However, pricing pressure is certainly a factor, especially in the commodities segment. In the medium term, demand for our products remains strong. That said, market capacity is so high at the moment that we are facing an oversupply.
How can the situation be resolved?
The solution is as simple as it is complex: we need an attractive demand environment – one in which people are motivated, for example, to insulate their homes. For that, they need confidence in their personal economic situation. If that’s in place, it will become clear in the medium term that the existing market capacity is indeed needed.
If the conditions for doing business become more attractive, we are of course willing to continue investing.
Psychology and sentiment are indeed key factors, as you’ve pointed out. Covestro is therefore also participating in the „Made for Germany“ initiative. Can you share what additional investments Covestro is contributing?
„Made for Germany“ is a combination of tangible investments, which have been further increased by the 61 participating companies – and confidence in Germany as a business location. That’s the psychological component. At Covestro, we’ve contributed our investment plans for existing projects at our German sites covering the years 2025 to 2028 to the initiative.
Then what does the initiative actually achieve?
If the conditions for doing business become more attractive, we are of course willing to continue investing on an ongoing basis. We invest several hundred million euros each year in our German sites. The extent to which we invest beyond that depends on the regulatory environment and the demand situation in Germany, and especially in Europe.
Three approvals are still pending: one from Berlin concerning foreign direct investment, one from Brussels as mentioned, and one from Vietnam.
Regulation is a keyword. The European Commission recently launched an in-depth investigation into the takeover of Covestro by Adnoc under the new Foreign Subsidies Regulation (FSR). What does this mean for the transaction, and for Covestro?
We remain very confident that we can complete the deal in the second half of the year. We had assumed there would most likely be a Phase II review. What’s important for us, and that includes Adnoc (or rather now XRG), is that we’ve been in close and constructive dialogue with the European Commission from day one. We require around 30 regulatory approvals. Three are still pending: one from Berlin concerning foreign direct investment, one from Brussels as mentioned, and one from Vietnam. We’re optimistic that we’ll make progress within the required timeframes.
In-depth reviews often lead to approvals subject to conditions. What might such conditions look like in your case?
It is a) too early to speculate on that, and b) we are very confident that we will obtain approval based on the strength of our arguments.
Do you see a risk that the deal could still fall through in the end?
We are very confident that we will complete the transaction.
