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Market Report, "Czech Republic Petrochemicals Report Q1 2014", Published

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Boston, MA -- (SBWIRE) -- 12/09/2013 -- The Czech petrochemicals industry is likely to continue to see pressure on margins amid disappointing sales in 2014, according to BMI's latest Czech Republic Petrochemicals Report. The situation is likely to be sustained in future, 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 in the first eight months of 2013, chemical output fell 4.4% year-on-year (y-o-y), and rubber and plastic declined 0.9%. The industry bounced back from the effects of flooding of the Elbe River, which disrupted operations in the Czech chemicals industry in Q213, notably Spolana's and Synthos's operations in the PVC and PS segments. However, Unipetrol's cracker continues to face unplanned shutdowns and closed for two weeks in September with knock-on effects for downstream polymers production.

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Unipetrol has announced its 2013-2017 five-year strategy for petrochemical modernisation projects including a new 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 PP debottlenecking. Unipetrol plans to increase its PE capacity at its Litvinov site. It has submitted plans to replace the ageing 120,000tpa HDPE unit with a 300,000tpa plant, thereby raising its total PE capacity from 320,000tpa to 500,000tpa.

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

- In October 2013, Unipetrol signed a licence agreement with INEOS, based on which it acquired the right to use a production process and technology for the new PE plant. It indicated it would choose a contractor in 2014, which suggests construction could start after the initially scheduled Q114, possibly pushing completion to late 2016.
- The Czech economy should move out of recession in 2014, albeit with GDP growth at or near zero. Since our forecasts assume that the recovery will be driven by exports, any potential delay in the improvement of external demand will prompt us to forecast a slower pace of recovery over the next two years. We are looking particularly closely at the sustainability of the improving German domestic demand story.
- Over the long term, the automotive industry will remain a key driver of demand for polymers in the Czech Republic. Our general view for the Czech auto sector is bleak. Production was estimated to have fallen 8.0% in 2013, but the recovery in 2014 will be weak with growth of just 1.4%, with output unlikely to recover to normal before 2017. This will undermine prospects for growth in engineering plastics, particularly in the polypropylene segment.

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