New Market Report Now Available: Israel Petrochemicals Report Q3 2014

The Israeli petrochemicals sector is likely to remain focused on domestic sales and is not expected to rival other markets in the region at this time due to a lack of upstream activity, according to BMI's latest Israel Petrochemicals Report. While many Arabian Gulf States have developed petrochemicals industries on the back of their domestic gas and oil production, Israel's gas and oil production is negligible. Feedstock availability constraints will limit growth in potential capacity expansion. Israel has a weak reserves position, but offshore gas strikes suggest reserves could grow. Such major finds could prompt a significant fall in Israel's dependence on oil and gas imports, but these discoveries are unlikely to come on-stream for several years.

In 2013, Israeli rubber and plastic production fell 0.4% y-o-y while petroleum and chemical output declined 1.0%, largely as a result of a fall in domestic demand. External market performance was mixed. Israel's chemicals exports grew 9.5% y-o-y to NIS40.3bn. However, the performance of petrochemicals segments was less impressive with rubber and plastics exports growing just 0.5% to NIS7.09bn, which failed to provide sufficient upside to the domestic petrochemicals industry.

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On the upside, private consumption will recover from 2014 and industrial production should also lead growth in petrochemicals consumption over the next two years, supported by exports. In the long-run, we expect private household consumption - currently under pressure due to austerity measures - to take the lead, augmenting the gains in exports. As such, BMI believes that the Israeli petrochemicals market should enjoy medium-term growth.

* We have downgraded our construction industry growth forecast for Israel in 2014 from 6.2% to 2.4%, which will depress consumption of chemicals and polymers used in construction, particularly polyvinyl chloride (PVC).
* Domestic retail consumption will fuel demand in packaging and polymers used in consumer durables. Israel's population is forecast to show steady, albeit modest, growth which, when taken in conjunction with rising consumer spending levels and improving economic growth forecasts, represents a boost for household spending on the retail sector.
* In BMI's MEA Petrochemicals Risk/Reward Ratings (RRRs) matrix, Israel remains in sixth place with its score down 0.9 points to 56.6 points as a result of a decline in market risk. This is related to a sluggish domestic market, which has impacted negatively on domestic production. Additionally, until cheaper domestic resources can be found as feedstock for the petrochemicals industry, Israeli competitiveness will continue to decline, particularly with the long-term threat posed by growing output from Turkey and the Arabian Gulf states. Israel is 2.4 points behind Iran and 4.6 points ahead of South Africa.

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