PRLog (Press Release) – Apr 01, 2011 – Ukrainian petrochemicals output growth is set to stagnate or fall in 2011 as domestic and external demand weaken somewhat and GDP growth declines, according to BMI's latest Ukraine Petrochemicals Report.
Key petrochemicals consuming industries such as the construction and automotive sectors are facing a dismal year. BMI believes it will take until around 2015 for plastics demand from the construction sector to return to 2008 levels. Local consumer demand has helped stimulate the automotive industry, although not nearly enough to return output to pre-recession norms that will help lift the market for engineering plastics and synthetic rubber. Domestic demand still remains tentative, while the banking sector remains extremely weak and there have been few incentives for increased consumer spending.
The export sector, which led growth in petrochemicals in 2010 due to the depreciation of the hryvnia, is also set to suffer. Depreciation boosted the competitiveness of the country's exports, but we expect growth in exports to slow further as positive base effects from the massive 15.1% real contraction in GDP in 2009 recede and fiscal austerity measures in key export markets such as Russia - particularly concerning state infrastructure projects - crimp demand for Ukraine's main heavy industry exports, such as petrochemicals. In addition, we highlight that the relative competitiveness enjoyed by Ukrainian petrochemicals exporters will be eroded by rising domestic gas prices as government subsidies are withdrawn under Kiev's IMF Stand-By Arrangement (SBA) as well as the rise in oil prices, which will spur the growth in naphtha feedstock.
Overall chemicals output grew by a third in 2010, surpassing the decline reported in 2009. BMI estimates that plastics output reached 365,000 tonnes in 2010, up by around 17.5% over 2009 levels, although output was still 16% down on 2008 levels, and Ukraine's petrochemicals sector operated at around 70% capacity - which is well below the 80-85% level which BMI regards to be the break-even point for the industry. Meanwhile, structural constraints within the industry, coupled with policy flux and uncertainties regarding future sector consolidation, will militate against the domestic industry to the benefit of imports. The decline in the value of the euro and a fluctuation in feedstock prices are contributing to increasing uncertainty in the industry and holding back output. Most imports o manual trash compactor riginated from Russia, which also remained the country's primary export market.
Ukraine has fallen one place to 10th place in BMI's Central and Eastern Europe Petrochemicals Business Environment Ratings as a result of its score falling 1.0 point to 39.5 points as a result of a decline in its country risk rating. This puts Ukraine 0.5 points behind Bulgaria and 6.3 points ahead of Azerbaijan. The score had been strengthened in recent months due to progress on a 300,000tpa PVC plant in Kalush, an improvement in market risk ratings due to a deal with Russia over cut-price gas supplies and the election of a new Moscow-oriented government which provides some stability in the operating environment for the petrochemicals industry and trade relations with its largest market, Russia. However, the score is held back by very weak a long-term financial markets outlook, although this can get better in the event that IMF credit is sustained and the banking system revived. The overal trash bins l petrochemicals rating score has plenty of upside potential.
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