New Market Research Report: Ukraine Petrochemicals Report Q3 2016

From: Fast Market Research, Inc.
Published: Thu Jun 16 2016

Ukraine's petrochemicals industry will not pick up in the context of the current circumstances. We maintain this situation will endure until amelioration in the political, economic and security situation comes through. In terms of consumption, the market will remain well below the 2007 peak over the forecast period and while growth may return, recovery will be impeded by the country's political splits and economic slump.

Most of Ukraine's refineries remained closed in 2015 leading to a severe underutilisation of its refining capacity with knock-on effects for the country's embattled petrochemicals industry, which lacks sufficient local feedstock access. Although the bulk of the petrochemicals industry is in the west of the country, a lack of access to markets in the east simply compounds its problems. In 2016, we believe that the country's political and economic crisis will drag on and curtail exports. As such, the petrochemicals industry will suffer from the low levels of consumption in end-markets, such as the automotive and construction sectors. We maintain this situation will endure until an amelioration in the political, economic and security situation comes through.

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Low consumer confidence and spending and a weak business investment will mean domestic demand will not be able to pick up the slack from falling export demand. The majority of manufacturers operating in Ukraine are heavily linked to the Russian market. Thus, the breakdown in Russia-Ukraine relations due to the ongoing political and economic malaise in the country presents the most severe downside pressure for our production forecasts, as trade relations between Ukraine and Russia are likely to deteriorate further without a clear solution to the crisis.

In Q115, Ukrainian rubber output grew 64.4% y-o-y while plastic output rose 4.5%. However, growth comes from a very low base following years of declines and well below the rate necessary to return to pre-crisis levels. In 2015, rubber output declined 16.1% and plastic production fell 10.9%.

An indicator of the health of the Ukrainian market at a time of low level of production is the performance of imports. Overall indications show that the market remains in the doldrums with imports declining in Q116, but domestic producers are increasing their market share - largely as a result of currency devaluation. The exception is the polyvinyl chloride (PVC) sector, which experienced healthy growth.

Ukraine's largest petrochemicals producers - the fertiliser producer Stirol, which operates in the troubled east, and Lukoil-owned Karpatneftekhim, which operates the countries polyethylene and PVC plants - are shut, with no firm plans to re-open them at the time of writing.

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