Market and product

The Czech petrochemicals industry is seeing a steady return to growth, although its exposure to German end-markets means that a further contraction cannot be ruled out in 2010, according to our latest 'Czech Republic Petrochemicals Report'.

There was a marked downturn in sales and production of chemicals and rubber and plastics from November 2008, according to data from the Czech Statistical Office, but the industry returned to year-onyear (y-o-y) growth in November 2009, albeit due to base effects. Nevertheless, the trend was broadly positive, with the production index for chemicals and chemical products rising from a low of 77.2 points in January 2009 (from 100 in the corresponding month of the previous year) to 148.4 points in December - although it fell again in January and February 2010 to 98.5 and 97.2 points respectively. The production index for rubber and plastic products rose from 76.8 points to 111.5 points from January-December 2009 and was 117.2 and 114.4 points respectively in the following two months, suggesting these sectors were relatively more robust.

The industry remains firmly in the hands of Polish owners. In February 2010 Poland's Zaklady Azotowe Pulawy (ZAP), the leading maker of fertilisers and a world leader in the production of melamine, made a conditional offer to PKN Orlen to acquire an 84.7% majority stake in Anwil, which owns Czech PVC producer Spolana. Through Spolana, Anwil has close to 50% of the Czech PVC market. The Polish government owns 50.73% of ZAP and the deal would lead to a major consolidation of the fertiliser industry in Poland. Two other bids were put in but the bidders' identities were not disclosed. PKN Orlen is planning to sell Anwil to concentrate on olefins, polyolefins, and paraxylene and PTA projects. Although we believe that the uptick in Czech petrochemical production figures from November 2009 is based largely on favourable base effects, we nevertheless expect other factors to push output higher in 2010. With the Czech banking system well positioned to support local firms, and external demand tentatively recovering, industrial output is recovering momentum. Czech industrial production rose 7.0% y-o-y in February, its third consecutive month of growth. This supports our view that an uptick in economic activity in the country's chief export markets would see industrial production recover in 2010, and we hold to our forecast for 5.0% industrial production growth by the end of the year. In our Petrochemicals Business Environment matrix for CEE, the Czech Republic scores 55.6 points out of a maximum of 100, down by 0.3 points since the previous quarter due to a slight deterioration in long-term financial market and external trade ratings. The modest decline saw the Czech Republic drop from third to fourth place in our regional ranking, swapping place with Poland. The country lies just 0.2 points behind of Poland and 6.8 points ahead of Slovakia. 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.

(Source: www.officialwire.com)