Abstract
Ukrainian plastics production failed to show any recovery in output in H109
with the industry facing a
domestic economic crisis and a collapse in
export markets, according to BMI’s latest Ukraine
Petrochemicals
Report.
Sales in the chemicals and petrochemicals industries in
January-May totalled UAH15.95bn, including
UAH11.8bn of chemicals and
UAH4.15bn of rubber and plastics products. In the first five months of the
year, output totalled 113,400 tonnes. In May, monthly plastic production was
23,200 tonnes, which was
1,300 tonnes up on April, but still below
February’s level and well down on typical output levels. Over
the
January-May period, overall chemical and petrochemical production was down
35.8% y-o-y, although
the rate of decline was easing. The figures are not
surprising given that Ukraine is one of the countries
worst hit by the
global economic crisis.
BMI is forecasting a contraction in GDP of 14.7%,
with key petrochemicals-consuming industries the
worst hit. At the same
time, the outlook for petrochemicals exports is bleak with the Russian,
Turkish and
EU markets also set to see sharp declines in demand. 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. The depreciation of the hryvnia may provide some slight relief in
terms of competitiveness, but
equally it raises the cost of feedstock that
has to either be passed on to the consumer or absorbed by a
financially
precarious petrochemicals industry. If the demand does not exist, then
depreciation is unlikely
to make a significant difference. 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 up to four or five years
to recover from the losses in H208 and 2009.
Any level of uncertainty
concerning feedstock 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 projected to decline to zero over the forecast period.
Ethylene
output will 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 without readily
available feedstock. Ukraine is also 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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