OUTLOOK '13: All eyes on Poland's bid to create an 'EU major'

03 January 2013 14:00  [Source: ICIS news]

By Will Conroy

LONDON (ICIS)--Poland's attempt at creating a state-controlled “EU major” is likely to grab most chemical industry headlines in central and eastern Europe (CEE) as 2013 gets under way.

After abandoning a second go at selling off the state's remaining major chemical sector stakeholdings in 2011 due to poor bids, privatisation officials spent 2012 merging and consolidating companies with the aim of forming more efficient, streamlined but far larger assets that can be put in the shop window during rosier economic times.

The major player that is supposed to emerge from that process as early as January is Grupa Azoty, a group that should rank as Europe's second-largest fertilizer producer by revenue, but also a maker of products including caprolactam (capro), polyamide 6 (or nylon 6), melamine, oxo-alcohols and titanium dioxide (TiO2).

Grupa Azoty, a Polish giant that will account for approximately one-quarter of Poland's gas consumption, will largely be formed from Zaklady Azoty Tarnow (ZAT) and Zaklady Azotowe Pulawy (ZAP), but it will also encompass firms including Zaklady Chemiczne Police (ZChP) and Zaklady Azotowe Kedzierzyn (ZAK), and will look at swallowing up more state chemical assets. All but ZAP have already rebranded as Grupa Azoty, even though the ZAT-ZAP merger has not yet gone through.

Poland's second-largest refiner, Grupa Lotos, will also look to Grupa Azoty, to help it make a sizeable expansion into petrochemicals. The coming year will see ZAT managers within Grupa Azoty and Lotos' management assess the feasibility of developing a zloty (Zl) 6bn ($1.94bn, €1.47bn) petrochemical complex in the Baltic port city of Gdansk. Targeting 1m tonnes/year of output, it would be centred on either an ethylene cracker or an aromatics extraction plant.

Assessing the big chemical industry changes ahead in Poland, Raiffeisen Centrobank analyst Dominik Niszcz said it was important that “the government decides which strategic investors they would welcome as new owners of the companies eventually put up for sale, having this year rejected Russia's Acron as an owner for ZAT”.

Following the completion of the consolidation, both Grupa Azoty and Europe's second largest soda ash producer, Ciech, which has begun a restructuring drive that will see it scrap its lossmaking Zachem TDI business early in 2013, should be offered to buyers, he added.

“Another question is if polyvinyl chloride [PVC] and nitrogen fertilizer producer Anwil should join Grupa Azoty,” added Niszcz, who estimated that Anwil might have a market value of around half a billion euros.

A strategic investor for the fertilizer side of Anwil is currently being sought by PKN Orlen, the Polish oil and petrochemicals group which recently released its long delayed 2013-2017 five-year strategy.

The document left analysts unconvinced as yet that Orlen has the answers when it comes to responding to new export waves of petrochemical products that seem poised to hit Europe from producers using cheap shale gas and ethane feedstock in America and the Middle East, respectively.

This dilemma particularly applies to Orlen's Czech subsidiary, Unipetrol, which Robert Rethy, an analyst at Prague-based investment bank WOOD & Company has repeatedly described as “a major trouble spot in Orlen's operations”.

Relatively old production assets and a lack of specialty chemical products are two difficulties which the bank says Unipetrol must overcome.

Looking at Hungary, chemical industry observers are still awaiting clearcut indicators on how isocyanates and PVC producer BorsodChem has fared since it was taken over by China's Wanhua Industrial Group in 2011.

With the opening of a new 160,000 tonne/year toluene di-isocyanate (TDI) plant in late 2011, the company positioned itself as Europe’s leading TDI producer amid the renewed economic downturn and warnings that new TDI plants being built by BASF and Bayer MaterialScience could lead to a European TDI oversupply in years ahead.

In Slovakia, Slovnaft, a member of Hungary's MOL group, will in 2013 continue to roll out a €300m investment programme that includes the construction of a 220,000 tonne/year low density polyethylene (LDPE) installation, that will replace all its existing polyethylene lines as well as expand capacity, and the reconstruction of the company’s 210,000 tonne/year ethylene plant.

A $150m, eight-and-a-half-year loan from the European Bank for Reconstruction and Development (EBRD) is helping to finance the capital project.

In southeastern Europe, observers of the plight of Romania's Oltchim are wondering if the government might this year finally come up with a solution to the indebted PVC and polyols producer's woes.

The 2012 'Oltchim episode' saw the head of Romania's privatisation agency resign and Prime Minister Victor Ponta accuse the winning auction bidder, media tycoon and politician Dan Diaconescu, of creating a “circus” out of the sell-off process after he failed to come up with the cash to buy the company but delivered bags of money to cover workers' unpaid wages.

Ministers are this year set to try and privatise the company by holding direct negotiations with a major investor.

($1 = €0.76)

By: Will Conroy
+44 20 8652 3214

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