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The positive effect from incremental volumes under the Soda +200 project on Ciech's (WA:CIEP) 9M17 earnings was offset by lower soda ash prices and raw materials cost inflation. More recently, soda spot prices in China have risen amid local supply curbs. However, supply from Ciner’s new facilities in Turkey may put pressure on 2018 contract prices. Ciech’s competitive response includes focus on product quality, strengthening the logistics chain and client relationships, as well as extending contract length. The company also aims to further improve product portfolio diversification. Ciech’s shares trade on a 2017e P/E of 8.1x, c 40% below its peer group.
Lower soda prices combined with cost inflation
Ciech is currently facing margin pressure, with group adjusted EBITDA margin down 4.1pp to 21.3% and adjusted EBITDA declining by 13.9% to €557m in 9M17. This is mainly due to lower profitability in Ciech’s core soda segment (87% of group adjusted EBITDA in 9M17) resulting from slightly lower soda ash prices vs the prior year, coupled with the higher costs of gas, coal and furnace fuel. Soda sales were broadly stable y-o-y in 9M17 despite the planned production outage in Janikowo. In the Organic division, the increase in the price of raw materials for the production of foams and resins was offset by strong sales of MCPA- and glyphosate-based products, good foams volumes and positive portfolio effects in resins.
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