Boston, MA -- (SBWIRE) -- 01/02/2014 -- Ukraine enjoyed positive news in an otherwise bleak scenario when Lukoil agreed to reopen the Karpatneftekhim's facilities in September after a year of being offline, following an agreement with the government. BMI's Ukraine Petrochemicals Report expects a revival in petrochemicals output levels in 2014, but recovery will be slow and tenuous due to endemic economic problems and sluggish external markets. Unless exports pick up, particularly in Eastern Europe, Ukraine's petrochemicals sector will be unable to reach full operational capacity.

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The Ukrainian petrochemicals industry is facing a tough outlook with the domestic economy in recession, compounded by a weak export base and currency instability. Year-to-date retail sales fell to a three-year low of 7.0% y-o-y in July, while real wage growth has remained anchored in single digit territory since May despite a collapse in consumer prices. Both readings are reflected in the very poor performance of Ukraine's chemicals and petrochemicals industries, where challenges of an overvalued exchange rate and high energy prices have been compounded by falling prices of key exports. Chemical sales were down 0.7% year-on-year (y-o-y) in 9M13. Plastic production fell by 41.5% y-o-y to 138,800 tonnes in 10M13, following an 11.4% fall in output to 487,500 tonnes in 2012. The decline is mostly related to the suspension of activity at Karpatneftekhim's complex. Karpatneftekhim's 300,000 tonnes per annum (tpa) suspension polyvinyl chloride (PVC) plant was idled for a maintenance turnaround in September and October 2012, but remained shut during a dispute with the government and was only reopened in September 2013. The complex also includes polyethylene (PE) production. The resumption of activity will help boost polymer volumes from Q413 into 2014.

BMI notes the following developments:

- Karpatneftekhim's plans for an emulsion PVC complex with a capacity of up to 30,000tpa and a plant producing profiles from PVC with a capacity of 20,000tpa could be brought back on track as a result of the revival of its operations. The re-opening of its 300,000tpa will boost the development of an integrated sector that promises to make the country both self-sufficient and a supplier to the Russian market. When run at full operational capacity, at least half the plant's supply can be exported after fulfilling all domestic requirements.
- The automotive industry remains in the doldrums, dragging down the consumption of engineering plastics. Vehicle production declined 45% y-o-y in the first nine months of the year and while growth is forecast to return in 2014, BMI does not envisage a recovery to 2012 levels until 2018 at the earliest. BMI has long maintained a bearish outlook on the business environment and overall manufacturing and productive capacity in the country with little hope of a recovery to pre-recession levels in the forecast period.

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