Due to the impact of the global financial crisis, the main chemical market in central and eastern Europe (CEE) and Russia both dropped by more than 25% in 2009. Although some regions are still in poor economic conditions, the demand for chemicals in most regions has recovered significantly, but it will take several years to restore to the level before the financial crisis. With the end of the stimulus, the region's chemical companies are moving ahead to consolidate the recovery.

Recovery is clear

Driven by the domestic stimulus plan and the recovery of the main export markets such as Germany, the construction and automobile industries of CEE have made a marked recovery. In particular, Poland and the Czech republic have become more dynamic, sending a positive signal to the chemical industry. By contrast, southern CEE economies, such as Hungary, Bulgaria and Romania, are relatively weak.

The Russian economy was hit hard last year by the collapse in oil prices, which shrank the market for many chemicals. But as oil prices rose from $45 a barrel to $70 to $80 a barrel, the local chemical market began to recover. Lanxess is working to expand its CEE and Russian operations, and will set up a rubber chemical plant in dzerzhinsk, Russia, in May. "The investment here is driven by the specificity of the Russian market, which sees its supply chain at home as more reliable," said RON van rosser, a lanxess board member. He argues that Russia's economy has been hit by its dependence on oil and gas prices. Unlike western European countries, Russia lacks small - and medium-size companies with high added value, so developing industrial diversity is something the country must consider in the future.

CEE and chemical manufacturers in the Russian region are going through tough times. Lanxine's sales in Russia fell to 22 million euros in 2009 from 30 million euros in 2008. Rother says this year it is expected to return to pre-crisis levels.

The tentacles extend outward

Selena, a polish maker of construction chemicals that makes 150 million euros a year, specializes in polyurethane foam and sealants, has extended its reach beyond central and eastern Europe during the downturn.

China is one of the strategic markets in which Selena has its eye, and its 8 million euro plant in nantong, China, will be completed by the end of this year. "The market for window and door polyurethane foam is very competitive in China, but we have experience in dealing with CEE's volatile market and we know how to adapt to the Chinese market as soon as possible," said SelenaCEO kratov demarco. "we expect the average annual growth rate of the Chinese market to be at least 8% in the next two to three years."

Demarco said Russian and Ukrainian government debt was relatively low and demand for polyurethane foam adhesives would grow by more than 5 per cent this year as economic conditions stabilized and oil, iron ore and coal prices recovered. The situation is different in Romania, Hungary and Bulgaria, which have large fiscal deficits and do not support the development of construction, seriously affecting demand for chemicals. Romania's construction industry shrank by more than 20% in 2009-10 compared with its peak in 2008. Bulgaria's is flat, and Hungary's is down by 10%.

Poland has a more prudent financial system than the rest of Europe, so its domestic market has been least affected by the crisis. But some construction projects are facing a funding drought. Demarco said its polish business was flat in 2009 but not down, and it expects sales to be slightly lower this year than last. Overall, he is optimistic about the polish market, although he does not expect the business to grow in the past two years, but at least the second half of the year will stabilize, looking for growth in 2011.

Focus on dominant businesses

Spolchemie, a Czech manufacturer of epoxy resin that came close to collapse, has seen demand for its epoxy resin fully recover, thanks to a recovery in the auto industry and double-digit growth in the wind power sector, according to CEO francois froiger. But the boost from government spending is likely to fade with the end of the stimulus. He expects European demand for epoxy to grow at an annual rate of 2 to 3 percent and take four to five years to return to 2008 levels. Last year, facing tough market conditions, the company had to hand over all of its assets to creditors, cut staff and put in place a rescue plan to cut costs and restructure its business. In the future, the company intends to divide the business into separate units. Mr Flogues said he hoped creditors would approve his restructuring plan, which included a standstill agreement on foreign debt. If the plan is approved, the epoxy resin, epichlorohydrin and bisphenol A businesses will become core sectors. In addition, the production of chlorine gas as the core of the inorganic and potassium permanganate for a plate. But potassium permanganate could be shut down because of the need for sustained investment.

Spolchemie's European plant has been unable to operate at full capacity because of restrictions on the supply of raw material bisphenol A. European supplies of bisphenol A remained tight after the closure of factories in the Netherlands and Poland by Saudi Arabia and PCC respectively. If bisphenol A were in plentiful supply, the company would see A 15 per cent increase in sales, Mr Flogues said. In late July, the company formed a joint venture with sun chemical to ship about 8,000 tonnes of products a year from Austria to Spolchemie.