by Johanna Treeck
ZURICH (Thomson Financial) - Rising raw material prices are expected to cap Switzerland's specialty chemical groups' performance in the upcoming earning season, but analysts say Clariant's more successful pricing policy puts it in a stronger position than Ciba Speciality Chemicals.
'Raw material prices are once more capping Ciba's and Clariant's upward potential this earning season,' a Bank Sarasin analyst said, adding he expects the surge to hit Ciba harder than Clariant.
Both companies are highly vulnerable to movements in raw material prices, which account for about 40 pct of both companies' the costs, and are said to be in an almost vice like grip between powerful basic chemical suppliers and price squeezing customers.
However, Clariant has recently proven to be more aggressive and successful in passing on rising costs, a Zuercher Kantonalbank analyst said.
'In the first quarter, Clariant managed to hike its own prices by 1 pct, while Ciba suffered a price erosion of 1 pct in the same period,' she added.
Mounting pricing pressure and fear of receding margins led both companies to announce hikes since last quarter, but Clariant has clearly made the bolder moves, analysts said.
Since the first quarter, Ciba said it will hike prices for its paper latex products by 8 pct, while raising prices in its coating effects segment and its imaging and inks segment by 10-20 pct.
At the same time, Clariant announced hikes of 15-30 pct in its textiles, leather and chemicals division, in pigments and additives as well as functional chemicals.
'Clariant's first quarter bottom-line -- hit by one-off costs, currency effects and raw material prices -- disappointed more than Ciba's injecting the group with fresh rigour to rectify the situation,' the Bank Sarasin analyst said.
Also, Clariant has been quicker at introducing efficient client-relationship and pricing systems, another analyst at a Swiss bank said.
'This is partially a mentality issue of the speciality chemical segment, which as always focused more on sales growth rather than on margins,' he said.
'While Clariant was ten years late at addressing the issue, it is still quicker than Ciba, and are really focusing on improving their return on invested capital,' he added.
Ciba's troubled water and paper segment is further causing analysts concern.
'Ciba has only a handful of large clients in that segment and little scope for hiking prices,' an analyst at Bank Sal Oppenheim said.
The Zuercher Kantonalbank analyst said the segment might even suffer the same fate as Ciba's textile unit, which Ciba had to sell due to dwindling margins amid increasing competition from Asia.
Clariant is due to report second quarter results on 2 August, while Ciba will publish its first half results August 16. johanna.treeck@thomson.com jmt/am COPYRIGHT Copyright AFX News Limited 2007. All rights reserved. The copying, republication or redistribution of AFX News Content, including by framing or similar means, is expressly prohibited without the prior written consent of AFX News.