Abstract
The Hungarian petrochemical industry will be faced with a sharp deterioration
in both external and
domestic market conditions in 2009 and 2010, with
levels of production unlikely to return to prerecession
levels until 2011
at the earliest, according to BMI’s latest Hungary Petrochemicals
Report.
Structural constraints are also having an impact on some
petrochemicals segments with Hungary’s lack of
domestic oil and gas
resources are is proving to be an increasing problem for the country’s
downstream
industries, which are up against more competitive and larger
foreign producers. Demonstrating the
problems affecting the sector, in
June 2009 Yara International announced it would permanently close an
NPK
fertilizer plant at Peremarton. Production had been temporarily halted in
October 2008. Yara says
the 150,000 tonnes per annum (tpa) plant lacks
access to competitively priced raw materials and is not
flexible enough to
accommodate new market requirements for nitrogen, phosphate, and potash
combinations. The problems facing the Peremarton fertiliser plant are facing
all petrochemicals
production in Hungary and the rest of Central and
Eastern Europe. Amid the gloom, Hungary fears a
hostile takeover bid of
domestic refiner MOL by Russian oil producers, having successfully fought off
a
bid by Austria’s OMV.
Added to this is Hungary’s woeful
domestic market, with GDP set to shrink 3.4% in 2009. In the near
term,
demand from domestic industrial consumers of petrochemicals will fall sharply
and although we
foresee a modest recovery beyond 2011, trend growth will
continue to underperform relative to Central
European peers. BMI forecasts
a 30% drop in domestic polymers consumption to 770,000 tonnes in
2009. The
construction industry is set to shrink over 11% in 2009 and stagnate in 2010,
thereby
undermining domestic PVC and PE sales. Meanwhile, domestic car
sales are plummeting with the
Hungarian Vehicle Importers Association
(MGE) predicting the market will halve in size in 2009, leading
to a sharp
decline in sales for local carmakers and a drop in automotive output that will
impact on PP
demand. With household consumption set to contract markedly
under tight credit conditions, sales of
consumer goods as well as
packaging will also fall, with a resulting decline in domestic consumption of
a
broad range of polymers.
Meanwhile, the outlook for export markets
for Hungarian petrochemicals and locally manufactured
products that use
petrochemicals, such as cars and consumer goods, will be poor over the near
term. With
75% of Hungary’s polymer output sold abroad, the
performance of export markets will be a major
determinant of the
sector’s performance. As external markets are the key drivers for the
country’s
petrochemicals industry, the weakness of demand in the
eurozone is forcing such firms to rein in
production. A decline in polymer
production of up to 30% is expected in 2009, but the situation is
unlikely
to improve markedly in 2010.
With GDP growth unlikely to return to much
above 3.5% over the next 10 years and the domestic market
remaining
lacklustre, BMI believes that Hungarian petrochemicals output growth will have
to depend
increasingly on demand from the eurozone. Yet, slowing domestic
demand, coupled with reduced export
demand from the EU, will depress
demand for petrochemicals products. Meanwhile, other core markets
such as
Russia and the US are set to experience recessions in 2009. A slow recovery
will mean it will
likely take until 2011 or 2012 before the Hungarian
petrochemicals industry achieves output at 2008
rates.
By 2013, we
expect polyethylene (PE) exports to have reached 515,000 tonnes, just 5% up on
2008
levels, while polypropylene (PP) exports should be about the same
level as they were in 2008, at 115,000
tonnes. By 2013, the Hungarian
petrochemical industry’s ability to expand its exports will likely
be
constrained by capacity.
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