Boston, MA -- (SBWIRE) -- 03/19/2013 -- The Ukraine petrochemicals report examines the impact of external factors on Ukraine's troubled chemicals industry, particularly in relation to currency depreciation, feedstock costs and competitiveness. The report looks at the problems facing polyvinyl chloride (PVC) production, an area of downstream development that is now threatened with closure. Furthermore, we also analyse the expansion plans outlined by the leading players in the petrochemicals industry as they seek to boost their share of the Russian market.

In 9M12, chemicals and petrochemicals production grew 9.5% year-on-year (y-o-y) but basic chemicals declined 2.8%. Rubber production fell 6.3% y-o-y and plastic output grew 3.3% y-o-y as domestic and external demand came under pressure. Over the period, the production of plastics in primary forms totalled 417,800 tonnes. While this represented an increase of 5.2% y-o-y, growth was concentrated in H112; in Q312, output declined 24% y-o-y to 122,600 tonnes.

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The situation is precarious and we anticipate stagnation in exports. Ukraine's balance of payments dynamics remain precarious, and growing imbalances continue to point towards a 2.6% decline in the value of the hryvnia against the US dollar in 2012 and a further 12% decline in 2013. This will have the effect of both raising the cost of feedstock and reducing the value of exports in hryvnia. Producers will therefore be looking to exports to increase margins, a situation that BMI believes will be extremely challenging in a highly competitive environment. A weak external scenario has huge implications for Ukraine's economy, which is heavily geared towards the export sector (on which petrochemicals depends), with exports of goods and services accounting for close to 50% of GDP. Domestic economic mismanagement is also damaging the country's growth prospects.

Over the last quarter BMI has revised the following forecasts/views:

- BMI estimates that full year primary plastics production fell 4%, a downward revision from our previous forecast of 3% growth.
- The idling of the Karpatneftekhim complex, which includes 200,000 tonnes per annum (tpa) caustic soda, 180,000tpa chlorine, 250,000tpa ethylene and 100,000tpa polyethylene (PE), is directly leading to losses in Ukrainian polymers production and has heightened industry risk.
- Proposals for a 6.5% anti-dumping tariff on PVC imports could lead to the reopening of Karpatneftekhim, but would raise costs and therefore prices for downstream manufacturers, further eroding the competitiveness of Ukrainian plastics conversion.
- Ukraine has fallen from eighth to ninth place in BMI's Central and Eastern Europe Petrochemicals Risk/Reward Ratings (RRRs) matrix, with its score falling 0.4 points to 39.8 as a result of declining market risk. It currently sits 1.7 points behind Bulgaria and 5.1 points ahead of Azerbaijan.

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