Kazanorgsintez to back with dividends during crisis
Despite polymer market failures, the enterprise generated a big surplus last year
Given the fall in prices in the world’s polymer markets, Kazanorgsintez ended 2019 with a profit of 11,6 billion rubles. This can allow the enterprise to allocate 70% of profit for dividends like last year. Despite the market’s problems and general crisis tendencies in the world economy, experts evaluate the enterprise’s prospects for 2020 positively.
Over 8 billion on dividends
The board of directors of Kazanorgsintez PJSC announced an annual general meeting of shareholders (AGMS). It is to be on 16 April. The enterprise continues preparing the AGMS face-to-face amid information about the preparation of a package of documents about remote meetings of this kind by the Central Bank that appeared.
A decision to recommend the shareholders’ meeting to calculate dividends became the main news of the board of directors. Like last year, it is offered to allocate 70% of net profit for these purposes. Despite the conservation of a tense situation in the Russian polymer market in 2019, it was decided to leave the dividend policy of Kazanorgsintez unchanged. The board of directors, in fact, supported the position that had been expressed by the board’s Chairman Ruslan Shigabutdinov.
“The shareholders are in the company to receive dividends. Kazanorgsintez PJSC obeys the law in accordance with the chapter and current legislation. The final decision is always up to the shareholders,” Chairman of the Board of Directors of Kazanorgsintez PJSC Ruslan Shigabutdinov said about the dividend policy of the enterprise at a press conference in 2018.
However, the total sum has been lower because of a fewer profit — 8,1 billion rubles. A common share will cost 4,5468 rubles, a preferred one is 0,25 rubles.
Prices hit profit
The positive financial performance allowed conserving the dividend policy. According to Russian Accounting Standards, in 2019 Kazanorgsintez PJSC managed to increase the enterprise’s fixed assets almost by 7,5 billion rubles. They totalled 49,8 billion rubles. In 2019, the company earned 11,6 billion rubles of net profit, while revenue reached 72,4 billion rubles. The enterprise augmented physical production capacities. The enterprise’s successes were noted at a meeting of Tatneftekhiminvest-holding. Rafinat Yarullin claimed that despite the unfavourable situation in the world, the company increased the production of almost all types of products and achieved 2,7% general growth.
However, the financial indicators turned out lower than last year’s records. We will remind you that in 2018 revenue exceeded 79 billion rubles, while net profit accounted for 19,9 billion rubles. This means that in 2019 profit was 58% of previous indicators. But despite market volatility in 2018, polyethylene and polycarbonate prices reached almost the historic peak.
And 2019 became a period of a real collapse of prices in the polymer market. Final data for the last year isn’t available so far. However, according to Market Report independent analytic agency, the fall in the average market price for LDPE was 19%. Data of the same agency suggests that a decrease in prices for HDPE amounted to 20%.
In these conditions, the profit of 11,6 billion rubles looks rather like success, though it seems that the enterprise didn’t achieve estimated indicators.
USA and closest neighbours’ dumping
The reduction in prices, first of all, was caused by a surplus of supply in the domestic market in 2019 due to increased imports. The Russian segment of the market, which is almost not protected by protection measures, is subjected to attacks from the outside.
Firstly, the next front of the economic war between China and the USA was established in the world polymer market in 2019. The Russian segment was also at risk. There weren’t almost any North American companies among polymer suppliers to the Russian Federation just in 2018. Imports of cheap polyethylene of American petrochemical companies in 2018 was less than 1,300 tonnes. In 2019, the imports exceeded 15,200 tonnes.
Secondly, LDPE producers from Turkmenistan, Azerbaijan, Ukraine, Uzbekistan have also intensified their supplies to Russian since late 2018. LPDE sales from these countries rose by more than 50% compared to 2018. Belarusian manufacturers augmented high-density polyethylene supplies.
What to expect from 2020?
New challenges can join the old negative tendencies by 2020 too: higher domestic competition and a fall in demand due to the anti-coronavirus measures. However, the market’s experts in general assess Kazanorgsintez’s prospects positively.
According to forecasts of Dmitry Baranov, a leading expert at Finam Management MC, several factors can influence the change of price for polymers in 2020.
“The hydrocarbons market is characterised by volatility, prices for them can go up too during the year, which will, undoubtedly, affect the polymer market. The pressure on the chemical industry will also stay, including on polymer production, environmental issues, reduction of harmful emissions, creation of new materials that are less harmful to people’s health and the environment,” Dmitry Baranov said.
The situation with the coronavirus pandemic can influence polymer production as well, the expert noted. On the one hand, the introduction of quarantine and the reduction in production can have a negative impact on demand for polymers. On the other hand, big polymer volumes can be needed to make medical goods, machinery and equipment, which will raise demand for them, which means that this will influence prices.”
“Higher performance, a reduction in expenses can be the best solution to the problem for manufacturers to face a possible rise in prices well armed. However, one should significantly raise the price for one’s products not to scare buyers given the high competition in this market,” Dmitry Baranov added.
Expert in the polycarbonate market, Director of Development at Carboglass Anton Debabov noted that the market of cellular polycarbonate in Russia totalled about 80,000 tonnes, and Kazanorgsintez covered 80% of the market at the moment.
“Amid the crisis, it is highly likely there will be the next stage of fall and reduction in polycarbonate consumption. But it is hard to be predicted because there are outbreaks. A lot of polycarbonate is used in the private sector. People go back to allotments and start to plant, for instance, vegetables because of a sudden rise in prices in food stores. Demand will probably rise amid this backdrop,” Anton Debabov said.