Promising evaluation of the chemical sector

| Foreign Markets |

In the third quarter of 2013, the economic activity indicator in the chemical sector remained on a similar level as in the previous quarter. The situation in the business was evaluated as generally positive (from +15 in July 2013 to +12 in September 2013), although sentiments had been slightly more optimistic in the previous months.

Polish chemical sector after 2012

Domestic industry is still trying to cope with difficulties linked to both global economic stagnation and the end of investment activity which preceded Euro 2012 football championships organized in Poland and Ukraine. The petrochemical and plastics businesses are now in the best situation among all chemical companies, with packaging manufacturers emerging as leaders of growth.

Experts’ forecast for the coming months

Representatives of the largest global chemical companies agree that at the end of 2013 markets will remain stagnant. Upward tendencies shall be curbed by continuing economic depression and uneven pace of growth in various parts of the world.

European – meaning also Polish – chemical industry is now facing the following challenges:

a) growing competition from Asian and US companies,

b) high prices of energy resources,

c) strict EU environmental protection policy,

d) poor internal demand.

Such situation provokes market players to intensify the frequency of mergers and acquisitions, improve financial discipline and rationalize product portfolio. European manufacturers are trying to compensate for lower demand by increasing prices (by c. 2.7% annually).

EU policy on energy

One of the primary challenges for the European chemical industry is EU energy policy. Demanding regulations may influence both the production cost and employment rate in the industry. For Poland there is another problem: the skeptical approach of the European Commission to plans of excavating shale gas, and ensuing changes of Polish legislation.

Articles prepares by Strategy and Development Team of Grupa Azoty “PUŁAWY”, headed by Andrzej Górecki.

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Prosperity in agriculture

| Prospects & Investment |

In Q3 financial year 2013 the situation on agricultural production market improved significantly. The change took place in August 2013 when the Synthetic Agricultural Economy Indicator (pl: SWKR) went up by 0.6 point to 100.8 points and was not only 0.5 point higher than one year before, but also the highest in the past 6 months.

Changes of prices of agricultural products

The figure has gone up both owing to improved “price scissors” indicator, as well as the leveled indicator of expected growth. Price increases of most animal products have offset the consequences of falling cereal and livestock purchasing prices in July and August 2013.

Polish and global harvest

Despite slightly poorer harvest in 2013/14 season, supply will continue to dominate Polish cereal market, owing to lower domestic demand and decreased exportation volume. Export capacity is limited by more plentiful harvest we have seen in virtually all major cereal cultivation areas, in particular in Russia, Ukraine and in the North Sea region. A drop in domestic demand results from a marked reduction of pig population – the trend stemmed from high prices of cereals, which make breeding pigs less profitable.

Prices of cereals dependent on livestock farming

The considerable fall of the prices of cereals and fodder may boost the profitability of breeding granivorous animals, with particular regard to pigs and poultry. This could bring about a reversal of the falling trend and continued growth of poultry production. However, increased market supply of pork is not expected until the second half of 2014.

Forecast for agriculture

Analysts foresee that in the near future the market circumstances for farmers may deteriorate, following a seasonal drops of cereal purchasing prices. This year’s fall of prices of cereals is likely to be deeper than price dips over the past two years.

Articles prepares by Strategy and Development Team of Grupa Azoty “PUŁAWY”, headed by Andrzej Górecki.

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