Our petrochemical business is a leading polyolefin player in CEE and among the top ten players in the European polyolefin market supplying polyolefins mainly to European plastic processing companies. Our production facilities are located in Tiszaújváros (Tisza Chemical Group Plc., TVK) and Bratislava (Slovnaft Petrochemicals, s.r.o., SPC). They are integrated with MOL Group refineries and support the Downstream segment as captive market. Beyond the naphtha processing to ethylene and propylene, the Petrochemical segment produces polyolefins in competitive quality, which are fundamental for a wide range of industrial applications and for the production of a vast number of consumer goods that are essential to everyday life. The polyethylene product range includes low density polyethylene (LDPE), high density unimodal and bimodal polyethylene (HDPE). The polypropylene (PP) product range includes homopolymers, random copolymers and impact copolymers. TVK and SPC operate in integrated manner, selling the majority of products through TVK sales subsidiaries under the brands of Tipelin, Tipolen, Bralen (polyethylene) and Tatren, Tipplen (polypropylenes). Proximity to rapid growth regions of Central and Eastern Europe provides firm basis to fully satisfy customer needs, supported by tailor made sales services and product quality, which is strategically important in keeping position as leading regional polyolefin player. Based on its long time experience in the petrochemical industry, MOL Petrochemical segment’s main internal strengths are the skilled sales and engineering staff.

Competitive advantages

Our competitive strength is supported by refinery integration as well as our geographical position and competitive asset base with a well-balanced product and customer portfolio. According to our ‘crude to plastic’ philosophy we optimize our refining and petrochemical production through the whole hydrocarbon value chain, which not only maximizes our profitability, but reduces the risk at group level. Integration between petrochemical plants and refineries improves the competitive position for both sides. This segment represents captive-market for MOL Downstream segment by purchasing approx. 2.0 to 2.5 million tons of feedstock and the Petrochemical segment’s sales to MOL refineries amounting to the 30% of total petrochemical feedstock. The majority of these co-products, produced by olefin plants are sold as components to the fuel production.

Sales and marketing strategy is focused on increasing sales in the fast growing CEE region. Shorter sales radius can reduce transportation and other logistics costs. Value added services in logistics and technical support are the key factors to differentiate MOL Petrochemicals. These services together with regional expertise represent the main advantages in MOL’s core region.

Key Developments in 2009

In the shadow of world economic crisis strict cost control and remarkable savings were achieved

The global economic downturn pulled major petrochemical customers down mainly in automotive and construction industries. Demand for polyolefins has changed its growing trend and slumped along the year, thus business was extremely tough especially in Europe and America. Overall polyolefin sales in Europe were down and annual average integrated margin was poor, therefore significant capacity cuts were announced all over Europe. The segment’s profitability had significantly decreased compared to 2008 due to the unfavorable external environment. We introduced strict measures on managing costs and working capital to compensate negative effects.

Good operation rates were achieved

Although the oldest, undersize TVK LDPE plant was permanently shut down, the polyolefin production had slightly increased in 2009, due to high availability of production units. Operational reliability and availability of the two newest polymerization units (SPC PP-3 and the TVK HDPE-2) were significantly improved.
In order to improve steam cracker utilization, sales of butadiene-rich fraction to regional partner was launched in the second half of 2009.
SPC steam cracker achieved excellent performance both in volume and energy efficiency in 2009, with new ethylene production record.

Successful general overhaul and planned maintenance

TVK steam cracker-2 maintenance and reconstruction works were carried out in the first quarter 2009. In the older TVK steam cracker-1 general overhaul was successfully completed covering the planned technical content and saving in budget. These well-managed turnarounds give good basis for excellent operational reliability as well as for exploiting business opportunities when situation in the markets turns favorable.

Improvements in energy efficiency

In the frame of earlier launched Ecovision project two furnaces were revamped in the SPC steam cracker. Energy utilization and cash-cost position had substantially improved as a result of the development.
Commitment to improve energy efficiency is deeply rooted in strategic thinking at the petrochemical segment. In response to the thriving importance of environmental protection and increasing energy prices, action plans were developed in connection with technologies and a new operational model was introduced for energy management. This will further improve the cost efficiency of the overall energy process to the benefit of the environment.

Continuation of the sales and marketing strategy implementation

Sales and marketing strategy can be characterized by two major goals – focusing and differentiation. Exploiting our favourable geographic location we have amended our sales strategy, at the field of logistics product development and tight costumer relations, giving bigger focus to the Central- and Eastern European region. Therefore we have closed our commercial office in the United Kingdom and withdraw our sales staff from Russia. We are able to maintain our market presence in the above-mentioned countries however, through other more efficient sales channels.

Outlook

In the future petrochemical industry remains increasingly competitive, setting further challenges in the business. To keep and further strengthen competitive advantages, MOL Petrochemical segment is committed to continue its strategic development programs.
EBIT improvement is priority target for 2010. Coherent implementation of cost-cutting initiatives and acquiring attractive customer segments in sales could provide firm basis to make good progress with this aim.
Continue with SPC development project will provide a firm basis for the future position of MOL Petrochemicals. Completion of the Ecovision project in 2010 by reconstructing the 3rd furnace at SPC steam cracker and by launching reconstruction works will create a platform for further development.
In line with its strategic aims MOL management is analyzing future options in connection with SPC LDPE plants and TVK HDPE-1 plant.
MOL Petrochemicals is setting up CO2 emission measurement system in steam crackers. Through identifying and implementing further energy efficiency projects, important steps are taken to comply with environmental requirements.