Abstract
Recent government assurances of financial support for the state-owned
petrochemicals producer Oltchim
Ramnicu Valcea should ensure the planned
merger with Romanian refiner Petrom’s petrochemicals arm
goes ahead
smoothly. This would consolidate the petrochemicals industry and put it on a
more secure
footing, with BMI’s Romania Petrochemicals Report taking
an optimistic stance on long-term prospects.
Oltchim has been badly hit by
Petrom’s decision to idle its steam cracker unit. In response,
Oltchim
reduced output to only a third of its capacity. This has been a
major blow to the company, which has
adopted a development strategy
through to 2012 involving EUR488mn of investments with a view to
raising
annual turnover to over EUR1bn – a more than three-fold increase.
According to Prime Minister
Emil Boc, the government planned to assist
Oltchim to acquire Petrom’s petrochemicals plant by August,
with the
government giving state guarantees for EUR50mn of the EUR70mn (US$100mn)
needed in
loans. Additionally, he has said that 80% of Oltchim' s long-term
investment plans would be guaranteed
by the government, which may also
consider transferring its debt into the portfolio of the state’s
privatisation agency, Autoritatea pentru Valorificarea Activelor Statului
(Authority for State Assets
Recovery, AVAS). BMI believes the government
rescue package significantly enhances Oltchim’s longterm
prospects
and improves the integration of the Romanian petrochemicals industry. This
will make it
attractive to strategic investors seeking to expand their
European markets. However, the restructuring of
Romania’s
petrochemicals industry is facing headwinds as producers reduce investment and
operating
capacity in response to falling demand. This could have
significant implications on operational efficiency
and the
industry’s already weak positioning in the global market.
Petrochemical producers worldwide are suffering from a decline in demand, but
the industry in Romania
faces significant structural challenges.
Romania’s industry needs a massive amount of investment to
improve
its efficiency and throughput after years of underinvestment. The
petrochemicals sector was
proceeding along a course of modernisation
before the recent turmoil hit, and the prolonged downturn
threatens to
slow the process of economic reform significantly.
Capacity utilisation is
low, owing to persistent feedstock shortages. Lower crude prices will help
lower
feedstock prices, but producers still face a cost disadvantage
compared with producers in the Middle East
and Asia. To compound problems,
a rush of new supply is expected to come onstream this year, precisely
as
the industry experiences a prolonged contraction in demand. Romania has
capacities of 400,000tpa of
polyethylene (PE), 80,000tpa of polypropylene
(PP) and 170,000tpa of polyvinyl chloride (PVC).
Rompetrol’s plans
for a 240,000tpa PET plant and a 250,000tpa PP plant are unlikely to be
realised.
Increasing integration with the markets of the EU will raise
Romania’s status as a cost-effective entry
point through which to
access other European economies. On the downside, the domestic downstream
petrochemicals sector is uncompetitive and in need of more diverse feedstock
sources to ensure stability.
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