Czech Republic Petrochemicals Report Q4 2013 - New Market Report

The Czech petrochemicals industry is likely to witness pressure on margins amid disappointing sales that will lead to cuts in output in 2013, according to BMI forecasts. The situation is likely to be sustained going forward with the slump in car production and lacklustre performance in household consumption, which will keep domestic consumption down. Forecasts are not supportive of the Czech petrochemicals industry's bid for expansion, even if modest.

Based on the latest production indices published by the Czech Statistical Office, BMI estimates that in the first five months of 2013, chemical output fell 5.2% year-on-year and rubber and plastic declined 3.4%. Figures for June and July are likely to be affected by the flooding of the Elbe River, which disrupted operations in the Czech chemical industry in Q213. Czech polyvinyl chloride and chemical producer Spolana shut down production at its facility in Neratovice, then called for a force majeure on June 4 which was set to last until at least the end of July. Polish plastics producer Synthos also temporarily shut down polystyrene (PS) and expandable polystyrene (EPS) production at its Czech site in Kralupy. Meanwhile, Spolchemie restarted production after a brief halt, having kept the impact of the flood to a minimum.

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Over the last quarter, BMI has revised the following forecasts/views:

* Engineering plastics will be hit by a downturn in the automotive industry, which will see output decline 8% in 2013, following a fall of 2% in 2012. It will take until 2016-2017 for production to return to 2011 levels.
* Unipetrol has announced its 2013-2017 five-year strategy for petrochemical modernisation projects including a new polyethylene (PE) plant. Its strategy includes increasing the utilisation of its 545,000 tonnes per annum (tpa) cracker by 13% with a new PE installation, a dicyclopentadiene plant and polypropylene debottlenecking. The strategy also aims to continue with the company's agro-business restructuring, possibly including the closure of Unipetrol's 350,000tpa ammonia plant in Litvinov.
* In BMI's Central and Eastern Petrochemicals Risk/Reward Ratings (RRR), the Czech Republic scores 58.7 points out of a maximum of 100, down 0.1 point since the last quarter due to a slight decline in competitiveness caused by pressure on polyolefins margins. The country is in ninth place in BMI's Europe Petrochemicals RRR, placed 0.7 points behind Poland and 0.7 points ahead of Hungary.

However, all three states have potential to shift places as a result of small changes to their risk scenarios. Despite the modest decline this quarter, the Czech Republic's score has improved in recent quarters as a result of plans for PE capacity expansion and improvements to the long-term external risk and institutional ratings.

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