Growth of revenue and net profit: KOS reports on first quarter of 2021

Reviving market after pandemic

Large-tonnage polymer production stopped growing at a pace of 4-5% a year in the middle of 2020. The automotive industry and construction especially felt the decline, but a fall in polymer consumption among packaging producers and manufacturers of medical and hygiene goods compensated for the decrease. The lower demand influenced prices and forced European and American producers to slash production. The situation in China and Russia unfolded differently: polymer output went up.

“A lower utilisation rate of petrochemical plants impacted a sudden hike in prices late last year while the reviving processing industry began to increase demand and feedstock suppliers had to cut oil production. The situation suddenly aggravated in early 2021 because of polymer production shutdowns in US enterprises due to harsh weather conditions and disrupted feedstock and electrical energy supplies. World prices for petrochemicals have risen by 40-70% since the beginning of the year. The cost of polyethylene and polypropylene reached record high numbers at the end of the first quarter — around $2,000 per tonne. In Russia, prices grew at a slower speed due to an excess of supply but also followed global trends,” says analyst of FINAM GC Alexey Kalachev.

According to the expert, the production of Russian manufacturers in the first quarter of the year became expensive too: polyethylene and polypropylene by 20-30%, polystyrene — 30%, ammonia — 65-70%. The big rise in prices even forced the Union of Plastic Recyclers to address the government in the middle of March and offer to restrict prices in the country and cut their dependence on world rates.

Generally speaking, events in the market didn’t develop badly. The production of large-tonnage polymers in Russia in 2020 rose by 25,5% and reached 6,9 million tonnes. Ethylene output grew by 40,9%, polyethylene did by 76,1%. Propylene production increased by 16,3%, polymer exports doubled and exceeded imports for the first time.

Forecast for 2021

The analyst of FINAM GC thinks that the world petrochemical market is forecasted to grow by 17,6% in 2021. The expert considers that a rise in supply will take prices for petrochemicals back to more reasonable levels.

Thanks to a high added value for polymers and growing demand, this year can become very successful for petrochemical enterprises. Director of ACRA group of corporate ratings Vasily Tanurkov agrees with such an outlook too.

“The growth of prices accelerated in January-March 2021, and the price ratio against December 2019 was about 42%. The increase in prices is stirred up by both a deficit in most segments and a rise in feedstock prices: oil, straight-run petrol, LPG. Pro-inflationary processes stimulated by higher demand because of the cancellation of quarantine with persisting shutdowns in production and logistics are growing in the global economy. A sudden rise in the cost of freight and load of ports makes its contribution to the growth of prices that’s seen. Considering the big rise in prices for plastics and production resumption, 2021 promises to be record from a perspective of profitability of the Russian gas and petrochemical sector,” says Vasily Tanurkov.

Kazanorgsintez triples net profit

The situation in 2021 is unfolding successfully for one of the largest Russian ethylene polymer and co-polymer producers too. Non-current assets of Kazanorgsintez PJSC rose from 54,7 billion to 55,8 billion rubles. Current assets also increased and reached 22,8 billion rubles against 18,4 billion late last year.

The enterprise’s net profit totalled 6,2 billion rubles, it was equal to 2 billion rubles during the same period in 2020. Revenue grew to 24,2 billion rubles, it is 1,5 times bigger than last year’s result. Products are mostly sold in Russia and CIS countries. The enterprise’s commodities are represented in all five federal districts.

So the chemical giant started confident growth of indicators after the tough 2020. Last year, the market was impacted by an abnormally low price for oil and a feedstock shortage, which brought to a fall in the price for polymers.

In March, Fitch Ratings confirmed Long-Term Issuer Default Rating of Kazanorgsintez PJSC at B+ with a Stable Outlook and Short-Term IDR at B. KOS’s market capitalisation augmented from 146 billion in late 2020 to 161,8 billion rubles by the end of March 2021.

During three months of 2021, the enterprise paid 1,5 billion rubles of salaries to its employees, 27 million were spent on social payouts. Workforce productivity during the first quarter this year is 977,000 rubles of product per worker, which is 50% higher than last year’s analogous indicator.