Czech Republic Petrochemicals Report Q2 2008

The Czech petrochemical industry is approaching the end of a period of restructuring, but is not expected to expand beyond 2009, despite the simplification of flows of intermediate products within local petrochemicals producer Unipetrol, according to BMI's latest Czech Republic Petrochemicals Report.

Unipetrol's net profit for 2007 fell 22% year-on-year (y-o-y) to CZK1.24bn. Strong performance in the first half was followed by a disappointing second half, which was affected by low petrochemical and refining margins and a cracker shutdown. Unipetrol's petrochemical sales fell sharply in October and November due to a technical failure at its ethylene cracker. Ethylene production was also affected by a major planned turnaround in Q307. Sales of petrochemical products in Q307 were also hit by low gross margins, although the situation improved in December as a result of higher PE and PP prices and production was ramped up. By the end of the year, ethylene production was higher than before the cracker shutdown, although benzene production was still operating at just 80% capacity. Total earnings dropped 5% y-o-y to CZK88.78bn, although Unipetrol's fuel retail business saw a 15% y-o-y increase to CZK8.82bn. The drop in total earnings was largely related to the sell off of Spolana and Kaucuk, which were both part of the group in 2006. Net profit, excluding one-offs, rose 54% y-o-y to CZK6.41bn.

In 2008, Unipetrol expects its performance to improve with a stabilisation of margins in Q108 and an improvement in performance and efficiency in refining, petrochemicals and fuel retail. It plans to invest CZK5bn in the modernisation of its refining processes, the extension of petrochemicals capacity with the construction of a butadiene unit, and the modernisation and extension of its Benzina automotive fuel station network. Unipetrol will also carry out turnarounds at its PE and PP units as well as the installation of a coldbox at the ethylene unit to overcome technical problems it faced in 2007.

In January 2008, Unipetrol's board approved two investment projects that aim to expand the company's petrochemical product portfolio with more types of monomers and will enable better utilization of ethylene unit's products. The completion of both investment projects at Litvnov is scheduled for 2010.

The product portfolio will grow to include technical dicyclopentadiene and the non-hydrogenated C9 aromatic hydrocarbon fraction, which are both primarily used as monomers in hydrocarbon resins. The new production will use the existing equipment of discontinued processes such as tank sites, the control centre and filling stations to a maximum extent. The expected production capacity is 20,000-26,000tpa for the technical dicyclopentadiene and up to 40,000tpa for the non-hydrogenated C9 aromatic hydrocarbon fraction. The selection process for the contractors for these investments is set to be completed by end- 2008.