New Market Study Published: Romania Petrochemicals Report Q1 2014

There is currently a great deal of uncertainty surrounding the future of Romanian petrochemicals producer Oltchim, which is set for another privatisation attempt after the previous attempt failed. Nevertheless, the relatively strong domestic market is registering growth in the consumption of petrochemicals - particularly in the construction and automotive sectors - and with domestic production at low levels due to structural and financial problems within the industry, Romania appears to be one of the few European markets with the potential for import growth.

In the first seven months of 2013, rubber and plastic output grew by 4.5% year-on-year (y-o-y) while chemicals output rose 11.9%, according to Romania's National Statistics Institute, INS.

Oltchim's ongoing financial problems continue to disrupt operations. Romania's largest polymers producer, Oltchim was reportedly operating at 24% of its capacity by end-Q313, a situation that was undermining its profitability at a time when the government was planning to privatise the company. In the first nine months 2013, Oltchim recorded a total turnover of EUR81.54mn and losses of EUR136mn.

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The government is seeking to boost capacity utilisation to 50%, at which it claims the plant would break even. Oltchim has reached a low in terms of output, thus BMI believes that a further contraction is unlikely and growth should be sustained in 2014, if only because of base effects. However, it is highly unlikely that Romania will experience growth in olefins and polymers capacities over the forecast period.

BMI has revised the following forecasts:

* Until the situation at Oltchim is resolved, the country's petrochemicals industry will operate below its full potential, although this will be partly outweighed by growth in production at Rompetrol's high-density polyethylene (HDPE) plant in Navodari. In this climate, BMI believes it highly unlikely that Romania will experience growth in olefins and polymers capacities over the forecast period.
* The construction sector, which absorbs a sizeable amount of Romanian petrochemicals, particularly in the PVC segment, grew by an estimated 1.9% in 2013, following a contraction of 0.9% in 2012. Over the period 2014-2017, we expect that Romania's construction market will expand at annual rate of 3.2%.
* While the performance of the automotives industry has been comparatively lacklustre (affecting engineering plastics), BMI remains optimistic, with growth estimated at 5.0% in 2013 and around 10% or more in following years.
* Romania ranks 13th in BMI's Central and Eastern Europe Petrochemicals Risk/Reward Ratings (RRRs), scoring 44.8 points out of 100, up 0.1 point since the previous quarter due to an improvement in country risk as long-term political and external factors have improved. Romania sits 4.2 points behind Turkey and 2.8 points ahead of Ukraine.

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