Astec’s molecules are facing serious demand issues
The prognosis for this market is not good, in our view
• The SBI-triazole market was largely flat in 2019, rising just +0.4% to reach US$3,212m over CY12-19. This market was flat over CY14-19, declining by 2.1% CAGR (Source: IHS Markit).
• The impact of COVID-19 is likely to be higher for SBI-triazoles, given a higher relative exposure in the maize and oilseed rape/canola segments, which were impacted somewhat by the downturn in biofuel demand and, therefore, prices in 2020.
• There is continuing pressure on triazoles in Europe in terms of potential regulatory action that may constrain future growth if registration renewals are not achieved. This is likely to benefit competing SDHI (succinate dehydrogenase inhibitors) and ‘other’ fungicide segments.
• A positive factor in recent years has been the increasing usage in combination with strobilurins, due to the Septoria fungus developing resistance to this class, and more recently with SDHI products. We believe the SDHI segment is likely to grow faster than all other fungicides, and the triazole segment is likely to benefit in a limited way from its inclusion in mixture products with certain SDHIs.
• Multiple SBI-triazole molecules face substitution risk in Europe.
• Another dampening factor is a strong pipeline of active ingredients targeted at cereal production, many of which feature novel modes of action.
• Tebuconazole, a key Astec product, is on the European Union’s active watch list. Tebuconazole is a generic manufactured by multiple companies and, hence, its prices are likely to remain under pressure. Future growth could come from being a mixture partner to SDHI fungicides Given the success of the SDHI segment of fungicides (8.5% CAGR in sales terms over CY14-CY19, according to IHS Markit), the SBI-triazole group could be used as a mixture partner. This could be a potential growth driver for this group of fungicides.
Within SBI-triazole too, Astec’s molecules are facing serious demand issues Within SBI-triazole, Astec’s molecules are doing worse than the overall segment. Tebuconazole, about 50% of Astec’s overall exports (Source: Corpiness Global Private Limited, an exports data provider), grew at only 1.7% CAGR over CY12- 19 (Source: IHS Markit).
Tebuconazole, propiconazole, bromuconazole are the biggest molecules in Astec’s export basket Tebuconazole, propiconazole and bromuconazole are the biggest molecules in Astec’s export basket. In the last four quarters these molecules formed twothirds of the total exports basket (in value terms).
Molecule realisations fell over the last few quarters Globally the SBI-triazole group of molecules have been replaced by the SDHI molecules. Hence, it is natural that prices of SBI-triazoles molecules are falling. Tebuconazole is the biggest exports molecule for Astec (50% of exports, Source: Corpiness Global Private Limited) and its prices collapsed by ~45% in 2QFY21 over 1QFY21 (Source: Corpiness Global Private Limited).
Poor realisations showed in falling GMs (4QFY20 to 3QFY21) Astec’s gross margins fell due to poorer export realisations. Tebuconazole, particularly, showed deep pricing pressure in 2QFY21, and its realisations fell by 45%.
Top four chemicals formed more than 70% of overall raw material import in FY20 Astec imports more than 90% of its raw material requirements (for FY20). We expect its future dependence on imports to come down as management is focussing on backward integration (Source: 3QFY21 results conference call).
The extent of pricing pressure is visible from the fact that all important raw material prices are falling, despite that GM is declining Almost all raw material prices fell sequentially in the first three quarters of this financial year. However, driven by crude oil prices (which rose by 60% vis-à-vis the CY20 average) raw material prices started rising in 4Q. As crude oil remains strong, we expect further a rise in raw material prices over coming quarters.
Price of Astec’s largest imported chemical (1-(4-chlorophenyl)- 4, 4-dimethyl-3- pentanone) could rise going forward According to Astec Lifesciences, its largest import is the chemical 1-(4-chlorophenyl)-4, 4- dimethyl-3- pentanone and forms ~50% (value terms) of total imports in FY20. 1- (4-chlorophenyl)-4, 4-dimethyl-3- pentanone is synthesised from crude derivatives, and the recent rise in crude price is bound to raise overall cost of production for 1-(4-chlorophenyl)-4, 4-dimethyl-3- pentanone, in our view. Consequently, its prices are likely to rise.
– By CIMB Bank Research
