Russians beat Americans in European oil deal

Russian oil and chemical group Lukoil has stymied the US' largest oil processing group Valero's attempt to increase its presence in Europe, according to the Tehran Times, quoting Reuters.

Lukoil acquired a 45% stake in a Dutch refining venture Vlissingen refinery from France's Total for $725 m. It can process about 190,000 barrels a day. The purchase came about after Total exercised pre-emption rights over shares previously offered for sale by US group Dow Chemical to Valero.

This shows how keen the Russians still are to boost their European position. They have been trying to grow in chemicals here formany years, but lack of trust seems to have prevented any significant deals being doen, especially in central and eastern Europe.

Rompetrol to issue shares for petchems

Looks like Romania's Rompetrol is doing a big, new, share capital release in order to fund petrochemical developments. According to seenews.com, the group wants to raise E58.9m for petchems. Here are some exerpts from the story:

"Rompetrol Rafinare (RRC), the operator of the Petromidia refinery, the most important asset of the Rompetrol group, controlled by Kazakh state-owned KazMunaiGaz oil and gas company, will increase the share capitals of its Rompetrol Downstream and Rompetrol Petrochemicals subsidiaries by RON 630 million (€146.5 mln), and RON 253.3 mln (€58.9 mln), respectively, through the compensation of some receivables, for the supporting of their development plans.

In order to carry out this plan, Rompetrol Rafinare will convene Extraordinary General Shareholders Meetings on 24 and 27 July 2009.

The two debts that Rompetrol Rafinare must recover from its subsidiaries are exact, liquid, and subject to demand, and share capital increases will be made through the issuance of new share parts, according to the current report sent by Petromidia officials to the Bucharest Stock Exchange (BVB)."

Whilst on the Rompetrol site I came across these adverts from the 1980's:

Picture credit: Rompetrol

Brenntag responds to German cartel investigation

Today I spoke to Steve Holland, Brenntag Europe's CEO. He assured me the investigation (see earlier entry) is routine. He said the jv had been approved by competition authorities which now want to check that it meets the latest regulations.

“When this jv was formed over 10 years ago it went to the German authorities for approval. They looked at it and said ‘that’s fine’," Holland said.

“Now, the Bundeskartellamt are looking at this kind of joint venture where the two shareholders are involved in the industry. We’re very happy that all our customers are being properly dealt with. And we don’t have an issue with the Bundeskartellamt asking if this is appropriate under the latest anti-competitive legislation.”

Gas cuts kill Ukraine's petrochemical sector

Fascinating new petrochemicals report out, seen on pr-inside.com which shows how badly the country's industry was hit by the dispute with Russia over gas exports. It talks about a "collapse" in January. I remember someone at the ICIS team trying to get these figures at the time but we were told everything was just fine.

Here are some key excerpts: at the bottom you'll see how football offers a ray of hope!

"In Q109, sales by the chemicals and
petrochemicals industries totalled UAH8.76bn, including UAH6.62bn of chemicals and UAH2.13bn of rubber and plastics products. Output of plastics totalled 76,500 tonnes in Q109. However, the plastics industry has recovered from the January low, when the petrochemicals sector effectively ground to a halt during the Russia-Ukraine gas dispute. Plastics output rose 36.6% month-on-month (m-o-m) in March to 32,100 tonnes. However, for Q109 as a whole, output was still down 38.7% year-on-year (y-o-y)."

The country's macro-economic outlook is also bleak:

"Despite the petrochemicals industry's recovery from the January low point, Ukraine is gripped by a severe economic downturn and prospects are dire: real GDP is set to contract by 10.2% in 2009; the banking sector is on the verge of collapse; the hryvnia is week; both external demand and credit markets have deteriorated; and international risk aversion has elevated.

"The Ukrainian petrochemicals market will follow the overall economic trend, which means a deep contraction in 2009, followed by a slow upturn in 2010 when GDP is expected to grow by 2.4%. With the kind of economic growth rates seen in 2000-2007 unlikely to be repeated, the petrochemicals industry will be more heavily reliant on export markets.

"Russian economic growth is not likely to be remarkable over the forecast period and the market is at risk of over-capacity owing to additional planned capacity due to come online. Consequently, Ukrainian producers will be more reliant on the eurozone for sales. The petrochemicals industry is set to receive a temporary domestic boost from increased construction activity ahead of Ukraine's hosting of the 2012 UEFA European Football Championship."

Stormy meeting for Unipetrol?

Unipetrol, part of Poland's PKN Orlen, has had a tough time of it in recent months. Political interference at head office in Poland means every time there is a change of government in Poland, a new set of managers are appointed at Orlen.

This contributed to the resignation of Unipetrol's CEO, Francois Vleugels, earlier this year. He had been busy modernising the group, introducing current best practice in business planning and logistics.

I met Vleugels at EPCA last year and was impressed with the energy he was giving to bringing Unipetrol up to scratch.

Q1 results were pretty disastrous for the group which posted a net loss of koruna (Kc)190.3m ($9.6m/€7m) in the first quarter of the year as sales sharply declined. Unipetrol reversed the K389.5m profits it made in January-March 2008. Revenue for the first three months of this year declined 34.4% year on year to Kc14.5bn.

June 24 Unipetrol holds its annual shareholders' meeting - should be interesting. Then on July 21 Unipetrol is due to present a trading statement for the second quarter.

Sibur gives up plans for MBO

The Russian chemical major said today it will not relaunch plans for management buyout. According to ICIS news, its CEO Dmitry Konov ruled it out due to the recession. He said the $5.4bn deal is now "off the agenda".

I remember the last time Sibur managers tried to do an MBO, back in 2002. It all ended acrimoniously and with some of the management team being arrested.

Being an executive in Russian chemicals can be a dangerous job.

Krahn Chemie signs distribution deal

Germany, Hamburg-based distributor Krahn Chemie is to distribute rubber chemical products for NOCIL, which was spun out of Monsanto, according to Chemie.de Krahn Chemie operates across Europe, including Hungary, Poland and the former Yugoslavia region.

"In the past years, NOCIL has proven to be a very reliable supplier to the rubber industry", says Helmut Waibel - Business Segment Manager Rubber Processing Industry. "The sales partnership with Krahn Chemie has provided a basis for the company to enter the European market."

Interestingly, NOCIL Rubber Chemicals' website is listed as "under construction"!

Brenntag probe: what will the impact be on its other regions?

I recently interviewed Clare Waters, managing director of Brenntag UK and wrote up an article on the group's growth aspirations. Yesterday's report makes me wonder what the impact of this investigation will be on the wider Brenntag group in CEE and elsewhere.

Here is the report in full:

German Bundeskartellamt expands antitrust investigations

According to reliable sources, the Bundeskartellamt “BK” sent early June a detailed questionnaire to over 100 German distributors requesting them to release promptly information about the links existing between Brenntag, Chemische Verein Hannover “CVH” and CG Chemikalien “CG”.

This new extended investigation deals mostly with market dominance issues and risks of abuse of dominant position. Previously, the BK focused its investigations on alleged antitrust infringements on the limited industry sector of commodity chemicals.

In addition, each listed distributor is requested to describe thoroughly their business activities and results in the sectors where they are involved as well as the participations they hold in other distribution companies.

Through this unprecedented move, the “BK” is expected to gain full market knowledge and transparency in order to be able to complete their on-going investigations on antitrust, merger control and market dominance issues.

Unquote

Of course there is no suggestion they have done anything wrong, but it must be inducing a sense of nervousness across the group. They will be worried about how long the investigation will go on for and whether customers will become nervous. It is always un-nerving when something like this blows up. It will certainly be the talk of the town at the FECC distribution conference in Helsinki in a few weeks!

Brenntag has a big operation in CEE under the leadership of Helmut Struger who has expanded it agressively organically and through acquisitions.

Cartel bureau questions for Brenntag and others

According to industry contacts there are questions from cartel regulators in Germany for Brenntag and others. Will there be an impact on their activities in Eastern Germany and CEE?

Cargill to expand agrochems in Hungary

Hidden at the bottom of the story "Agrograin migrates to Cargill brand in Hungary" from the site All About Feed is a line about its chemicals strategy: "Meanwhile, Cargill is further expanding its activities in Hungary to include supplying more farmers with seeds, chemicals and fertilisers."

PKN Orlen may breach loan covenants

PKN Orlen is in trouble again. Constant changes of leadership mean the group has real trouble following a set strategy. Political interference is the key probelm. A change of government means a change at the top for Orlen.

According to ICIS news, quoting ING Bank, Orlen

"could improve its financial health by selling its strategic oil inventories to the Polish state and earning capital on a sale of its 24.4% stake in Polish mobile operator Polkomtel telecom. However, both transactions were unlikely to occur this year, meaning “2009-10 is likely to be challenging for Orlen operationally, and we expect the outlook to worsen", the bank said."

INA deal gets anti-trust clearance

According to SeeNews - Croatia's Competition Agency (AZTN) has granted conditional approval to a deal that will give Hungary’s MOL control over Croatian blue-chip oil and gas company INA.

This is exciting news for the chemical sector in Croatia which links heavily into INA for feedstocks. According to ICIS plants and projects the following facilities exist in Croatia.

	Croatia	Omisalj, Krk	Polyethylene low density	70000 tonne/year	Operating
	Dioki dd	Croatia	Zitnjak	Ethylene	90000 tonne/year	Operating
	Dioki dd	Croatia	Zitnjak	Polyethylene low density	85000 tonne/year	Operating
	Dioki dd	Croatia	Zitnjak	Polystyrene	57000 tonne/year	Operating
	Dioki dd	Croatia	Zitnjak	Polystyrene, expandable	12000 tonne/year	Operating
	Petrokemija dd	Croatia	Kutina	Ammonia	450000 tonne/year	Operating
	Petrokemija dd	Croatia	Kutina	Ammonium nitrate	450000 tonne/year	Operating
	Petrokemija dd	Croatia	Kutina	Urea	495000 tonne/year	Operating

The two companies will have a 55-65% combined share of the retail market and it must be reduced through the disposal over the next nine months of INA's Crobenz business, online business news portal Bankamagazine (www.bankamagazine.hr) reported, quoting AZTN president Olgica Spevec as telling reporters.

Nokia opens plant in Romania

Now this has to be good news for the region's chemical industry. SETimes reports that Nokia has launched an accessories production site in Romania on Monday (June 1st).

The company's CEO for Romania, John Guerry, said the factory, based in Jucu, will be the only supplier for Nokia accessories in Europe. Using a single source is quite a vote of confidence in Romania's ability to provide a reliable supply chain to a global company.

The investment amounts to E60m. The plant will hire an additional 400 people, with a total staff of approximately 1,800 to 2,000."

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Fancy buying a 1927 underground power plant in Hungary?

Ever fancied a place in the sun? Hungary's explosives manufacturer, Nitrokemia, has put its underground power plant site up for sale, according to The Guardian. Disused for many years, it might make a nice venue for a nightclub.

It sounds very bijou: "Entry into the plant is through an unassuming office block. A spiral staircase winds its way down into a steep concrete tunnel, which ends on an iron gallery perched atop the first of three gigantic halls. At its peak, the power plant, carved 60 meters (197 ft) into the hillside, burned up about 275,000 tonnes of coal a year. By the late 1960s, however, it could not keep up with rising energy demand as the factory began producing various other chemicals."

Bankruptcies to soar in Eastern Europe, but not as bad as the West!

According to today's ft.com, there will be a huge rise in corporate bankruptcies this year, up by 35% this year, "turning the world economy into a “burial ground” for businesses, according to a study by Euler Hermes, the credit insurer. In a study published on Thursday, the Paris-based unit of Allianz, says the rate of corporate collapses will reach “historic” highs in 2009 following a 27 per cent increase last year, under-lining the brutality of the economic crisis."

Interesting to note, though that the figure for Eastern Europe - 30% for Hungary, Poland and the Czech Republic - is much lower than the UK, Spain and Ireland which are looking at up to 40%.

This seems strange when we've heard so much about the parlous state of economies in CEE and shows just how bad things have got in the West. Should be good news for the chemical sector in CEE once the recovery kicks in.

What is this blog for?

Why this blog?

In my early days as a news reporter, central and eastern Europe plus Russia was part of my beat. I still have a keen interest in this region so it makes sense to have a way of gathering news together and commenting on it.

In the early 2000's when I started looking at this region there was a lot of talk of Russians trying to gain a foothold in its chemical industry. There was talk of secretive Russian investors building stakes in Hungary's BorsodChem, and of Russian bids in the various privatisations going on in the region. They have not been very successful, thanks mainly I think to the mistrust felt by many in CEE. History weighs heavy!

There was talk of consolidation. Would Poland's PKN Orlen tie up with Hungary's MOL to create a pan-regional player? This never happened and Austrian OMV's bid to do the same through a merger with MOL seems to have failed miserably.

Indeed the region was once seen as a major growth focus in chemicals. The industry has now overlooked it, so preoccupied is it with China and India.

But there is a lot of potential here, especially with large poulations in Russia and Poland and above average GDP growth. Surviving the downturn is now the key priority here as elsewhere. I hope to bring you more chemical-industry related news and insight into this fascinating area.