Unipetrol will discontinue production at its Paramo unit because of low margins, falling demand for diesel and refining overcapacity in Europe. Paramo’s hydrogen desulfurization unit and two crude distillation lines shut down in December 2011 and will not be restarted, the company said.
The refinery will continue to produce oil and derivative products at its Kolin plant and processed oils in the Pardubice plant, the company said.
Our view:
This is clearly a painful but a necessary step from Unipetrol to bring refining profitability back to “acceptable levels”. The company had worst-in-class earnings momentum in the past several quarters and it needs radical steps (such closing less efficient plants) to tackle the weak margin and demand situation. In sum, the news is a mix bag: it is positive that the company has made this difficult decision which, in turn, signals continued weakness in refining.