The Israeli petrochemicals industry has survived recession well and is set for a period of stability and growth, bolstered by a process of consolidation that brings together refining with downstream industries, according to Companies and Markets. In late December 2009, Oil Refineries Ltd (ORL) completed the acquisition of the remainder of Carmel Olefins Ltd (COL) from Israel Petrochemicals Enterprises (IPE) in exchange for 17.75% of its issued share capital. Following completion of the transaction, ORL holds 100% of COL, while IPE increases its holding in ORL to 30.7%. The Israel Corporation and the public will respectively hold 37.1% and 32.2% of the company. The merger is intended to leverage synergies between the two companies between the refining, aromatic and polymer industries thereby facilitating total optimisation of the production processes at the COL, ORL and Gadiv Petrochemical Industries plants in Haifa. The ORL merger with COL is the latest development in a complex process of consolidation within the refinery and petrochemicals sectors.
In 2009, Israel’s petrochemicals industry included capacities of 450,000 tpa ethylene, 345,000 tpa propylene, 125,000 tpa benzene, 230,000 tpa xylenes, 165,000 tpa PE, 450,000 tpa PP, 160,000 tpa PVC and 60,000 tpa of methanol. No substantial increase in capacities has been envisaged over the next five years, with no plans for new petrochemicals plants over the medium term. Israel is undergoing an economic recovery with improving exports and a strengthening currency demonstrating that the country is set to make a fairly quick rebound from what has been, by global standards, a fairly short recession. Petrochemicals producers did not experience the surge in exports seen in other industrial sectors, with export growth led largely by sales of high-tech goods. However, household spending is arguably more important to the Israeli petrochemicals industry’s recovery, accounting as it does for around 55% of real GDP. Research has shown that consumer confidence is growing and spending is rising. At the same time, imports have been depressed, giving Israeli industry an upper hand and improving its prospects going into 2010. However, a rapid appreciation of the shekel could undermine the competitiveness of local petrochemicals producers.
Another positive trend can be observed in the construction sector, which is a major petrochemicals consuming industry. Recent data reveal a continuing contraction in the supply of housing in Israel, and with the volume of house sales starting to pick up. The current rise in house prices could possibly 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 prices of certain petrochemicals products on the Israeli market, such as PVC, and boost demand. In 2009, the construction industry contracted by 4.76%, according to our estimates. But it is set to expand by 2.93% in 2010 and return to trend growth from 2011.
It is forecast that ethylene production will rise from 200,000 tpa in 2006 to reach 450,000 tpa by 2014, due to COL’s expansion program. PP capacity should remain at 450,000 tpa beyond the forecast period on current indications, while PE capacity is not forecast to change from current levels of 165,000 tpa. However, we expect new investment plans following the privatisation of ORL, with a likely expansion over the forecast period. The main risk to our positive outlook for Israel is a double-dip scenario. This would not necessarily mean a return to recession, but there is a danger that growth could dip in 2011.