Poland’s chemical industry is back on track for growth. It continues to improve its position globally with the help of strong investment and recent consolidation in the sector
by Kamila Wajszczuk
The chemical industry is a key sector in any economy, providing materials for many others from agriculture to electronics manufacturing. In Poland, it accounts for about 11.4 percent of total industrial production sold, according to data from the Polish Chamber of Chemical Industry (PIPC). With some 70 percent of that production bought by other industries, only a minority is sold on the consumer market.
Though some 11,000 enterprises are involved in chemical manufacturing in Poland, altogether employing about 25,000 workers, it is the biggest industry players, such as Grupa Azoty, Ciech, Synthos and PCC Rokita, that are the most visible. These companies are also the biggest chemical exporters in the country, contributing to one of the highest net export growths sectorwise.
Luckily for the industry, it cannot complain about insufficient access to capital. Experts agree that Polish chemical companies continue to spend large sums on investment and that they can count on outside financing. “In my opinion, securing financing for new investment projects is easy,” Jarosław Myjak, deputy CEO of Poland’s largest bank, PKO BP, said during a debate organized by the Polish Press Agency in April.
Companies may look for financing not only in banks, but also on the stock exchange. “I think that the financial market is prepared for the financing needs of the Polish chemical sector,” Jacek Socha, deputy chairman at PwC, said during the same discussion.
Major projects currently in the pipeline include a petrochemical unit to be built by Grupa Azoty together with oil firm Grupa Lotos. However, in Socha’s opinion there is need for more innovative projects. “R&D expenditures in Poland as a whole equal only twice as much as these expenses for BASF alone,” he said.
Leaving the crisis behind
The dynamic growth of the Polish chemical manufacturing sector was throttled during the year the crisis took hold in 2008. Nevertheless, a rebound started in 2010 and now the industry is back on its feet. Tomasz Zieliński, head of the PIPC stresses that chemical production sales in Poland grew from PLN 123.45 billion in 2011 to PLN 131.40 billion in 2012 and it has grown immensely since 1995, when it amounted to only PLN 25 billion.
“Favorable factors include M&A activity, especially the consolidation of Grupa Azoty, which created the second-largest chemical producer in Europe after Norway’s Yara International,” underlined Zieliński.
“A large business always has better options. A group this size can make cheaper purchases, negotiate better conditions both in terms of buying and selling. Goods are sold more quickly, they do not stockpile as sometimes happens with smaller firms,” the PIPC president added.
Zieliński also stressed that Polish chemicals are appreciated in many countries, saying that “Our products, as well as our technologies, are of desirable quality.” Growth is witnessed in many areas.
Chemicals are Poland’s second biggest export sector, after electronics and mechanical machinery. In 2013, Poland exported €20.2 billion in chemical products.
“The situation of Polish chemical sector exports continues to improve each year,” Zieliński said. “The balance in foreign trade of chemicals is still negative, but it’s getting better. In 2011, the deficit was €8.32 billion and in 2012 it was reduced to €6.68 billion.”
“Petrochemicals and base chemicals have always been a strong segment,” Zieliński stated, adding that “the automotive sector is back on track, so chemicals for the automotive segment are also accelerating. There are also good perspectives for exports in the plastics segment.”
With most Polish chemical exports heading to EU countries, especially Germany, the economic situation there is crucial. So the future of the sector’s foreign sales largely depends on the perspectives for recovery in Europe’s core markets.
Another big chunk of Polish chemical production is sold to Russia and Ukraine. The recent crisis in Ukraine-Russia relations, which has affected Polish and EU trade with these countries, is one of the challenges that the chemical sector now faces.
This is not the only issue that the sector has to face when it comes to the eastern direction in exports. As Zieliński explained, “one of the main threats is connected with the introduction by the EU of anti-dumping duty for fertilizers from Russia and that country’s actions against it in the World Trade Organization.” Breaching WTO rules, “Russia uses dual pricing in natural gas, which also affects the chemical sector.”
Another key factor is the currently negotiated Transatlantic Trade and Investment Partnership (TTIP) agreement, which aims to establish free trade between the EU and the USA. “Earlier, the biggest issue was the possible inflow of goods produced with the help of US shale gas, which could destabilize the EU market. Now, since the Ukraine-Russia issue emerged, the foundations for TTIP may change,” Zieliński said.