$quot;Developing economies are one of the growth drivers of the group.” Those were the closing words of Air Liquide’s Guy Salzgeber, with the recent news that the company had commissioned two new air separation units (ASUs) in Poland.
Poland is just one of a number of developing economies in the Central Europe region, markets that are now said to be established and relatively stable. Interest in the region is growing as both the economies there develop and mature, and the demands of the region grow too.
From an economic and financial point of view, it’s a mixed outlook for the markets of Central Europe.
The International Monetary Fund’s (IMF) World Economic Outlook Update (WEO) of January 2011 explains that the ‘two-speed recovery continues’ as emerging economies recover quicker than the advanced economies. While an air of caution may be prevalent, the IMF’s WEO update says that ‘in many emerging economies, activity remains buoyant’ and for third quarter 2010 in particular, ‘growth in emerging and developing economies remained robust’.
Although activity in the advanced economies is projected to expand by 2.5% during 2011-2012 for example, the same updated WEO forecast cites the growth in emerging and developing economies to remain buoyant at around 6.5% in both 2011 and 2012. For Central and Eastern Europe in particular, the IMF projects growth of 3.6% in 2011 and a 4% in 2012.
When compared to the projections for China (9.6% in 2011, 9.5% in 2012) and India (8.4% in 2011, 8% in 2012) for example, the expectations for Central Europe might seem a little slim. However, when compared to the projections for the US (3% in 2011, 2.7% in 2012), the Euro area and Germany (2.2% in 2011, 2% in 2012) in particular however, the anticipated growth in Central Europe suggests optimism.
This optimism is a little tempered by the region’s transition or recovery from recession. Another respected source of information, the European Bank for Reconstruction and Development (EBRD), sees most countries in the EBRD region starting to recover, albeit at varying speeds.
In its Transition Report 2010: Recovery and Reform, published on 17th November 2010, the EBRD explained that, “In some central European countries and most commodity-rich countries, the recovery is well on track, but it has barely started in most of south-eastern Europe.”
“This reflects varying capacities to take advantage of the incipient world recovery through higher exports; fiscal policies; and the unwinding of pre-crisis imbalances, which continue to weigh on credit growth in many countries.”
Describing the recovery in Central Europe and the legacy of the economic crisis, the EBRD report says, “Investment growth has been sluggish as business confidence has recovered only gradually. The global financial crisis weakened business confidence sharply; in most countries confidence in the manufacturing or industrial sectors dropped by 20-50% from the fourth quarter of 2007.”
“By the third quarter of 2010, confidence had recovered to pre-crisis levels only in Estonia, Hungary and Turkey. As a result of the weak recovery, non-performing loans (NPLs) of banks have stabilised at high levels or, in some cases, continued to rise.”
If we return to the industrial gas activity of late, however, and the most recent development that we’re aware of at gasworld is the aforementioned commissioning of two new ASUs in Poland by Air Liquide.
According to the company’s press release, both ASU’s constitute the largest liquid and gas source in Central and Eastern Poland, with an aggregate production capacity of around 1,700 tonnes per day.
The investment forms part of the firm’s June (2010) announcement to invest, overall, €100m in Poland. Guy Salzgeber, Vice-President for North and Central Europe and Member of the Air Liquide Executive Committee, said in the January 2011 statement confirming their commissioning, “This successful commissioning further strengthens our growing position in Poland and illustrates the quality and performances of the standard YangO2 air separation units.”
He added, “With these new assets, Air Liquide intends to support even further the development of its customers and consolidate its leadership in Poland in the Large Industry market. Developing economies are one of the growth drivers of the group.”
The two new facilities will be located in Dabrowa Gornicza, Krakow and in Pulawy.
June 2010 saw Air Liquide announce the acquisition of AMCO-GAZ, a distributor of compressed and liquefied gases and a leader within the Polish market since 1991. The acquisition incorporated the integration of 90 new employees, in excess of 2,500 customers, and two additional cylinder filling operations in Poznan, northwest Poland, and Bialystok in the northeast.
Other developments include a refinery upgrade in Romania, for which Foster Wheeler AG was last year awarded contracts by PETROM S.A. for investments which form part of PETROM’s Petrobrazi Modernization Project at the refinery, and the Croatian Ministry of Environmental Protection reportedly giving the go-ahead to the Adria LNG project – to be located on the Island of Krk, a lucrative region in the North Adriatic.
In nearby Turkey, a country that actually falls under gasworld’s definitions as a Middle East country but is often regarded as a European nation by other definitions, Air Liquide has announced its investment in a new liquid oxygen and nitrogen production unit in Ankara.
Representing the company’s first such production site in the country, the new production facilities will be used to supply both the region as well as the Central Anatolia market – an industrial basin with strong growth. The investment of around €35m demonstrates the company’s ‘commitment to this strong-growth economy’.
Overall, it might be suggested that the climate is optimistic for industrial gas investment. With the economies of Central Europe reportedly showing steady recovery and regional growth projections of between 3.5-4% for 2011 and 2012, this would appear to be the case.
Spiritus Consulting’s 2008 projections valued the Central Europe gases market at around $2.3bn in industrial gas revenues, with Poland alone then believed to be worth $600m (2008). As the recovery takes hold and interest grows, aligned with the growing needs of the region, we can perhaps expect these figures to have grown too.
A number of industrial gas companies would seem to have demonstrated confidence in the region. Messer has been active in South Eastern Europe for more than 20 years and Ernst Bode, Senior Vice-President South Eastern Europe for Messer, discussed the Central Europe market with gasworld last year.
Describing the market, Bode said, “The markets of the region are by now established and relatively stable. Despite the relatively low prices of industrial and medical gases compared to the Central & Western European markets, we are able to deliver a satisfying profitability due to lower costs and a healthy market presence and therefore, the cost-effective logistical structures as a result.”