Polish fertilizer maker ZAP ‘positioned well’ amid downturn

20 October 2011 15:43  [Source: ICIS news]

LONDON (ICIS)--Polish fertilizer, caprolactam and melamine producer Zaklady Azotowe Pulawy (ZAP) has achieved high production efficiency and modernised capacities that make it a strong and stable player in the current tough economic environment, Erste Group Bank said on Thursday.

“We believe that the weakening economy should be less harmful to ZAP than to other chemical companies,” said Erste analyst Tomasz Kasowicz, while also noting ZAP’s newly diversified business model and relatively stable volumes.

With fertilizer prices currently very high amid the economic uncertainty, Kasowicz believes that “a price correction cannot be ruled out”, estimating that it might equate to a 25% drop by the end of 2011.

However, ZAP’s strengths, including a relatively defensive product portfolio founded on nitrogen fertilizers, positioned the company comparatively well for withstanding any further downturn, he added.

In late 2010, ZAP (based in Pulawy, eastern Poland) entered the multi-component fertilizer market by securing a deal for a controlling stake in Fosfory Ciech, based in Gdansk, northern Poland.

The company, now named Fosfory Pulawy, is Poland’s second-largest multi-component fertilizer, with a nitrogen phosphorous potassium (NPK) capacity of 360,000 tonnes/year.

Its assets also include: a warehouse for bulk materials with a 60,000 tonne capacity and additional storage facilities with a 70,000 tonne capacity; a seaport with three wharves that can handle 1m tonnes/year; and two distribution companies with annual sales potential of around 70,000 tonnes.

“The acquisition of Fosfory allows ZAP to develop its storage capacities, enter new markets and cover the company’s absence in northern Poland via acquisition of its distribution network. Furthermore, due to the fact that Fosfory owns a sea port, logistic synergies should also appear,” Kasowicz said.

The analyst predicted that ZAP would have to spend no more than zlotych (Zl) 50m ($15.8m, €11.5m) on acquiring an 85% stake in sole Polish potassium nitrate producer Azoty-Adipol from the country’s treasury ministry – a deal that has reached the preliminary stage.

Located in Chorzow, southern Poland, Azoty-Adipol owns large warehouses and rolling stock, while also providing services in rail and car lease, and transport, Kasowicz said.

“The acquisition will improve logistics and add storage capacities within the ZAP group, while its location in southern Poland should increase ZAP’s group presence in that area and increase their sales in off-season periods,” he added.

ZAP’s capital expenditure (capex) plan involves an outlay of approximately Zl1.8bn across the next decade.

“Most of the planned capex – 48%, or around Zl806m – should be spent on replacement investments, while development investments should consume Zl838m, of which [already] planned investments should account for Zl426m,” Kasowicz said.

Among the largest capex items – which, according to the analyst, should be finalised in the next few years – are: the construction of a desulphurisation unit, at a cost of Zl250m; the construction of ammonia storage and distribution facilities, at Zl108m; and units for the production of liquid and solid fertilizers based on urea and ammonium sulphate, at Zl170m.

($1 = Zl3.17, €1 = Zl4.36, $1 = €0.73)

For more on caprolactam and NPK visit ICIS chemical intelligence

By: Will Conroy
+44 20 8652 3214

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