Boston, MA -- (SBWIRE) -- 09/10/2013 -- Ukraine's petrochemicals industry has been hit by plant closures and poor domestic and external markets. However, BMI believes the situation could be turned around in H213 following a government deal that could reopen plants and spur investment in downstream plastics conversion sectors.

Ukrainian petrochemicals output continues to perform poorly in the first four months of 2013 with chemicals sales down 19.1% y-o-y in the period. Plastic production fell by 55% y-o-y to 90,500 tonnes, 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 300,000tpa suspension PVC plant was idled for a maintenance turn-around in September and October, but remained shut after owner Lukoil claimed that price dumping by US PVC producers had made production commercially unviable. Karpatneftekhim indicated in April 2013 that production would resume "in the coming months" although the exact date was not announced. Under the terms of an agreement with the government, the Ukrainian government has promised to support the Karpatneftekhim company through tax and customs benefits, in particular by abolishing VAT on the imports of raw materials to Ukraine. There is also a possibility that the Ukrainian government may make concessions to Lukoil and impose duties on the imports of PVC (especially from the US, which is the largest importer of PVC to Ukraine), which will be set at around 6.5%. The agreement also secures EUR80mn of investment in the company's development over the medium term.

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- The Ukrainian petrochemicals industry is likely to face a tough year in 2013 with the domestic economy in recession, compounded by a weak export base and currency instability. A weak external scenario has large implications for Ukraine's economy, which is heavily geared towards the export sector and on which petrochemicals depend.
- Ukraine retains its ninth place in BMI's Central and Eastern Europe Petrochemicals risk/reward matrix this quarter, while its score has risen 0.3 points to 39.8 points due to an improvement in the market risk. The prolonged idling of Karpatneftekhim's facilities has reduced the country's industry risks score in recent months, making it the least attractive place for petrochemicals investment in the CEE region. However, the prospect of a reopening of the Karpatneftekhim complex opens up the possibility for a reversal of the decline. Ukraine currently sits 1.9 points behind Bulgaria and 4.6 points ahead of Azerbaijan.

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