Retaining positions: what results KOS ended 2020 with
In 2020, the demand on key markets with products of Kazanorgsintez PJSC was approximately 30% depending on the sphere of application, besides quarantine-related restrictions, the enterprise had to cope with stiffer competition — large-tonnage polymer manufacturers reached full capacity. Despite all the factors, KOS managed to retain positions at B+ and B in Long Term/Short Term Issuer Default Rating respectively. One of the largest Russian ethylene polymer and co-polymer manufacturers reported on this in its report for the fourth quarter last year.
Influence of the pandemic
In the first six months, quarantine-related restrictions seriously influenced the sector. As Market Report analytic agency informs, the demand for KOS products on key markets was 30% depending on the sector they were used in. The restrictions led to a situation in which the oil and gas sector faced a surplus in oil supply.
This entailed a fall in world oil rates to negative digits. The demand recovered in the second half of the year thanks to the introduction of new limits on production and data on a reduction of reserves.
Nevertheless, the numbers in December 2020 didn’t anyway reach January’s level: the plunge in major oil brands from last January to December totalled 18% on average. The fall in oil rates caused correlation in prices for petrochemical derivates and organic chemicals.
The decrease in oil price caused a change in the rate of key currencies: from January to December 2020, the rise in the dollar-euro and euro-ruble grew by 25% on average. The change in the currency rate directly influences the activity of Russian manufacturers in pricing for domestic and export supplies of petrochemical products.
Moreover, the chemical mogul had to compete with new large-tonnage polymer producers. After their launch of full capacities, the amount of key Russian polymer products exceeded consumption in the domestic market by 39%.
“A considerable part of the demand for polymers is provided by the production of basic goods that demonstrate stable demand even during economic decline. The stability was partly provided by a rise in demand for polymers from the pharmaceutical industry and the production of medical commodities there was an explosive growth for during the pandemic. For instance, different kinds of protective suits for doctors. At the same time, there was a sudden fall in demand for some types of products from such severely affected industries as automotive engineering. This especially applies to synthetic rubber production. However, demand from the most hit sectors also started to recover in the second half of the year,” analyses Director of ACRA corporate ratings agency Vasily Tanurkov.
Higher competition
The work amid the competition continued throughout 2020. Nevertheless, Kazanorgsintez holds one of the leading positions in its segment. It is the only enterprise in CIS countries making granulated polycarbonate. It the second company to make high- and low-density polyethylene. Moreover, the introduction of modern technologies makes KOS competitive.
For instance, the company plans to make a steam gas unit that will have its own power capacities for further development of the enterprise. Germany’s Siemens concern will deal with constructions works. The 250 MW gas turbine will have the latest technology allowing using blow-off gas to generate power excluding that they will be burnt in the atmosphere.
“We plan to save around 2 billion rubles every year by decreasing the prime cost of electrical energy. Of course, the turbine is necessary to provide energy and process safety. The enterprise will constantly generate electrical energy,” Kazanorgsintez PJSC Director General Farid Minigulov said when signing the agreement with the German company.
With the use of state-of-the-art materials, a polyethylene vinyl acetate plant will be built on the territory of the chemical giant. The project will allow replacing obsolete equipment and increasing the output. Sumitomo Chemical from Japan, which is a part of Sumitomo Group, will be the licenser. It is one of the largest and oldest financial and industrial groups in Japan.
Only the most qualified personnel is allowed to work with the new technology. 8,266 people work in KOS plants, their average salary is 59,697 rubles. 98,692 rubles were spent last year on social payouts.
Stable positions
In 2020, the enterprise also managed to retain its positions at B+ and B in Long Term/Short Term Issuer Default Rating. The outlook is stable. Fitch Ratings reconsidered the Issuer Default Rating last time last 17 March. The company’s market capitalisation is 146 trillion rubles.
Kazanorgsintez PJSC continued cooperating with companies around the world despite the pandemic. In 2020, KOS supplied products to 31 countries. The company exported 19% of the goods (in terms of value), moreover the main currency of export revenue — US dollar — accounted for 12% of the general realisation. The enterprise had to deal with exports in the uneasy conditions:
“At the peak of restrictions, manufacturers faced difficulties with shipping to foreign markets due to problems with logistics: a deficit of containers, a fall in the availability of lorries, longer delivery of goods due to delays on borders and in ports, interruption or suspension of domestic logistics in some countries and regions. The cost of freight at the height of the pandemic increased, it doubled in some places,” explains leading expert of HSE NRU’s Development Centre Anna Volkova.