Abstract
The Ukrainian chemicals and petrochemicals industries have reported a modest
recovery from the
collapse in January when the country' s gas supply was
cut off, but 2009 will still be a very difficult year
for producers with a
deep contraction in output expected followed by a slow recovery, according
to
BMI' s latest Ukraine Petrochemicals Report.
In Q109, sales by the
chemicals and petrochemicals industries totalled UAH8.76bn, including
UAH6.62bn of chemicals and UAH2.13bn of rubber and plastics products. Output
of plastics totalled
76,500 tonnes in Q109. However, the plastics industry
has recovered from the January low, when the
petrochemicals sector
effectively ground to a halt during the Russia-Ukraine gas dispute. Plastics
output
rose 36.6% month-on-month (m-o-m) in March to 32,100 tonnes.
However, for Q109 as a whole, output
was still down 38.7% year-on-year
(y-o-y).
Despite the petrochemicals industry' s recovery from the January
low point, Ukraine is gripped by a
severe economic downturn and prospects
are dire: real GDP is set to contract by 10.2% in 2009; the
banking sector
is on the verge of collapse; the hryvnia is week; both external demand and
credit markets
have deteriorated; and international risk aversion has
elevated. The Ukrainian petrochemicals market will
follow the overall
economic trend, which means a deep contraction in 2009, followed by a slow
upturn in
2010 when GDP is expected to grow by 2.4%. With the kind of
economic growth rates seen in 2000-2007
unlikely to be repeated, the
petrochemicals industry will be more heavily reliant on export markets.
Russian economic growth is not likely to be remarkable over the forecast
period and the market is at risk
of over-capacity owing to additional
planned capacity due to come online. Consequently, Ukrainian
producers
will be more reliant on the eurozone for sales. The petrochemicals industry is
set to receive a
temporary domestic boost from increased construction
activity ahead of Ukraine' s hosting of the 2012
UEFA European Football
Championship.
A diversification in markets and feedstock sourcing to
remove the industry' s dependence on domestic and
Russian demand would
enhance prospects. In 2010, we expect petrochemicals output growth of
6.0%,
rising to 8.0% per annum in 2011-2013, in line with the pro-cyclical
nature of the industry. This means it
could take four or five years to
recover from the losses in H208 and 2009.
Any level of uncertainty
concerning feedstock as a result of repeated disputes with Russia over gas
supplies will have negative consequences for the petrochemicals sector, with a
shortage of feedstock for
its cracker units. BMI believes that gas price
hikes will lead to a downturn in ethylene output, with
exports declining
to zero over the forecast period. Ethylene output is expected to be in the
range of
525,000-535,000 tonnes per annum (tpa) over the next five years.
Cuts in ethylene output will increase
dependency on PE imports, with the
domestic industry lacking a ready availability of feedstock. Ukraine
also
looks set to become more dependent on PP imports. An improvement in the
business environment
and greater certainty over gas imports and prices
would alleviate some of the problems facing the
Ukrainian petrochemicals
sector. At present, the deteriorating domestic political environment makes
it
unlikely that Ukraine will see an expansion in production capacity over
the next two to three years.
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