Versalis to scale back commodity chems, eyes emerging markets

18 April 2013 20:13  [Source: ICIS news]

LONDON (ICIS)--Versalis is looking to increase its exposure to emerging markets and reduce its reliance on commodity chemicals production as part of its turnaround plans, company CEO Daniele Ferrari said on Thursday.

The Italy-based petrochemicals company, which currently derives around 5% of its sales from emerging markets, is looking to quadruple that figure to 20% by the 2017/18 fiscal year.

The company, which currently derives 70% of its sales from low-margin community chemicals, is looking to reduce its production levels of basic chemicals by 35% over the same period, while increasing production of specialties. Versalis is also looking to increase operating rates for its ethylene crackers from around 60% at present to 90% by 2014.

The company has suffered from the extent of its exposure to the mature European market during the downturn, with 50% of its sales derived from its home market of Italy, and 40% of sales from the rest of the continent.

Versalis’ extremely limited exposure to Asia and Latin America meant that returns from those higher-growth markets failed to insulate it from stagnant markets at home, resulting in a €485m ($630m) loss for the full-year 2012. Versalis is a subsidiary of oil and gas giant ENI.

Versalis has suffered from "the persistent focus on our stagnant market,” said Ferrari.

In addition to overexposure to a flat market, Versalis found that polyethylene (PE) margins were pressured as a result of reduced production costs for US companies as a result of the shale gas boom, a situation the company is looking to address with imports of the lower-cost feedstock.

Versalis is to move from last year’s €485m loss to €300m profit by the 2017/18 fiscal year, and to increase earnings before interest and taxation (EBIT) by €500m by 2016. The company’s turnaround plan is based around restructuring loss-making aspects of the business, ramping up performance chemical production, and targeting emerging markets.

Ferrari’s strategy for accessing emerging markets is through strategic partnerships with local players, including Honam in South Korea and Petronas in Malaysia. The company is also considering a new complex in Latin America.

($1 = €0.77)

By: Tom Brown
+44 208 652 3214

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