Abstract
The Israeli chemicals industry is suffering generally from the effects of the
global economic downturn
with both depressed exports and a sharp
contraction in the domestic market, but BMI’s latest Israel
Petrochemicals Report predicts a fast recovery with domestic petrochemicals
demand likely to be led by
construction. In Q109, chemical exports fell
21% y-o-y to US$2.68bn, with exports of petrochemicals and
plastic raw
materials down 40% y-o-y to US$115.3bn. Domestic demand is faring little
better with the
economy in recession and consumer spending falling hard
and fast amid rising unemployment. BMI
forecasts a 1.9% contraction of GDP
in 2009, followed by 2.4% growth in 2010 and 2.6% in 2011.
More
importantly for end-users of petrochemicals, household spending growth is
likely to remain
negative in 2009 and sluggish in 2010, as unemployment
remains relatively high. However, there are
some signs that consumer
confidence could be starting to bottom out, or at least stabilise, suggesting
a
pick-up in private consumption growth rates later in the year. For 2009
as a whole, household spending
will decline around 2.0%. The industrial
sector will mirror the consumer spending slump.
Another positive trend can
be observed in the building sector, which is a major petrochemicals
consuming
industry. Recent data reveals an ongoing contraction in the
supply of housing in Israel, and with the
volume of house sales starting
to pick up; we highlight the possibility that the current spurt in house
prices could be maintained, particularly as credit conditions improve. Over
the medium term, however,
increased bank lending will benefit property
developers, boosting supply growth and thus moderating the
rate of house
price inflation. This should help lift the price and boost demand of certain
petrochemical
products on the Israeli market, such as PVC. While domestic
petrochemical producers will benefit from
the recovery, feedstock
availability constraints will limit the growth in potential capacity
expansion. The
recent commission of Carmel Olefin’s (COL) new PP
facilities has raised the company’s PP production
capacity from
200,000tpa to 450,000tpa. It has also expanded the production capacity of its
monomers
plant and other ancillary facilities. The new plant aims at
alleviating PP shortage in Israel and
significantly boosts the
country’s polyolefins capacity.
The Israeli petrochemicals sector is
likely to remain focused on domestic sales and is not expected to rival
other markets in the region. This is primarily due to the country’s lack
of upstream activity. While Gulf
States have developed petrochemicals
industries on the back of their domestic gas and oil production,
Israel’s gas and oil production are negligible. If recent offshore gas
discoveries are confirmed, there may
later be some scope to develop the
petrochemical industry further. BMI forecasts that ethylene production
will rise from 200,000tpa in 2006 to reach 450,000tpa by 2013, due to
COL’s expansion programme. PP
capacity should remain at 450,000tpa
beyond the forecast period on current indications, while PE
capacity is
not forecast to change from current levels of 165,000tpa. However, BMI expects
new
investment plans following the privatisation of ORL, with a likely
expansion over the forecast period.
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