30 March 2011 16:11 [Source: ICIS news]
PRAGUE (ICIS)--Poland's Ciech is backing away from a possible sale of Romania-based soda ash subsidiary US Govora Ciech, Raiffeisen Centrobank said on Wednesday.
This followed market changes that have lowered the competition threat posed by trona-based natural soda ash production launched in Turkey, the investment bank added.
"The new low-cost soda capacities launched in Turkey last year did not harm Ciech’s [Romania-based] business as strongly as expected since part of the production was directed into the Middle East and Asian markets," said Raiffeisen analyst Dominik Niszcz.
"As a result of the [subsequent] smaller-than-expected supply and rebounding demand from glass producers, Govora was able to increase volumes and now Ciech’s management is not inclined toward selling the subsidiary," he added.
Ciech said that it was considering the new market dynamics and that its supervisory board would make a final decision on whether or not to divest Govora before the end of the first half of the year.
Niszcz forecast that Govora should be able to operate at a small positive earnings before interest, tax, depreciation and amortisation (EBITDA) margin until at least 2014.
"Ciech will not want to sell the company, especially after Ciech's recent capital increase and a number of divestments, but it is hard to say about the longer term," Niszcz said.
"If Turkish output is currently largely sold eastwards I would not see any major threat within the next three years. But the reserves of trona in Turkey seem to be bigger than the market thought a few years ago and when they launch new capacities the future of Govora will be less rosy,“ he added.
Niszcz said that a plus point for Govora was that regional glassworks might be interested in keeping both Solvay process-based and trona-based soda ash plants operating, as a trona-based Turkish soda ash monopoly would lead to higher prices in the long term.
"So I think that both Govora's [547,500 tonne/year plant] and Solvay's [1.2m tonne/year] plant in Devnya, Bulgaria, should continue to operate, even though it would be at lower margins compared to plants in northern Europe due to harsher competition," he added.
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