Author: Vedran Obućina

Analyst, journalist specializing in the Western Balkans and Middle East domestic and foreign affairs

Croatian chemical industry prepares for the Croatian EU presidency

The Croatian chemical industry is moving to the preparation of information and lobbying programs that during the Croatian Presidency will present to the EU members the interests of the industry in general, and in particular the chemical industry.

Croatia will be heading the rotating Presidency of the EU for six months, starting in January 2020. Two years ago, at the session of the Council of the Chemical Industry Association, a Responsible Care Group was established as a national body in line with the globally recognized Responsible Care initiative. By signing the World Charter for Responsible Chemistry, so far 13 Croatian companies have become members of this international initiative, all the leading companies in this important part of the Central and Southeast Europe (CSE) industry.

The Council of the Chemical Industry Association hosted a summit in the quintessential Croatian chemical industry Petrokemija in Kutina. Representatives of companies from various fields of the chemical industry such as the hygiene, domestic and industrial production company Saponia, plant protecting company Chromos Agro, Meteor Group – Labud, Messer Croatia Plin and others, who first visited the outskirts of the plant, participated.

„I am glad we could host you, given the good long-lasting cooperation that has contributed to the networking and linking of the Croatian association with other national associations of Europe. I would like to point out that, in 2017, 360 registered companies employed 5,871 workers, which makes up 2.5 per cent of a total employment in Croatia’s industry,” said Davor Žmegač, President of the Chemical Industry Association and CEO of Petrokemija.

He reminded that Croatia has a long tradition in chemistry crowned with two Nobel prizes — Lavoslav Ružička and Vladimir Prelog. In 2017, the chemical, pharmaceutical, plastic and rubber industries accounted for almost EUR2.5bn of revenues, or EUR2.28bn of exports (16.3 per cent of total Croatian exports). Particularly positive trends are recorded by pharmaceuticals, which in the period 2011-2018 doubled its production (from 3,446 tons to 6,864 tons).

“The main question for you is whether you can take advantage of these six months during which Croatia will preside over the EU to impose topics that are important to you. Do not think that you are small and do not hesitate to contact us if you need any help,” said Marco Mensink, General Director of the European Chemical Industry Association (CEFIC). He presented the state of the EU chemical industry and the activities of the leading association. „A strong and unified chemical industry is one of the cornerstones of the European economy, so we are continually working on its advancement as it is a key to moving to a sustainable society.,” Mr. Mensink said.

Automating and digitizing processes in companies is a big challenge, but also an opportunity for the chemical industry to become Industry 4.0 and continue to be the basis for innovation. Innovation, research and professionally educated staff give the foundation for the success of every corner within the chemical industry.

George Kalastadakis, a PR manager at CEFIC, talked about promoting and advocating the interests of the chemical industry during the period of the Croatian Presidency. „The six months of the presidency open an excellent opportunity for us to build a profile at the European level and draws attention to the challenges of the Croatian chemical industry. Political lobbying, participation in Council meetings and workshops and support to national authorities are the three main tools you can use,” Mr. Kapantaidakis explained.

Petrokemija, the leading Croatian chemical company, specialises in manufacturing agricultural fertilizers. It was founded in 1968 as a branch of the state-owned oil company INA. In the first three months of 2019, net income of HRK22m was a huge surprise, compared to HRK79m net loss in the same period last year. The sales volume and sales structure are the main drivers of better results compared to the same period of 2018. Total sales volume increased 31 per cent, and revenues grew 44 per cent. The Q1 result has further contributed to continued production since November 2018. As far as external influences are concerned, significant increases in CO2 emissions are expected, which increased by 62 per cent. Compared to the same period last year, no significant changes in fertilizer prices were recorded. May is expected to reduce demand for fertilizers, which will have a negative impact on the result for the next two quarters. As of September, demand would have to rise again, which could have a similar positive effect as in the Q1. The managers expect a positive impact on fixed operating costs in the second half of 2019, when a restructuring program will be implemented.

In many ways Petrokemija is the basis of the chemical industry in Croatia, especially since some other companies suffered due to the contracts and failures of Agrokor (read more and more). The share of the sector of the chemical and plastics industry in the GDP of Croatia is 1 per cent, 0.4 per cent of which was the production of chemicals, chemical products and artificial fibres, while 0.6 per cent was the production of rubber and plastic products. In the total exports of the processing industry, the sector accounts for about 9 per cent; importing about 13 per cent and achieving foreign trade deficit because it is highly dependent on imported raw materials.

Within this branch, the pharmaceutical industry should be distinguished: According to sectoral analysis of the Economic Institute (September 2018), the production of basic pharmaceuticals on the domestic market grew by 0.4 per cent in 2017, while total industrial production at the annual level grew 1.9 per cent. Out of a total of 4,332 employees at the end of 2017, more than 89 per cent are employees of the three largest companies: Pliva, Belupo and Jadran-Galen Laboratories. The average gross earnings of employees in June 2018 increased by 5.2 per cent compared to June 2017, reaching the amount of HRK14,632. In June 2018, gross salaries of employees in the manufacture of basic pharmaceuticals and preparations were 89 per cent higher than the average gross salary paid in the manufacturing industry.

Overall, the chemical industry shares the prognosis of quite neutral rise of the total industry production in Croatia. Data from the Central Bureau of Statistics show that industrial production in Croatia grew by 2.8 per cent in the first four months 2019 compared to the same period of 2018. The growth of industrial production for four consecutive months is certainly good news for the domestic economy, as total industrial production fell by one per cent last year, after four years of growth. The importance of the recovery of industrial production should not be particularly emphasized, it is enough to say that the last global crisis was much easier and faster overcome in countries with stronger industry. Due to the weakness of this industry in Croatia, the recovery lasted longer and the real exit from the crisis marked the first industry recovery at the annual level in 2014. The total number of employment in industry in April 2019 remained unchanged compared to March, but compared to April last year the number of employees in industry decreased by 2.1 per cent.

Analysts of the Raiffeisenbank Austria say that the Q4’18 continued to grow, although slightly slower, by 1.6 per cent, and that the manufacturing industry accounts for 80 per cent of industrial production. This growth of the manufacturing contributed to the growth of food production by 7.4 per cent. They also warn that it is still too early to talk about possible renewal of industrial production. “Even though after a 2.7 per cent growth in the Q1 and even the data on continuing favorable business in April are encouraging, when estimating future trends should remain vigilant and it is certainly worth considering the slowdown of the economies of the most important Croatian foreign trade partners. We expect that industrial production will not experience its boom this year, but the expected recovery rate will be modest. On the other hand, by looking at the supply side, growth will continue to generate activities related to wholesale and retail trade, transport and storage, accommodation, food preparation and service, information and telecommunications and construction”, emphasize RBA analysts. It seems a large amount of lobbying and PR is necessary throughout the Croatian Presidency in the EU if the chemical industry wants to generate similar growth in next few years.

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