Spain Petrochemicals Report Q2 2008

BMI expects that Spanish petrochemicals producers will continue to experience narrowing margins due to high raw material costs, the appreciation of the euro and a slowdown in demand in the eurozone, with little hope of significant increases in domestic capacities over the next five years.

The negative trends began in 2007, when petrochemicals profits were squeezed despite a rise in sales volumes. Repsol YPF posted a record EUR3.19bn net income in 2007, up 2.0% y-o-y. However, operating income in the chemicals segment dropped to EUR231mn, down 34.6% y-o-y. This decrease is due to lower basic chemical margins, especially during the last quarter of the year, coupled with lower production in Argentina, due to natural gas supply restriction. Repsol-YPF's total sales of petrochemical products for 2007 reached 4.9mn tonnes, a 3.1% y-o-y increase.

Cepsa's EBITDA fell by 7% y-o-y in 2007, to EUR1.43bn, with net income of EUR638mn. Although there was a moderate improvement in margins for petrochemical intermediates in H207, this was not strong enough to place margins above 2006 levels, which in themselves were relatively weak. Sales prices rose at a slower rate than the cost of raw materials and the loss of external competitiveness caused by currency movements had an adverse effect of exports to non-euro economies. In 2007, Cepsa's sales of petrochemical intermediates came to 2.57mn tonnes, a 9% y-o-y increase. Petrochemicals EBITDA amounted to EUR133mn, up 6.0% y-o-y, whereas operating income fell by 3.0% y-o-y, to EUR56mn.

La Seda de Barcelona reported sales of EUR1.3 bn, around double the 2006 figure, while EBITDA was EUR124mn, an increase of 131% over 2006. La Seda's sales have been bolstered by a series of acquisitions. The company purchased Sabanci's (Istanbul) PTA and PET business, and PET producer Selenis, in 2006. In December 2007, it announced a plan to acquire Cepsa subsidiary Intercontinental Qumica SA (Interquisa), which specialises in the production of purified terephthalic acid (PTA). A takeover of Interquisa by La Seda would help integrate its operations with its main feedstock supplier.

Buying Interquisa is part of La Seda's 'vertical integration strategy', positioning it as Europe's leading PET and PTA producer. Interquisa is the latest in a series of acquisitions by La Seda.

Spain scores 67.1 points, in our Global Petrochemicals Ranking, putting it in seventh place; 5.1 points behind France and 1.4 points ahead of Thailand. In terms of ethylene capacity, Spain's 1.48mn tpa is modest, both in European and global contexts, and is not likely to rise over the next five years. Spain is increasingly becoming an attractive destination for investment, as its government continues to undertake strategic steps aimed at enhancing the business environment, including tax and labour system reforms. It has become one of the biggest producers of plastic resins, and as such exports have increased. However, while Spain has performed well in recent years, future growth will be limited by capacity constraints.