Poland’s Grupa Azoty expects poor chems business outlook

10 May 2013 12:06  [Source: ICIS news]

LONDON (ICIS)--Grupa Azoty anticipates a poor performance from is chemical business this year on weak demand and high feedstock costs, with operating profit margins likely to be at or below 0%, the Polish producer said on Friday.

The group – which on Thursday surprised analysts with first-quarter profits that exceeded expectations thanks to the strength of its fertilizer division – said it would concentrate on streamlining production units and finding synergies, such as savings from joint energy purchases with producer Zaklady Azotowe Pulawy (ZAP), which it took over in January.

The plastics division of Grupa Azoty in the first quarter was burdened by a 13% increase in benchmark benzene and phenol costs and 8-14% year on year polyamide 6 and caprolactam (capro) price declines, year on year.

The division swung to an operating loss of zloty (Zl) 20.8m ($6.6m, €5.0m) in the first quarter, compared with an operating profit of Zl 49.2m in the same period of 2012.

This was, however, covered by a rebound in melamine profitability and contributions from other chemical units, such as oxo-alcohols, that translated to a gain of Zl 24.9m on the operating profit line, compared with Zl 20.4m in the first quarter a year earlier.

The titanium dioxide (TiO2) business of group subsidiary Zaklady Chemiczne Police (ZChP) fell to an operating loss of Zl 4.1m from an operating profit of Zl 33.1 a year ago.

“While we acknowledge [the actual first-quarter results] significantly beat consensus expectations we believe that the read-through for the remainder of the year may not necessarily be positive, given the strong seasonality of fertilizer sales – nitrogen fertilizer sales peak in Q1, NPK [nitrogen phosphorus potassium] in Q4 – and the continued weakness in the chemicals value chain, with poor demand and elevated feedstock costs,” Piotr Drozd, a chemical industry analyst at WOOD & Company investment bank, said in a note to investors.

($1 = €0.77, $1 = Zl 3.17, €1 = Zl 4.13)

By: Will Conroy
+44 20 8652 3214

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