Ukraine Petrochemicals Report Q2 2009

Ukraine Petrochemicals Report Q2 2009

The petrochemicals sector in Ukraine could face collapse due to plummeting output and a sharp decline in
domestic demand and exports, according to BMI’s latest Ukraine Petrochemicals Report. The situation is
compounded by the weakening exchange rate and the lack of credit availability to consumers and
industry, as well as a dire economic outlook for the country as a whole. Heightening its woes, the sector
effectively ground to a halt during the Russia-Ukraine gas dispute in January 2009. The row – which saw
gas supplies to Ukraine cut off for nearly three weeks over a pricing disagreement – had devastating
effects on the already troubled petrochemical sector. Industrial output suffered the worst drop in the
country’s history that month, with chemical and petrochemical production shrinking by close to 50%.
Continuing tensions between Kiev and Moscow further threaten future output levels and prospects for the
sector.
Output decline has followed the trend of the economic cycle. In 2008, the chemical and petrochemical
index suggested that the volume of production fell by 3.1% over the previous year. The decline was more
marked in H208, with output falling by nearly 40% in December 2008, according to BMI estimates. All
petrochemical segments were affected by the sharp downturn, with producers idling capacity in sectors
such as PVC by the end of the year, and delays or abandonment of construction projects common. This
was in contrast to 2006 and 2007, when chemicals and petrochemicals industrial growth was 3.2% and
6.2% respectively.
The slump in the petrochemicals industry seen in H208 is likely to worsen further as 2009 progresses,
with BMI’s earlier forecast of a 50% drop in output already seen in January 2009. The country is gripped
by a severe economic downturn and prospects are dire: real GDP is set to contract by 10.2% in 2009; the
banking sector is on the verge of collapse; the hryvnia is weak; both external demand and credit markets
have deteriorated; and international risk aversion has increased. Added to that is the strongly pro-cyclical
trend we observe in the petrochemicals sector, with peaks higher than average industrial output and
troughs a lot lower. As industrial output plunges, petrochemicals production will fall at a faster rate. As a
result, new capacity plans such as the 300,000 tonnes per annum (tpa) PVC plant in Kalush that began
construction in Q108 are likely to be halted or abandoned altogether as credit availability dries up and
demand collapses both at home and among Ukraine’s main trading partners.

Executive Summary .5
SWOT Analysis .... 6
Ukraine Petrochemicals Industry SWOT ..... 6
Ukraine Political SWOT ... 7
Ukraine Economic SWOT. 8
Ukraine Business Environment SWOT 9
Global Market Overview..10
Global Ethylene Capacities ..... 10
Table: World Ethylene Production By Country, ‘000 tonnes capacity..... 10
Polypropylene........ 14
Market Overview.....17
Market Structure.... 17
Table: Ukraine Petrochemical Sector: Cracker Capacity – Historical Data & Forecasts (‘000tpa).... 18
European Overview19
Regulation..... 19
Table: Key Elements Of REACH....... 20
Ukraine Petrochemicals Business Environment .......22
Table: Central And Eastern Europe Petrochemicals Business Environment Ratings 22
Limits Of Potential Returns...... 22
Risks To Realisation Of Returns ....... 23
Industry Trends And Developments 25
Upstream ...... 26
WTO Accession...... 29
Industry Forecast Scenario ......30
Table: Ukraine Petrochemical Industry – Historical Data & Forecasts.. 32
Quarterly Oil Products Price Outlook ....... 32
Table: Oil Product Price, 2006-2013 (US$/bbl) . 36
Economic Outlook..37
Table:-Ukraine - Economic Activity . 42
Company Monitor...43
Profiles ..... 43
KarpatNaftoKhim .. 43
TNK-BP ........ 45
Stirol .... 46
Country Snapshot: Ukraine Demographic Data47
Section 1: Population...... 47
Table: Demographic Indicators, 2005-2030....... 47
Table: Rural/Urban Breakdown, 2005-2030 ...... 48
Section 2: Education And Healthcare........ 48
Table: Education, 2002-2005 .. 48
Table: Vital Statistics, 2005-2030..... 48
Section 3: Labour Market And Spending Power . 49
Table: Employment Indicators, 2001-2006 49
Table: Consumer Expenditure, 2000-2012 (US$) ........ 49
Table: Average Annual Wages, 2000-2012 50
BMI Forecast Modelling..51
How We Generate Our Industry Forecasts ..... 51
Petrochemicals Industry . 51
Cross Checks ..... 52