Market Report, "Russia Petrochemicals Report Q2 2016", published

The Russian petrochemicals industry saw robust output growth as a result of the depreciation of the rouble and the decline in naphtha feedstock costs. However, growth will come under pressure in 2016 due to a sluggish recovery in domestic end-markets.

Basic chemicals production rose 6.3% year-on-year (y-o-y) in 2015 with all segments witnessing increases. According to the Federal State Statistics Service of the Russian Federation, production of ethylene exceeded 2.79mn tonnes, up 16.4% y-o-y. However, Russia's petrochemicals sector also suffers from structural inefficiencies which have deterred investment, particularly in the country's oriented production. Challenges include the country's manufacturing sector, which is not competitive without the presence of government incentives. Importantly, we do not expect such hurdles to be cleared in the short-to-medium term, resulting in a subdued outlook for the country's export-led industries.

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In 2016, the construction sector is due to contract by 1.2%, while the automotive industry will see output decline 3.1% following heavy slumps in 2015. With these sectors playing a critical role in the petrochemicals markets, they will impact heavily on domestic petrochemicals production across a wide variety of segments.

In 2020, we envisage ethylene capacities totalling 9.2mn tonnes per annum (tpa). However, some segments will see little or no movement, notably styrenics and some intermediates such as ethylene oxide/ethylene glycol and ethylbenzene. There is plenty of potential naphtha and ethane feedstock availability from the expansion of refineries and the opportunities presented by a growing gas sector.

Over the longer term, Russia is expected to build up to 10 complexes to produce ethylene, each with a 1mn tpa ethylene capacity, by 2030. Annual per capita production of ethylene is currently three times lower in Russia than in Western Europe, despite Russia's position as the world's largest crude producer. The focus of investment will be NKNK's planned 1mn tpa ethylene complex by 2016 and Sibur's planned 1.5mn tpa cracker at its Tobolsk site.

Russia scores 59.1 out of 100 in our Petrochemicals Risk/Reward Index (RRI), up 0.7 points due to robust petrochemicals growth. The country has risen from tenth place out of 17 countries in the Europe region to joint eighth place with Poland, putting it 3.4 points behind Italy and 0.2 points ahead of Czech Republic.

The Russia Petrochemicals Report has been researched at source, and features BMI Research's market assessment and independent forecasts for key petrochemicals sub-sectors. The report also analyses the impact of regulatory changes, recent developments and the background macroeconomic outlook and features competitive landscapes comparing companies by products and services, sales, market share, investments, projects, partners and expansion strategies.

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