Turkey’s Petkim stands to gain from depreciated lira - bank

17 August 2018 08:00 Source:ICIS News

LONDON (ICIS)--Turkey’s petrochemical major Petkim stands to benefit from the severe devaluation of the Turkish lira (TL) amid the ongoing financial crisis, Moscow-based investment bank Renaissance Capital said on Thursday.

“Petkim has about 15% of its costs in lira, so it will benefit from the devaluation. In addition, we believe importers could find it more difficult to operate in a volatile FX [foreign exchange] environment, so Petkim could gain domestic market share,” said to ICIS Alexander Burgansky, analyst at the emerging and frontier markets investment bank.

Looking at whether Petkim, controlled by Azerbaijan’s State Oil Company of the Azerbaijan Republic (SOCAR), would suffer from higher feedstock costs, Burgansky said that higher US dollar costs would be offset by higher lira selling prices.

A polymer trader active on the Turkish market said the US dollar costs on raw materials purchases could prove a meaningful hindrance to Petkim due to the depreciated lira.

Equally, any dollar-denominated debts would put a burden on loan repayments.

According to the trader, the loan repayment costs would haunt Petkim’s operations – and those of most Turkish corporates – for the time being, at least until the lira stabilised.

“We don't have petroleum in Turkey, so we import it from Iran or Azerbaijan,” the trader said, adding that crude oil supply from Iran might also encounter difficulties due to the re-imposed US sanctions against Tehran.

“[There are] a lot of problems for Turkey to deal with at the moment.”

Petkim, however, should from October benefit from the planned launch of SOCAR’s STAR Refinery, a $5.7bn facility geared to provide it with feedstock, including naphtha.

STAR Refinery, Turkey’s first refinery project since 1975, is expected by SOCAR to save the country around $1.5bn on expenditure required for the importing of petroleum products.

Petkim has signed an agreement to buy xylenes and naphtha from the refinery for 20 years.

The 10m tonne/year refinery is located adjacent to Petkim’s production complex on the Aliaga peninsula, near Izmir on Turkey’s Aegean coast.

It will have a naphtha capacity of 1.3m tonnes/year and a xylenes capacity of 400,000 tonnes/year.

Petkim told ICIS in a written response this week that it was targeting annual synergies in relation to the refinery of $50-60mn from logistical costs savings, higher production yields and simplified product flow.

Additional savings would be possible over the medium term from shared services and infrastructure, the company added.

In a note to investors on 9 August, Renaissance kept a 'Hold' rating on Petkim’s stock, noting the synergy savings ahead.

“Petkim’s home base in Aliaga hosts all of the company’s key assets, including a petrochemical plant, neighbouring STAR refinery (18%-owned by Petkim), Petlim [container] port and a wind farm,” said the bank.

“The strategic location of the Aliaga peninsula and compact positioning of Petkim’s core assets allow for substantial synergies, in our view, particularly as STAR refinery enters operations.”

The bank added that Petkim’s second-quarter revenue of TL2.4bn ($417m) was up 28% year on year, 3% above the investment bank’s ‘Research Turkey’ consensus of TL2.3bn.

The bank also said that savings costs policies implemented by Petkim management had paid off, with positive impact in operating profit of $23.5m during the first half of this year.

($1 = TL5.75)

Additional reporting by Ben Lake

By Will Conroy