"Romania Petrochemicals Report Q2 2016" is now available at Fast Market Research

Weaker oil prices have helped Romania's downstream sectors, with refining margins improving as a result and thereby reversing the situation of regular quarterly losses. This is helping drive down the cost of naphtha feedstock used in the Romanian petrochemicals industry, reviving the fortunes of the sector.

Plastic and rubber output grew 7.6% year-on-year (y-o-y) in the first 10 months of 2015, continuing the robust growth reported in 2014. On the downside, the chemicals sector reversed much of the growth seen in the previous year, falling 2.3% y-o-y. The troubled Romanian producer Oltchim is seeing a turnaround as a result of growth in polymers with a 31% increase in the valueof sales in 9M15 and a massive drop in losses.

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Nevertheless, Romania has modest olefins capacities of 200,000 tonnes per annum (tpa) ethylene and 100,000tpa propylene, feeding capacities totalling 320,000tpa polyethylene and 80,000tpa polypropylene. Romania also has 60,000tpa polystyrene and 170,000tpa polyvinyl chloride. As such, the industry is small and lacks economies of scale to compete with foreign producers.

Oltchim's improved performance and rising output means that it is approaching more optimal rates of capacity utilisation. This lays the basis for privatisation, possibly including the mothballed Arpechim refinery on which it depended for feedstock. Growth will be supported by increased production at Rompetrol's high-density polyethylene plant. However, BMI believes it highly unlikely that Romania will experience growth in olefins and polymers capacities over the forecast period due to the country's lack of significant energy resources to support a world-scale complex.

OMV Petrom's Petrobrazi refinery has been able to leverage on its upgrade over 2015. We expect this move to be mirrored as refiners look to improve margins, though some downsizing could be seen at less efficient facilities. Petrobrazi's upgrade saw total capacity reduce from around 90,000 barrels per day (b/d) to 84,345b/d. The changes to the refinery also nearly doubled the facility's ability to produce diesel fuel, a growing area of demand, particularly with freight traffic increasing.

We remain optimistic about the Romanian growth story for 2016, with private consumption and government spending featuring as the most prominent growth drivers. We expect this trend to continue over the coming quarters, reflected in our forecasts for real GDP growth to expand 3.6% in 2016, compared to 3.8% in 2015.

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