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Hungary Petrochemicals Report Q1 2011
Business Monitor International, Nov 2010, Pages: 58
Business Monitor International's Hungary Petrochemicals Report provides industry professionals and strategists, corporate analysts, petrochemical associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Hungary's petrochemicals industry.
The weak value of the forint could be crucial to the recovery of the Hungarian petrochemicals industry, giving it enough competitive edge to secure export-led growth in 2011, according to BMI’s latest Hungary Petrochemicals Report.
The Hungarian petrochemicals industry will come under pressure from continuing lacklustre performance in the domestic market and low levels of activity in the eurozone, which is the country’s main export market. H110 petrochemicals sales figures for petrochemicals producer MOL showed that despite a 27% year-on-year (y-o-y) rise in HDPE output to 208,000 tonnes, the LDPE segment was particularly weak leading to an 8% decline in output to 105,000 tonnes, while PP remained fairly flat, falling 1% to 236,000 tonnes. Total polymer output was up 6% y-o-y to 549,000 tonnes in H110, although Q2 output was 17% lower than Q1, suggesting that the weak recovery observed from Q309 appeared be in reverse and the effects of fiscal austerity packages and sovereign debt crises in Europe are likely to make matters more difficult in the months ahead. On a positive note, domestic petrochemicals sales grew 13% y-o-y to 215,000 tonnes, while external sales grew by just over 2% to 451,000 tonnes. Additionally, profitability improved as a result of improvements to efficiency and cost control with the integrated petrochemicals margin increasing 10% y-o-y to EUR323/tonne in H110; while naphtha costs rose 62%, this was offset by a 32-64% rise in polymer quotations.
We expect Hungary's weak currency to continue supporting the export sector going forward. Export-led growth offers the only prospect of recovery for the Hungarian petrochemicals industry and domestic industrial consumers of petrochemicals. While the forint has recovered some of its losses against the euro as a result of the government’s pledge to lower the fiscal deficit in 2011, the unit remains well below levels witnessed in early 2010. Given that Hungary's economic recovery is expected to prove tepid over the next few years, we believe the forint will remain more supportive of export growth over import growth for now.
A weak forint should help give the industry something of an edge against Czech and Romanian competitors in the important German market. While base effects will be a key factor mitigating the pace of the contraction in the country’s petrochemicals industry over the coming quarters, we maintain our core view that Hungary is set to enter a protracted period of low growth.
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