ECONOMY

Industrial firms feel the impact of record-high oil prices on costs

Companies listed on the Athens Stock Exchange (ASE) appear to be vulnerable to the steep rise of oil prices, with the historic highs recorded during the past few days beginning to affect the costs of listed firms, especially those in various sectors of Greek industry. Basic metals, food and beverages, packaging materials, rubber and plastics and the cement sectors have been particularly hit by the crude oil price rise. The former record of $54.45 per barrel is now history: In New York, the price hit $55.33 yesterday, amid concerns about market supply with the winter around the corner, before dropping slightly to $54.75 by mid-afternoon. On London’s International Petroleum Exchange, Brent crude for December delivery hit a high of $50.32 yesterday, before sliding down to $49.80. Last week, the European Central Bank stressed the impact of high oil prices on development while OPEC President and Indonesia’s Energy Minister Purnomo Yusgiantoro warned on Thursday that prices «will keep rising until the end of the month as demand increases.» If prices stay high in the next few months, then high production costs are certain to pass on to products. Several analysts point out that some industries are already planning immediate price hikes to make up for the rise in the price of oil. Titan – Heracles Listed cement companies, such as Titan and Heracles, are some of the worst affected. Given their high energy costs, cement industries are always influenced by international developments, while the strengthening of the euro has pushed prices of raw materials even higher. Heracles CEO Albert Corcos warns that the cement market will experience a post-Olympic downturn: «As far as the post-Olympic period is concerned, a small decline is expected in the market due to the completion of Olympic projects. Nevertheless, our exporting activity will provide a gateway for our production that will not be absorbed by the local market.» Corcos noted that «it is encouraging that private construction activity will remain strong and we believe that in the medium term our investment in infrastructure will continue with the help of (funds provided from the EU’s) Third Community Support Framework.» «On average, the local market consumed some 10 million tons of cement per year during the past five years. Twenty percent went to public works, with the rest going to private activities. The Olympic projects absorbed about 5 percent of the local market annually. In the same period, Heracles delivered a total of 535,000 tons of cement to infrastructure projects related to the Olympics, while 435,000 tons went to Olympic projects and building sites in the last three years,» Corcos added. Aluminium of Greece Aluminium of Greece is a purely export enterprise, hurt in the last few months by the dollar’s fall, only to face high energy charges now. There is not much a company can do to defend itself from an oil price rise, anyway. The latest from Alcan Group on its investment at Aspra Spitia is that the firm has postponed all moves to the end of the financial year. Viohalco Group Elval, Viohalco’s flagship metal company, abandoned two of its subsidiaries, EVIMET and Viexal, which had remained inactive over the last few years. It decided to sell off its 99.99 percent stake in EVIMET and to close Viexal. Elval has invested 63.5 million euros, 23 million of which went to upgrading its British subsidiary Bridgnorth Aluminium, which was completed in 2003 and is already paying off. This year, production is expected to reach 250,000 tons in its two factories, up 50,000 from 2003. More efforts are also being made to improve quality, limit costs and develop flexible structures so that with its full producing capacity, the company can respond fully to its target market demands. In 2003, the company’s dividend was 0.12 euros per share. That year, Elval increased its sales volume by 7.85 percent to 166,000 tons, with its business reaching 380 million euros. Yet continuing recession in European markets last year, as well as the dollar’s considerable weakening, pulled prices down and took gross results 8 percent lower, to 42 million euros. ETEM, another Viohalco company, has successfully begun producing and supplying spare parts to the BMW Group of Germany. The company’s management says its investment program aims at increasing competitiveness and adaptability and at entering new markets abroad by exploiting new investment opportunities (for instance, in 2003, it increased its stake at Steelmet, its Bulgarian subsidiary, from 62 percent to 82 percent). ETEM’s dividend for 2003 reached 0.095 euros, a rise of 5.56 percent from the previous year. Food and beverages This sector stood out for its results in 2003, as it has done for decades in Greece. Food-and-beverage enterprises are dynamic and their stocks are known for their defensive character in periods of recession. At the same time, the investments they have made in the last couple of decades in the Balkans and Eastern Europe are now paying off, with a direct effect on their 2003 results. However, the oil price rise increases their energy costs as they maintain 24-hour production lines. Passenger shipping Sea transport is bound to face problems and companies are already asking for a rise in fares after oil prices skyrocketed, not to mention the bad summer for Greek tourism. All the signs are that with the opening-up of the domestic market on November 1, 2004, the struggle for survival is under way as foreign liners will also be able to operate in the Aegean and Ionian seas. Last year, there was a major effort to contain companies’ expenses, while negotiations with banks about restructuring loans from the previous two years managed to secure better terms. Last year, passenger shipping was the sector with the best results on the ASE, despite the Iraq war and the SARS virus that hurt international tourism. The word, however, is that relations between companies are strained. Strintzis Lines and ANEK are still vying for the profitable Piraeus-Hania line. Minoan Lines is seeking partnerships, with ANEK considered a candidate despite locality hurdles. Attica Enterprises’ partnership with «Mitica» is more forward-looking and the investment firm’s participation has already been mirrored in its share’s rise. S&B transport costs S&B Industrial Minerals is among the Greek industries with international presence, where transport of goods is heavily influenced by the oil price rise. The group’s total sales showed a 38.4 percent increase in January-June 2004, reaching 204.4 million euros, compared with 147.7 million euros in the same period last year. Gross earnings rose to 13.6 million euros, up by 9.3 percent from the first six months of 2003. S&B has announced that the increase derived from adding the sales from the recently acquired international Stollberg Group and the Bulgarian company Bentonit AD, as well as the sales rise in bauxite in Eastern Europe and perlite in Greece. Commenting on the January-June 2004 results, S&B’s CEO Efthymios Vidalis said: «The course of the S&B Group indicators during the first half of the year, with the considerable contribution of the Stollberg Group of Companies’ sales in the total figures, confirms our forecasts and expectations. We are proceeding satisfactorily and speedily to the full absorption of the recently acquired companies, expecting that our significant rise in sales will be mirrored in the group’s earnings in the medium term.»