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Czech Republic Petrochemicals Report Q1 2011
Business Monitor International, Nov 2010, Pages: 50
Business Monitor International's Czech Republic Petrochemicals Report provides industry professionals and strategists, corporate analysts, petrochemical associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on the Czech Republic's petrochemicals industry.
The Czech petrochemicals industry will be heavily influenced by economic trends in Germany, the country’s largest export market for petrochemicals-consuming industries, according to BMI’s latest Czech Republic Petrochemicals Report.
Although the Czech petrochemicals industry reported strong growth in the value of sales in 2010, H210 saw a slowdown from the previous half due to base effects and a moderation in market activity following the European sovereign debt crisis of mid-2010 and the depreciation of the euro. Nevertheless, a rise in product prices and a better structure of products sold helped raise petrochemicals margins. The Czech petrochemicals industry is set to endure weakening growth over coming months, with a significant risk of a contraction going into 2011 as it suffers from the slowdown in demand from the eurozone. BMI believes that export weakness, particularly for key petrochemicals-using industries, such as the automotive sector, are dragging down the recovery of the industry.
Industry growth will be heavily linked to eurozone demand (particularly that from Germany) going forward, given that exports make up 72% of overall GDP, with almost one third sent to Germany, and 57% going to the eurozone as a whole. As a highly trade-integrated economy, the Czech Republic is heavily exposed to fluctuations in final demand, with Germany's deep recession in 2009 and concomitant collapse in industrial orders having a substantial impact on the Czech petrochemicals industry. This is in stark contrast to neighbouring Poland, where a more internal demand-driven growth model (and analogously a lower degree of trade integration), has kept the economy ticking along during the global downturn, and has prevented outright recession.
Given our view that eurozone demand will remain weak through the medium term (with German growth forecast to fall to 1.5% in 2011, from 2.0% in 2010), we do not believe that the Czech Republic's petrochemicals industry will undergo a V-shaped recovery. Key sectors determining output will be the construction, automotive and consumer goods industries. These are witnessing varying levels of demand as a result of weaknesses in the domestic and external markets for end-products. On the downside, the German consumer is going to remain highly subdued. This casts a shadow over hopes of a revival in exports of Czech steel, and products that utilise steel products, forcing players in the sector to diversify markets.
The Czech Republic in 2010 had petrochemicals capacities of 545,000tonnes per annum (tpa) ethylene, 210,000tpa butadiene, 335,000tpa benzene, 320,000tpa ethylbenzene, 20,000tpa toluene, 355,000tpa HDPE, 300,000tpa PP, 170,000tpa styrene monomer, 90,000tpa PS, 140,000tpa vinyl chloride monomer, 120,000tpa PVC and 360,000tpa ammonia. In the long run, the Czech petrochemicals industry is likely to be heavily influenced by the fortunes of Poland’s PKN Orlen. PKN Orlen has been struggling with debt and by early 2009 its foreign currency-denominated debt rose above the net debt-to-earnings ratios defined in credit agreements. Despite an arrangement with creditors to temporarily breach the debt limit, PKN Orlen is under pressure to make cuts, with Unipetrol the target for swingeing cuts in capital expenditure. This will put a freeze on Unipetrol’s expansion, thereby limiting growth beyond 2009 when the sector is likely to experience a recovery. Nevertheless, the Litvinov cracker, which has capacity to produce 525,000tpa of ethylene, was scheduled to be expanded to 545,000tpa by end-2009 with a further expansion to 595,000tpa planned during a turnaround in 2011. A rise of 70,000tpa of ethylene capacity will provide additional feedstock for any potential downstream development.
In BMI’s Petrochemicals Business Environment matrix for CEE, the Czech Republic scores 56.4 points out of a maximum of 100, up by 1.1 points since the previous quarter due to an improvement in country risk ratings. As a result, it has risen back to third place from fourth, 0.8 points ahead of Hungary and 1.4 points behind Poland. The Czech Republic’s score is unlikely to improve significantly over the next five years, with other countries in the region set to raise petrochemicals capacity at a higher rate.
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