ERNST & YOUNG SRL

 | 

ALINA CINCA

  |  12.11.2013

The shadow of the chemical industry

During the global economic crisis, the chemical sector did not record a severe drop in terms of turnover. The relatively stable condition changed during recent years, with the downturn in the automotive and construction industries.

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ERNST & YOUNG SRL

ALINA CINCA

ALINA CINCA

MANAGER TRANSACTION ADVISORY at ERNST & YOUNG SRL

CURRENT STATUS

 
Together with the related impact on the demand for chemical products, this determined the closure, within one year and a half of 22% of chemical producers and distributors that were active at the end of 2011. (According to BMI report, chemical production in Romania fell by 2.3% y-o-y in 2012, a decrease higher than that of EU countries).
 
 
According to a Coface report, the chemical industry sector in Romania was estimated at RON 47.4 billion at end of 2011. The global downturn did not allow chemical producers to start new operations and compensate for entities which closed business.
 
Thus the risk affecting this sector could be roughly estimated at a turnover loss of RON 2 billion and the disappearance of 1,900 workplaces.
 
 
The same report addresses the insolvency threat for many Romanian chemical producers, as well as their failure to start the recovery in terms of profitability for 2008-2011.
Moreover, only 22% of chemical companies succeeded in returning to profit position after losses incurred in the previous year. More than 25% of entities had liabilities to state budget at end of 2012 and moreover, their value increased significantly compared to the end of 2011.
 
 
EXPECTED DEVELOPMENTS
 
An increase of gas prices for industrial consumers could worsen the financial performance of the petrochemicals sector that is highly reliant on gas, particularly for methanol and fertilizer production. The European competition in the chemical sector is intense and, under the condition of increasing fuel prices, operational profitability is in danger, with even lower margins determined by higher production costs. Gas price in Romania is the lowest in the European Union, which is not sustainable due to pressure from the EU and the IMF to raise prices ahead of gas market deregulation. The only important variable with regards to this expected change is the timing, how much it will take to reach and thus how much time do the chemical producers have for adapting to the increasing prices.
 
 
On a larger perspective, the European Chemical Industry Council (CEFIC) estimated that the European chemicals industry will contract by 1% during 2013 compared to the previous year, determined by the decline in construction and automotive sectors, as well as the high energy and feedstock costs compared to the other markets (e.g. Asia).
 
 
Very few chemical producers have managed to resist and maintain or increase their competitiveness in the local and export market mostly. One example is Azomurefl, which during 2012, despite a fall in the net profit of 33% compared to 2011, increased its turnover by 12.5% due to strong international demand for fertilizers. More importantly, in 2013, the company has concluded a EUR 75 million contract for the modernization of the urea production facilities and it also plans to modernize two ammonia factories. Azomures was purchased in 2012 by Ameropa A.G., a Swiss cereals and fertilizers trader.

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