Erste Bank downgrades stock rating of Poland's PKN Orlen

17 April 2012 12:15  [Source: ICIS news]

LONDON (ICIS)--Erste Group Bank has downgraded its rating of the stock of Polands PKN Orlen to “reduce”  from “hold” , citing difficulties including petrochemical profitability hit by slower economic growth and higher input costs, the Austrian bank said on Tuesday.

“The weakest link in the [Orlen] petrochemical segment is the polyvinyl chloride (PVC) business [operated by subsidiaries Anwil and Spolana], where profitability is very low,” said Erste analyst Tomasz Kasowicz.

“The depressed performance of the PVC business line was one of the main reasons for the huge impairment charges accounted for in 2011,” he added.

The strongest 2012 performance from Orlens petrochemical division should be seen in olefins and polyolefins, according to Kasowicz.

“Polyolefin product/feedstock margins at Orlen have rebounded since the beginning of 2012, from the €529/tonne ($696/tonne) seen in January to €700/tonne in March,” he noted.

Since the beginning of 2012, the crude oil price has recorded about 10% growth, reaching about $125/bbl, Erste figures showed.

“More or less the same growth rate was recorded by naphtha, the main feedstock for petrochemical products, while at the same time, prices of olefins (ethylene, propylene) and polyolefins (polyethylene, polypropylene), which are the main products in the petrochemical segment, have grown more than 30%, improving product/feedstock margins in the polyolefin business,” Kasowicz said.

Nevertheless, any higher polyolefin profitability seen by Orlen this year would probably be offset by higher production costs of fertilizers caused by increased gas tariffs and lower profitability in the PVC business line, he added.

Another negative was that “PTA [purified terephthalic acid] is not that strong right now”, Kasowicz said.

For 2012, Erste predicted an Orlen petrochemical business operating profit of zlotych (Zl) 830m ($260m, €198m), compared with the Zl 13m recorded in 2011.

“However, the operating figure reported for 2011 includes impairment charges and a LIFO [last-in, first-out accounting] effect of around Zl 1.3bn and Zl 100m, respectively,” Kasowicz noted

($1 = €0.76, $1 = Zl 3.19, €1 = Zl 4.19)

By: Will Conroy
+44 20 8652 3214

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