Hungary Petrochemicals Report Q4 2009

Hungary Petrochemicals Report Q4 2009

The Hungarian petrochemical industry will be faced with a sharp deterioration in both external and
domestic market conditions in 2009 and 2010, with levels of production unlikely to return to prerecession
levels until 2011 at the earliest, according to BMI’s latest Hungary Petrochemicals Report.
Structural constraints are also having an impact on some petrochemicals segments with Hungary’s lack of
domestic oil and gas resources are is proving to be an increasing problem for the country’s downstream
industries, which are up against more competitive and larger foreign producers. Demonstrating the
problems affecting the sector, in June 2009 Yara International announced it would permanently close an
NPK fertilizer plant at Peremarton. Production had been temporarily halted in October 2008. Yara says
the 150,000 tonnes per annum (tpa) plant lacks access to competitively priced raw materials and is not
flexible enough to accommodate new market requirements for nitrogen, phosphate, and potash
combinations. The problems facing the Peremarton fertiliser plant are facing all petrochemicals
production in Hungary and the rest of Central and Eastern Europe. Amid the gloom, Hungary fears a
hostile takeover bid of domestic refiner MOL by Russian oil producers, having successfully fought off a
bid by Austria’s OMV.
Added to this is Hungary’s woeful domestic market, with GDP set to shrink 3.4% in 2009. In the near
term, demand from domestic industrial consumers of petrochemicals will fall sharply and although we
foresee a modest recovery beyond 2011, trend growth will continue to underperform relative to Central
European peers. BMI forecasts a 30% drop in domestic polymers consumption to 770,000 tonnes in
2009. The construction industry is set to shrink over 11% in 2009 and stagnate in 2010, thereby
undermining domestic PVC and PE sales. Meanwhile, domestic car sales are plummeting with the
Hungarian Vehicle Importers Association (MGE) predicting the market will halve in size in 2009, leading
to a sharp decline in sales for local carmakers and a drop in automotive output that will impact on PP
demand. With household consumption set to contract markedly under tight credit conditions, sales of
consumer goods as well as packaging will also fall, with a resulting decline in domestic consumption of a
broad range of polymers.
Meanwhile, the outlook for export markets for Hungarian petrochemicals and locally manufactured
products that use petrochemicals, such as cars and consumer goods, will be poor over the near term. With
75% of Hungary’s polymer output sold abroad, the performance of export markets will be a major
determinant of the sector’s performance. As external markets are the key drivers for the country’s
petrochemicals industry, the weakness of demand in the eurozone is forcing such firms to rein in
production. A decline in polymer production of up to 30% is expected in 2009, but the situation is
unlikely to improve markedly in 2010.
With GDP growth unlikely to return to much above 3.5% over the next 10 years and the domestic market
remaining lacklustre, BMI believes that Hungarian petrochemicals output growth will have to depend
increasingly on demand from the eurozone. Yet, slowing domestic demand, coupled with reduced export
demand from the EU, will depress demand for petrochemicals products. Meanwhile, other core markets
such as Russia and the US are set to experience recessions in 2009. A slow recovery will mean it will
likely take until 2011 or 2012 before the Hungarian petrochemicals industry achieves output at 2008
rates.
By 2013, we expect polyethylene (PE) exports to have reached 515,000 tonnes, just 5% up on 2008
levels, while polypropylene (PP) exports should be about the same level as they were in 2008, at 115,000
tonnes. By 2013, the Hungarian petrochemical industry’s ability to expand its exports will likely be
constrained by capacity.

Executive Summary .5
SWOT Analysis7
Hungarian Petrochemicals Sector SWOT 7
Hungary Political SWOT 7
Hungary Economic SWOT. 8
Hungary Business Environment SWOT. 9
Global Market Overview10
Global Ethylene Capacities 10
Table: World Ethylene Production By Country, 2008 And 2013 (‘000 tonnes capacity) . 10
Polypropylene 13
Global Oil Products Market Review 16
Table Global Oil Prices, 2003-2013 (US$ per barrel). 20
European Regulation Overview21
Table: Key Elements Of REACH 22
Production . 23
Hungary Market Overview..24
Table: Hungary’s TVK Cracker Capacity, 2006-2013 (‘000 tpa). 25
Petrochemicals Business Environment26
Table: Central And Eastern Europe Petrochemicals Business Environment Ratings .. 26
Limits Of Potential Returns. 26
Risks To Realisation Of Potential Returns 27
Industry Trends And Developments ..29
Upstream Developments .. 29
Acquisitions .. 29
MOL’s Strategy. 33
Financial Results . 35
Industry Forecast Scenario .36
Table: MO’sL Petrochemical Production, 2007 And 2008 (‘000 tonnes) .. 36
Table: MOL’s Petrochemical Sales, 2007 And 2008 (HUFbn). 36
Table: Hungary’s Petrochemical Industry, 2006-2013 38
Macroeconomic Outlook.. 39
Hungary – Economic Activity . 42
Company Monitor43
Magyar Olaj-és Gázipari (MOL) .. 43
BorsodChem (BC) 47
Tiszai Vegyi Kombinat (TVK) . 49
Country Snapshot: Hungary Demographic Data 51
Section 1: Population. 51
Table: Demographic Indicators, 2005-2030. 51
Table: Rural/Urban Breakdown, 2005-2030 52
Section 2: Education And Healthcare. 52
Table: Education, 2002-2005 . 52
Table: Vital Statistics, 2005-2030. 52
Section 3: Labour Market And Spending Power . 53
Table: Employment Indicators, 2001-2006 53
Table: Consumer Expenditure, 2000-2012 (US$) .. 54
Table: Average Annual Wages, 2000-2012 54
BMI Methodology 55
How We Generate Our Industry Forecasts 55
Chemicals And Petrochemicals Industry .. 55
Cross Checks 56
Business Environment Ratings 57
Table: Petrochemicals Business Environment Indicators And Rationale 57
Weighting 58
Table: Weighting Of Indicators . 58