OUTLOOK ’14: CEE petchems face anxious wait over cheap imports
Will Conroy
03-Jan-2014
By Will Conroy
LONDON (ICIS)–An air of anxiety hangs
over the petrochemical industry of central and eastern Europe
with 2014 likely to deliver further evidence of a real
competitive threat from US and Middle East producers that
benefit from cheap feedstock, analysts say.
“The overall outlook for the CEE
petrochemical industry remains rather bleak,” said Dominik
Niszcz, an analyst at Raiffeisen Centrobank.
“It is hard to see any specific trends for
2014, it is rather that the trends related to the higher
capacities in low-cost regions like the Middle East and the
US and closures in Europe may continue,” he added.
The litmus test of how hard the regional
petrochemical industry is prepared to push back against the
growing Middle Eastern and US rivalry may come with the
scheduled decision on whether two state-controlled groups in
Poland, Grupa Lotos and Grupa Azoty,
go ahead with an envisioned €3bn ($4.1bn) petrochemical
complex.
Analysts, including chemical industry
observers at Prague-based investment bank WOOD &
Company, have questioned the wisdom of going ahead
with the ‘mega-investment’, to be rolled out either solely in
Gdansk, northern Poland, or to be split between Gdansk and
Azoty’s main production base in Tarnow, southern
Poland.
The bank has warned investors that they
should probably steer clear of the stock of both Lotos and
Azoty until more details about the project and its economics
are visible.
With a preliminary decision to centre the
petrochemical complex on an ethylene cracker rather than an
aromatics extraction plant having been taken, Piotr Drozd, an
analyst at WOOD said the rationale for the investment was
“highly questionable” given the massive petrochemical
investments set to take place in the US over the next five
years on the back of cheap shale gas-derived feedstock.
However, Niszcz noted that CEE’s
petrochemical industry might anticipate attempting to protect
its competitiveness by relying on forms of state backing for
their strategic sector.
Polish ministers have thus far backed the
Gdansk investment by citing Poland’s chemicals and primary
plastics trade deficit, which officially stood
at minus zloty (Zl) 16.7bn (€4.0bn) in 2012.
Despite state enthusiasm for the
petrochemical complex – initial agreements for
investment loans of up to Zl 750m for the project have been
made with state-owned infrastructure financing vehicle Polish
Investments for Development (PIR) – Erste Group Bank
analyst Tamas Pletser said he saw several threats to it
including “the risk that several US and Middle East players
are now investing into NGL-based [natural gas liquid-based]
petrochemicals, and they could dump the market with cheap
polypropylene from 2016-2017”.
PKN Orlen, the existing major
petrochemical player in Poland and, through subsidiary
Unipetrol, the Czech Republic, in 2013 saw the profitability
of its petrochemical business counterbalance the poor
performance of its refining business, which suffered from low
margins partly caused by European over-capacity in refining,
Pletser said.
“But I see clouds now gathering for the
petrochemical business as well with margins likely to be
under pressure from the appearance of US and Middle East
polymers on the market,” he said.
Analysts and CEE petrochemical companies
will be keenly observing any regional market impact made by
the early 2014 start-up of the first plants at the 2.5m
tonne/year Borouge 3 installation in Abu
Dhabi which is expected to raise Borouge’s
olefins and polyolefins capacity to around 4.5m
tonnes/year.
Asia will continue to be the primary
export target of Borouge, but the company is planning
significant exports to Europe and Turkey.
Another event planned for early 2014 is
the renewed attempt at privatising largest Romanian
petrochemical producer Oltchim.
Having seen an attempt at selling off its
controlling stake in the indebted company collapse at the end
of 2012, and the company entered into insolvency by state
officials in January last year, the Romanian economy ministry
will in early February attempt to select a viable bidder for
a debt-free version of the firm named Oltchim II.
The new year should also bring a solution
to the ongoing spat between Hungary and Croatia over whether
Hungarian oil, gas and petrochemical group MOL can find an
acceptable way forward for Croatian state refiner INA, over
which it retains full management rights.
MOL has filed “” www.icis.com=”” articles=””
hungarys-mol-requests-arbitration-over-ina-dispute-with.html=
“”>a request for international arbitration over
its claims that the Croatian government has breached
obligations in relation to its investments in INA, with MOL
sources saying the group believes it has a viable claim that
it has suffered hundreds of millions of euros in losses
because the Croatian state has not honoured a pledge to buy
INA’s lossmaking natural gas business.
Back in Poland, there is some hope among
analysts that Orlen may finally resolve the several-year-old
question of whether or not it will sell all or part of its
Anwil polyvinyl chloride (PVC) and nitrogen fertilizer
subsidiary.
Sources at Azoty say the group may move to
acquire the Anwil fertilizer division through a non-cash
transaction that would simultaneously see Orlen take a stake
in Azoty.
Azoty, having last year through
acquisitions become Europe’s second-largest fertilizer
producer behind Norway’s Yara International, said that in
2014 it would continue to invest in diversifying its
fertilizer range and would find further savings in synergies
offered by its acquired subsidiaries, such as fertilizer,
melamine and caprolactam producer Zaklady Azotowe Pulawy
(ZAP).
($1 = €0.73, €1 = Zl 4.17)
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