Ukraine Petrochemicals Report Q4 2009

Ukraine Petrochemicals Report Q4 2009

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, according to BMI’s latest Ukraine
Petrochemicals Report.
Sales in the chemicals and petrochemicals industries in January-May totalled UAH15.95bn, including
UAH11.8bn of chemicals and UAH4.15bn of rubber and plastics products. In the first five months of the
year, output totalled 113,400 tonnes. In May, monthly plastic production was 23,200 tonnes, which was
1,300 tonnes 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.
BMI 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.

Executive Summary ...5
SWOT Analysis7
Ukraine Petrochemicals Industry SWOT 7
Ukraine Political SWOT. 7
Ukraine Economic SWOT. 8
Ukraine Business Environment SWOT 8
Global Market Overview9
Global Ethylene Capacities 9
Table: World Ethylene Production By Country, 2008 And 2013 (‘000 tonnes capacity) ... 9
Polypropylene. 12
Global Oil Products Market Review.. 15
Table Global Oil Prices, 2003-2013 (US$ per barrel) 19
European Overview..20
Regulation 20
Table: Key Elements Of REACH .. 21
Production 22
Ukraine Market Overview24
Market Structure 24
Table: Ukraine’s Petrochemicals Sector: Cracker Capacity, 2005-2012 (‘000tpa) ... 25
Petrochemicals Business Environment.26
Table: Central And Eastern Europe Petrochemicals Business Environment Ratings 26
Limits Of Potential Returns . 26
Risks To Realisation Of Returns. 27
Industry Trends And Developments ...29
Upstream.. 30
WTO Accession. 33
Industry Forecast Scenario...34
Table: Ukraine Petrochemicals Industry, 2006-2013 . 36
Macroeconomic Outlook . 37
Table: Ukraine - Economic Activity, 2006-2013 39
Company Monitor.40
KarpatNaftoKhim .. 40
TNK-BP... 42
Stirol . 44
Country Snapshot: Ukraine Demographic Data..45
Section 1: Population 45
Table: Demographic Indicators, 2005-2030. 45
Table: Rural/Urban Breakdown, 2005-2030 46
Section 2: Education And Healthcare 46
Table: Education, 2002-2005.. 46
Table: Vital Statistics, 2005-2030.. 46
Section 3: Labour Market And Spending Power. 47
Table: Employment Indicators, 2001-2006.. 47
Table: Consumer Expenditure, 2000-2012 (US$)... 47
Table: Average Annual Wages, 2000-2012 . 48
BMI Methodology .49
How We Generate Our Industry Forecasts 49
Chemicals And Petrochemicals Industry .. 49
Cross Checks .. 50
Business Environment Ratings ... 51
Table: Petrochemicals Business Environment Indicators And Rationale 51
Weighting 52
Table: Weighting Of Indicators .. 52