The sector records solid growth rates, but caution is advised with smaller fuel wholesalers and stations due to a grey economy in fuel trade in the past.
- Solid growth expected in 2017
- Low number of insolvencies
- Some issues in the petrochemicals subsector
According to the Polish Central Statistical Office, chemicals production grew 2.2% in 2016. Further production growth is expected to follow the forecast GDP expansion of 3.6% and the on-going economic rebound in the eurozone. Production of chemicals increased 6.7% (in constant prices) year-on-year in Q1 of 2017. The benign economic environment and the still low oil price positively impact chemicals businesses’ profit margins. However, energy prices have increased in 2017, which has a negative impact. In general businesses’ profit margins are expected to remain stable in 2017.
Gearing in the Polish chemicals sector is average, and many companies use investment credits in order to finance their investment projects for innovations. Polish banks are generally willing to provide loans to the chemicals sector. The Polish benchmark interest rate has been low at 1.5% for two years, and the subsequent low interest rates for credit has spurred chemicals businesses to use bank loans to finance their investments. As no major interest rate increase is expected in 2017, the risk that funding costs could adversely affect the financials or operational results of businesses is low.
On average, payments in the Polish chemicals sector take 30-60 days, but can take up to 180-240 days for seasonal products (e.g. fertilizers). Payment behaviour has been good over the past two years, and the number of non-payments and insolvencies has been low. Given the solid performance of the chemicals sector in 2017 no increase in business failures is expected.
Due to the solid performance in 2016 which is expected to continue in 2017, our underwriting stance remains generally open for the chemicals sector. However, we are more cautious with smaller fuel wholesalers and smaller chains of fuel stations in the petrochemicals subsector due to a grey economy in fuel trade in the past, which has led to increased VAT and excise tax controls.
When underwriting the chemicals industry we especially assess the impact of raw material price changes on businesses’ sales and profitability. Costs for raw materials account for a large share of total costs, meaning that changes in certain raw material markets (availability and price) significantly affect the activities and financial performance of businesses.