"Spain Petrochemicals Report Q2 2016" Published

Structural adjustments within the petrochemicals sector have been crucial to put it on a more competitive footing. However, growth will eventually hit capacity constraints, thereby fuelling import growth.

The country's domestic markets are seeing uneven growth with construction falling behind the automotive industry. The former represents the large bulk of PVC and polypropylene (PP) pipe consumption while the latter requires a diverse range of products including PP, polyurethanes (PUs) and synthetic rubbers. With construction stagnating, it will be the solid growth in the automotive industry that stimulates petrochemicals demand with a resultant pull on certain market segments.

The Spanish chemicals industry grew 4.0% in 2015, up from 4.7% in 2014, with rubber production up 2.2% (4.6% in 2014) and plastic output up 7.7% (4.3% in 2014). This compares with chemicals growth of 4.6% and rubber and plastics growth of 4.4% in 2014. From April 2015, Spanish petrochemicals output was about the same level as 2010 and represents a strong recovery since the collapse in output in 2013.

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Repsol YPF reduced ethylene and propylene capacities at its Puertollano cracker by 62% and 57% respectively in 2015 as part of a process of optimisation and improving competitiveness. The 95,000tpa high density polyethylene plant at Puertollano was also closed due to lack of profitability. The cracker has been renovated to use alternative feedstocks - such as refinery gases - which will replace naphtha. This resulted in a loss of 155,000 tonnes per annum (tpa) of ethylene capacity. Propylene will continue to feed the PP unit at the site. While the declines are relatively modest by global standards, they will present opportunities for import growth as the market continues its growth trajectory.

While the structural adjustments within the petrochemicals sector have been crucial to put it on a more competitive footing, the industry has less capacity to capitalise on future market growth opportunities. As such, growth will eventually hit capacity constraints, thereby fuelling import growth.

Export growth will be a crucial factor and should continue through 2016. Additionally, Spain's economic recovery will outpace the eurozone, lifting domestic demand for petrochemicals end-products. Nevertheless, rising political uncertainty will pose one of the main risks to the country's economic recovery with the December 2015 election likely to create uncertainty going forward.

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