2009-12-11 15:36:33 - Czech Republic Petrochemicals Report Q1 2010 - a new market research report on companiesandmarkets.com

www.companiesandmarkets.com/Summary-Market-Report/czech-republic ..

Despite the effects of the 2009 recession, the long-term outlook for the Czech petrochemicals market is positive, but the latest Czech Republic Petrochemicals Report argues that the ability of the local industry to take advantage of growing will be determined by the fortunes of Poland’s PKN Orlen, the majority owner of the country’s sole ethylene producer and refiner Unipetrol. In 2009 the Czech Republic had petrochemicals capacities of 545,000 tonnes per annum (tpa) ethylene, 90,000tpa 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.

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, and prevented outright recession. Key sectors determining output will be the construction, automotive, packaging 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.

Household expenditure has managed to sustain modest rates of growth, in marked contrast to elsewhere in CEE where consumer spending has been hit hard by rising unemployment of falling incomes, while gross capital formation took a considerable hit. This meant that while domestic consumption of plastic packaging and other consumer-related petrochemicals products held up well, spending on constructionrelated materials such as PVC declined. The automotive industry is also a major local consumer of petrochemicals, in particular PP. Car scrappage schemes across Europe bolstered demand for plastic automotive parts, the bulk of which are produced in the Czech Republic with automotive suppliers sourcing locally manufactured petrochemicals products.

In terms of foreign trade, Germany remains the main export destination for Czech-made chemical products. After a disastrous 2009, we forecast economic expansion of 0.9%, but the German consumer is going to remain very subdued. This will cast a shadow on hopes of reviving exports of Czech petrochemicals and products that utilise petrochemical products, forcing them to diversify markets. Our long-term view points out that the economy is well-placed to recover swiftly from the current global economic crisis after H110, when we expect the petrochemical industry to begin its recovery in earnest. Nevertheless, the Czech Republic´s risk profile has taken a dent from ongoing political ructions has certainly not helped matters, with concerns over fiscal stability and a potential legislative deadlock in parliament likely to keep capital holders jittery. As such, the investment climate remains somewhat uncertain, which alongside still unfavourable credit conditions, will continue to weigh on capital investments. In this context, there is little likelihood of growth in Czech petrochemical capacities before 2015.

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-currencydenominated 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 likely to suffer swingeing cuts in capital expenditure in 2009. 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.