Plastics production fails to show any output recovery in H1-09 in Ukraine

15-Sep-09
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, as per a report by companies and markets. Sales in the chemicals and petrochemicals industries in January-May totalled UAH15.95 bln, including UAH11.8 bln of chemicals and UAH4.15 bln of rubber and plastics products. In the first five months of the year, output totalled 113,400 tons. In May, monthly plastic production was 23,200 tons, which was 1,300 tons 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. The report 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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