Strong Market Conditions Continue – ZA Puławy Posts Excellent Results
Zakłady Azotowe Puławy (ZA Puławy) has met its increased performance forecast for the 2006/2007 financial year ended in June. In Q4, the Company earned a net profit of almost PLN 24.5m, over 84% more than in the corresponding period of the previous year. After the four quarters, its net profit exceeded PLN 130m, while the sales revenue was higher than forecast and exceeded PLN 2.2bn.
In the last three months of the financial year, Puławy’s revenue reached PLN 604m versus PLN 540m in the corresponding period of the previous year. Cumulatively, the sales revenue in the 2006/2007 financial year grew by almost 9%. The Company benefited from strong market conditions, despite less favourably foreign exchange trends.
ZA Puławy’s excellent market position can be also confirmed by a PLN 84m (18%) increase in the sales of fertilisers and chemicals and an approx. 12% rise in revenue. The sales margins are still improving, as higher sales were accompanied by noticeably higher prices of the Company’s key products. Revenue from sales of urea grew by nearly 74% – the price increased by over 10% with a concurrent rise in the sales volume by almost 58%. It all helped the Company to improve its financial performance over the previous year.
In Q4 2006/2007, the Company’s Supervisory Board approved a long-term business strategy providing for the execution of new investment projects designed to expand the ZA Puławy’s product portfolio and acquire cheaper raw materials for production. The Company also managed to change its internal organisational structure to enhance the efficiency of utilisation of its own resources.
Relative to Q4 of the previous year, fertiliser sales grew by PLN 56.5m, with the largest increase recorded in the sales of urea and UAN. The production of fertiliser increased by 11%. In the segment of non-fertiliser products, sales grew by over PLN 27m (mainly melamine and caprolactam), while production was higher by 24%.
Thanks to its policy of concluding medium- and long-term contracts, the Company managed to eliminate seasonality of its sales.
The share of exports in total sales grew to reach 51% in the last quarter of the 2006/2007 financial year. The Company exported most of its UAN and ammonium sulphate, while ammonium nitrate and urea were sold chiefly on the domestic market. The Company adjusted its sales structure to the current price trends and demand on the internal market.
Positive news is also the information on the filing by PGNiG S.A. of a request to maintain the existing gas prices and charges until the end of December 2007. Gas expenses account for over one third of the Company’s operating costs.
Situation on the Nitrogen Fertiliser Market
Puławy took advantage of high fertiliser prices on the domestic market and the longer than usual season on the Central Europe’s export market (due to the shortage of ammonium nitrate and urea).
The outlook for the coming years is also good. Customers in Western Europe started their purchases of fertilisers for the new season. These purchases were made at virtually unchanged prices of UAN and urea, with a slight correction on the market of ammonium nitrate.
One of other key positive signals on the market was the decision of the European Commission prolonging for another two years the application of the protective measure in the form of anti-dumping custom tariffs of EUR 33.25 per tonne on imports of ammonium nitrate from Ukraine (the tariffs will apply until the end of April 2009).
The situation in the United States also presents a great potential to increase UAN sales. The fertiliser season ended with practically no stocks, with UAN was sold for the new season at very high prices. Moreover, there was an increase in the area under maize and bio-energy products, which will result in higher imports of liquefied fertilisers to the United States (up to 2.5m tonnes per year). This is positive news for European producers, including ZA Puławy with the production capacity of 100,000 tonnes per year.
The prevailing high prices of grains and their expected lower-than-planned harvests in the summer of 2007 will have a positive impact on the prices of agricultural products, which in turn should increase the interest in and prices of fertilisers in the entire Central and Eastern Europe.
Situation on the Market of Key Chemicals
The prevailing favourable prices of urea and the overhaul period will have a positive impact on the melamine prices in Q1 of the 2007/2008 financial year. Further increases in the melamine prices are expected, both in Europe and on the Asian markets.
The Asian textile segment is expected to report higher demand for caprolactam due to supply shortages, strikes and technical problems of the local producers. The lower supplies on that market resulted in higher prices and enhanced the attractiveness of exporters from other regions of the world, including ZA Puławy. In Q2 2007, the European caprolactam plants were running at almost full production capacity, while customers purchased any quantity of the product available on the market, which may result in higher prices of caprolactam in the future.
