Market and product
Romania Petrochemicals Report Q3 2010
In January 2010, Oltchim (54.8% owned by the government) agreed to acquire the Arpechim petrochemicals business from Petrom (51% owned by Austria's OMV; 20.6% owned by the Hungarian government) for EUR13mn, including fixed assets, stocks and other assets as well as Petrom's investments. The deal is expected to close by the end of the year. Arpechim has plants that make olefins, polyethylene, and aromatics at its Pitesti refinery site. Oltchim is Arpechim's biggest olefins customer and makes chlorine, caustic soda, polyvinyl chloride, propylene oxide, polyols, and plasticizers at Ramnicu Valcea. Oltchim has said it plans to invest around EUR100mn to upgrade the petrochemicals facility.
The takeover comes amid signs that the petrochemicals industry has turned a corner and is beginning a period of growth. In 2009, we estimate that the Romanian chemicals sector contracted by around 15% and rubber and plastics fell by around 25% due to the impact of the recession and a severe downturn in exports of end-products. Exports of chemicals declined by around 45%, while rubber and plastic products fell by just 5%. The value of Romanian chemicals exports increased 4.9% in lei, but fell 9.0% in terms of euros. The figures indicated that the chemicals sector suffered more from exposure to a downturn in export markets, while the rubber and plastics sector was hampered by a collapse in domestic demand. However, there were signs that the industry had stabilized by H209 as the economy bottomed out, with tentative growth returning to the sector in Q409 although principally due to base effects and restocking. we estimate that chemicals output declined by 15.2% y-o-y in 2009, while rubber and plastics output fell 5.0%. While disappointing, the results were not disastrous given the regional context and index trends clearly pointed to growth in 2010.
With the Romanian business cycle appearing to have reached an inflexion point, we hold to our view that the economy will return to positive growth in 2010. While a weaker currency will bolster the export sector and a limited private sector debt load will support domestic spending, we nonetheless warn that the government's fiscal consolidation programme could significantly weigh on the pace of the broader economic recovery and therefore the fortunes of the Romanian chemicals and petrochemicals industry. Nevertheless, confidence remains high for long-term prospects with Rompetrol planning to increase capacity at its HDPE plant in Navodari by more than 70% from 60,000tpa to 100,000tpa by March 2011. The expansion marks a reversal of the contraction in operational capacity seen in recent years with Petrom's decision to take its steam cracker unit offline in November 2008. By 2010, Romania had olefins capacities of 200,000tpa ethylene and 100,000tpa propylene with polyolefins capacities of 120,000tpa HDPE, 160,000tpa LDPE, 80,000tpa PP, 60,000tpa PS and 170,000tpa PVC. The restructuring of the Romanian petrochemicals industry rests on Oltchim's takeover of Petrom's petrochemical assets, which in turn depends on regulatory approval. The future of the industry is therefore in the hands of the European Commission. If it allows the takeover, We believe that the industry will be well placed to take advantage in the revival of demand in the Romanian and EU markets. Despite our improved expectations, the petrochemicals industry faces significant structural challenges. It needs a massive amount of investment to improve its efficiency after years of underinvestment. The petrochemicals sector was on along a course of modernisation before the recent turmoil hit and the downturn slowed the process of economic reform. However, the takeover of Arpechim by Oltchim should improve the integration and efficiency of the petrochemicals industry going into 2010.
Romania ranks in eighth place in CEE, with 45.2 points out of 100, up 0.4 points since the previous quarter due to an increase in the country's country risk score. The country's score has risen as a result of improved forecasts for the economy, particularly the long-term outlook for the economy's structural characteristics and the improved position of financial markets. Romania lies 1.4 points behind Turkey and 4.3 points ahead of Bulgaria.
(Source: www.companiesandmarkets.com)
