Czech Republic Petrochemicals Report Q4 2009

The Czech petrochemicals industry will be heavily influenced by economic trends in Germany, the country's largest export market for petrochemicals-consuming industries. According to BMI's latest Czech Republic Petrochemicals Report, although Germany's economy has plummeted its car scrappage programme designed to stimulate sales could have a positive knock-on impact on the Czech car industry, which consumes a sizeable portion of the country's polypropylene production.

Key sectors determining output will be the construction, automotive, packaging and consumer goods industries. These are witnessing varying levels of demand as a result of weaknesses in the domestic and external markets for end-products. The spectacular collapse of Czech industrial production in recent months, with knock-on effects throughout the petrochemical industry, owes primarily to weakness in external demand. German unadjusted GDP contracted by 6.7% year-on-year (y-o-y) in Q109, and our full-year German real GDP growth forecast is -6% in 2009 and only 0.3% in 2010. As the Czech Republic's largest single export destination, weakness in the German economy bodes extremely poorly for Czech industrial production.

Nevertheless, manufacturers such as ? koda Auto are already starting to feel the benefit of scrappage schemes elsewhere in Europe. However, the boost to demand is likely to have a short-lived effect and will not be able to offset the overall slump in demand across Europe. The Toyota-PSA Peugeot Citro?<

However, by end-2013, the Czech Republic's automotive output should exceed 1.5mn units, up about 20% 2008 levels, and the industry is expected to operate at or near full capacity. In the long-term, the automotive industry will therefore remain a key driver of demand for polymers in the Czech Republic.

The packaging and consumer goods industries are likely to follow the same pattern as the automotive industry, although domestic demand is likely to fare less badly than exports. However, the country's financial system remains remarkably healthy, with credit still available to households and businesses.

This should provide some measure of comfort to petrochemicals supplies to the Czech construction industry, although the lack of domestic PVC manufacturing capacity will mean that foreign suppliers will benefit the most from any growth in construction-related demand.

Despite short-term problems, the Litvinov cracker, which has capacity to produce 525,000 tonnes per annum (tpa) of ethylene, is scheduled to be expanded to 545,000tpa by end-2009 with a further expansion to 595,000tpa planned during a turnaround in 2011. A rise of 70,000tpa of ethylene capacity will provide additional feedstock for any potential downstream development. However, the decline in demand from polyolefins producers could lead to a postponement of cracker capacity expansion in 2009.