Azerbaijan’s Azerkimya in desperate need of modernisation

A new report suggests that Azerbaijan’s leading petrochemical producer, Azerkimya, needs to undergo a serious modernisation programme if it is survive in the global chemical arena. 
According to Business Monitor International , Azerbaijan is likely to be plagued by volatility and low capacity utilisation until Azerkimya undergoes restructuring and expansion.


We write very little at ICIS on Azerbaijan’s chemical sector – maybe it is time to expand coverage. According to a recent press report, state-controlled oil group, Socar, this year took control of Azerkimya. I wonder what the real story is behind the scenes there?  


The report says: “In 2009 Azerkimya produced chemical goods worth AZN163.1mn (US$203.11mn), down around 20% y-o-y. BMI has raised its 2010 chemicals output growth forecast from 25-30% to 30-35%, although most local demand will continue to be met by imports as the industry is unable to fulfil all domestic requirements.


his will come after an estimated decline of around 35-40% in 2009, but close to the 35% growth reported in 2008. While the company has heralded the results in 2010 as proof that restructuring is producing significant results, the level of output is still very small-scale and until production facilities are upgraded and expanded it is unlikely that Azerkimya will compete effectively against foreign rivals on both domestic and export markets.
 
Rather, for the time being it owes its existence to state patronage and protection, while remaining plagued by major disruptions in output caused by periodic rapid rises in electricity and raw material costs. Azerkimya’s output has tended to be highly sensitive to changes in the non-oil economy with the rate of petrochemicals sales growth tending to be two or three times the rate of overall economic growth, amplifying the overall economic trends. 


While the strongly pro-cyclical nature of the industry is likely to result in high rates of growth with real GDP growth forecast at 11% in 2010, with low level of capacity it will not add much value and Azerbaijan will remain dependent on imports of chemical products. Moreover, with economic growth set to decline to 7.5% in 2011 and 5.0% by 2014, unless the industry is improved and restructured it will see yet further declines in the years ahead.”


 

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