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Czech Republic Petrochemicals Report Q3 2011
Business Monitor International, May 2011, Pages: 51
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 Czech Republic's petrochemicals industry.
The Czech petrochemicals industry is set to remain stable in 2011 with output holding up in the polyolefins segments, although margins will come under pressure due to high naphtha costs, according to BMI’s latest Czech Petrochemicals Report.
Unipetrol’s petrochemicals sales volumes declined 3% y-o-y, to 1.77mn tonnes, in 2010 partly due to a 37% fall in ammonia to 147,000 tonnes, 16% decline in C4 fraction to 120,000 tonnes and the end of oxoalcohols production. There was mixed performance in the polyolefins segment with HDPE sales up just 1% to 288,000 tonnes while PP sales were up 13% to 241,000 tonnes. This implied a polyolefins operating rate of just over 80%. Higher operating rates were accompanied by stronger prices, with Unipetrol’s olefins margins up 37% to EUR288/tonne while its polyolefin margin rose 10% to EUR282/tonne. Margins came under pressure in H210 due to rising naphtha feedstock prices, but still remained healthy. BMI expects output in 2011 to remain at 2010 levels, but margins could come under further pressure particularly if oil prices continue to remain at high levels, which we think is highly likely. Margins peaked in mid-2010 before falling back as H210 progressed. By Q410, the olefins margin was up 6% to EUR255/tonne while the polyolefin margin grew 11% to EUR278/tonne.
The competitiveness of the Czech petrochemicals industry will depend on exchange rate differentials. It is our view that the Czech monetary policy committee will be wary of raising rates and causing rapid appreciation of the koruna, which would erode export competitiveness and potentially undermining the export-led recovery. As such, the petrochemicals industry, which is more export-oriented than other countries in the region, will be protected by exchange rate stability.
BMI believes that export weakness, both for petrochemical products and key petrochemicals-using industries, such as the automotive sector, remain a major risk for the Czech petrochemicals industry. Industry growth will be heavily linked to eurozone demand (particularly that from Germany), given that exports make up are 72% of GDP overall, with almost one third sent 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 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, preventing outright recession. With the German economy firing on all cylinders and expected to continue to do so into 2011, there is scope for further upside to Czech industrial output in the coming months. However, we caution that a slowdown in the European recovery would have serious repercussions for the Czech Republic's real GDP growth outlook, owing to the high trade integration with Western Europe.
In BMI’s Petrochemicals Business Environment Ratings for Central and Eastern Europe, the Czech Republic scores 56.0 points out of a maximum of 100, down 0.3 points since the previous quarter due to a decline in the country’s long-term external factors rating. It is in third place, 2.4 points behind Poland and 0.3 points ahead of Hungary. 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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