While Egypt’s economic performance is set to deteriorate, it is still better than many other markets, with petrochemicals demand expected to grow albeit at lower rates than in previous years, according to the latest report by companiesandmarkets.
The rate of economic growth is forecast to fall from 3.7% in 2009 to 1.8% in 2010, implying a further slowdown in demand for petrochemicals related products in 2010 before accelerating from 2011. Of the sectors that have most direct impact on the industry, construction is faring the worst, with the report forecasting growth of just 0.1% in 2009, down from 4%. This is likely to depress polymer segments like PVC, which are highly exposed to the building sector. However, the situation should be mitigated by an EGP15 bln stimulus package intended to boost jobs and consumer spending through direct support to infrastructural projects. An expected time-lag in the disbursal of state funds and the start of work could mean that by the time the stimulus starts having an impact on petrochemicals, the industry may well be on the return to previous levels of growth.
At the same time, export markets will offer little relief. Egyptian analysts have suggested that petrochemical exports could decline by up to 40% in 2009. BMI is less pessimistic, given that some of Egypt’s main markets in the Middle East are likely to rebound strongly towards the end of 2009.
Nevertheless, the market environment will be tough for Egyptian petrochemicals producers and in Q209 some producers temporarily took capacity offline for maintenance, with Sidpec shutting its Ameriya 150,000 tpa HDPE unit and EChem shutting down PVC capacity for 40 days. Both producers are heavily exposed to external markets.
Over the medium- to long-term, leveraging Egypt’s petrochemicals future to its full potential still very much depends on attracting concrete multinational interest in its master plan. Egypt’s demand for plastics is massive. Some 1.2 mln tons of petrochemicals used to manufacture plastics are consumed by the local market each year – equal to more than 18kg for each citizen. Local production of these materials is around only 470,000 tpa at present, so two-thirds has to be imported. Reducing this reliance on imported plastics is one of the main aims behind the petrochemical master plan.
The report expects PP capacity to rise to 820,000 by 2013. We do not believe Egypt Hydrocarbon Corporation’s (EHC) proposed complex near Suez – which would have two plants capacity of 450,000 tpa each, producing HDPE and LLDPE alongside a cracker and ammonia, ammonium nitrate, and methanol plants – will come online by 2013, even if it does manage to secure financing by 2010.
Similarly, it is doubtful that GAFI’s bid for foreign investment in a US$200mn PVC plant with a capacity of 120,000 tpa and a US$150 mln PS plant with a capacity of 200,000 tpa will materialise in time for them to come onstream by the end of the forecast period. The nitrogen-based fertiliser sector is expected to expand, with EBIC and Agrim adding around 2.1 mln tpa of ammonia and urea production capacity by 2010. In June 2009, Orascom Construction Industries (OCI) announced that its subsidiary Egypt Basic Industries Corporation (EBIC) had made its first export shipment of ammonia totalling 23,400 tons.
The shipment was made via its export facilities at the Red Sea port of Sokhna, where its 700,000 tpa ammonia plant is based. The plant is close to OCI’s Egyptian Fertilizers Company urea plant, which is carrying out a debottlenecking project that will lift capacity from 1.3mn tpa to 1.45 mln tpa by 2010. Additionally, the transfer of Solvin’s idle German plants to Port Said adds 160,000 tpa of VCM and 180,000 tpa of PVC to Egypt’s petrochemical output.