Naphtha reliance threatens CEE and Turkey's profitability

17 June 2011 15:04  [Source: ICIS news]

LONDON (ICIS)--A question mark hangs over whether petrochemical producers in central and eastern Europe (CEE) and Turkey can sustain their renewed profitability, Erste Group Bank said on Friday.

“Despite profitability having returned to the petrochemical units of the companies, we are not convinced that it is here to stay,” the bank said.

A major factor in the uncertain outlook was the naphtha feedstock dependency of producers including PKN Orlen in Poland, Unipetrol in the Czech Republic, OMV in Austria, MOL in Hungary and Petkim in Turkey, Erste said.

This dependency on a feedstock price-linked to the cost of crude oil made the companies high-cost producers, and “in a market environment with a dangerously elevated level of oil prices, [the reliance on naphtha] could easily squeeze margins”, it said.

The CEE companies and Petkim remained vulnerable to what the bank cites as the “enormous cost advantage” of producers in the US and a rising number of petrochemical plants in the Middle East that based production on ethane feedstock made from easily-sourced natural gas.

“Crude oil and naphtha are commodities that can be transported (and traded) across the globe. Natural gas, however, as the second main source of hydrocarbons used in the petrochemicals production process, cannot. Thus, natural gas prices also vary greatly, putting petrochemicals producers in regions of abundant natural gas supply at an advantage,” Erste said.

“However, cheap gas is not a given for new projects in the Middle East. The newcomer on the scene is the US, with its shale gas exploration boom of recent years erasing all fears of natural gas supply shortages for some time to come,” Erste Group Bank also said.

By: Will Conroy
+44 20 8652 3214

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