Repsol chems improvement could herald capex rise in 2003

30 July 2002 18:29  [Source: ICIS news]

MADRID (CNI)–Repsol may have posted vastly improved second quarter chemicals results, but analysts said Tuesday that extra cash will not be reinvested into the division this year although it could raise investments in 2003.

"The results were very good," noted Ahorro Corporacion oil analyst Alvaro Navarro, "but Repsol has other priorities right now than investing in chemicals, which makes up for a very small part of the group."

The Spanish energy group reported earlier today an 833% rise in Q2 chemicals operating profits to Euro66m ($65m), up from a $9m loss for the same  period in 2001.

Chemicals investment dropped 55% to Euro20m, in line with Repsol's announcement in April that it plans to cut capital expenditure in the division by Euro20m this year as part of a Euro800m capex reduction across the group.

Last year Repsol group capital expenditure totalled Euro4.46bn, of which some Euro218m was spent on chemicals - down from Euro268m in 2000.

Morgan Stanley analyst Irene Himone agreed Repsol won’t invest more money in its chemicals franchise this year, but might do so next year amid an expected rise in chemicals margins and sales volumes.

She added that Repsol is likely to keep capex at minimum levels while the economic crisis in Argentina - where it is heavily invested - continues to eat into its profits. But "the chemicals business cycle is starting to bottom out from big losses," she said.

"It’s still a wait and see situation, but these companies usually begin to invest on the basis of what they perceive to be a mid-cycle recovery."

She adds that recovery could arrive in 2003 and last through 2005.

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