OUTLOOK '10: Russia's petchems sector braced for tough year

04 January 2010 14:04  [Source: ICIS news]

By Sergei Blagov

MOSCOW (ICIS news)--The downturn in Russia's chemical and petrochemical industry is expected to continue in 2010 with rising domestic gas prices making the situation worse in some sectors, according to the country's economic development ministry.

Its forecast for chemicals in 2010-2012, which was issued on 14 December, looked at two different scenarios.

According to the pessimistic view, Russia's total chemical output by 2012 was expected to be 6.4% down compared with 2008. However, plastics and resin production would be about 1% up.

The optimistic scenario involved 6% growth in plastic and resin output between 2008 and 2012, while total chemical production would still be down by 4%.

The ministry expected fibres and yarns production to go down by 50-55% between 2008 and 2012 as the country's producers become increasingly uncompetitive due to continued use of obsolete equipment.

The forecast also estimated that the country's overall chemical output in 2009 would be 12% down year on year, while plastics and resin production would be 10% down.

In addition to the general downturn, the ministry said that increasing gas prices would adversely affect Russia's fertilizer, plastics and methanol production in coming years.

Domestic gas prices for industrial consumers are expected to go up by some 15-20% in 2010, by 20% in 2011 and by 15% in 2012. However, domestic gas prices are still estimated to remain well below export prices by 2012.

Russia's relatively low domestic gas prices have been seen as encouraging over-consumption. The country's gas monopoly, Gazprom, has pressed the government to hike regulated domestic prices. In October 2009, Gazprom suggested that domestic gas prices should become fully market-based from the beginning of 2011 to secure similar margins from export sales and domestic supplies.

The proposed gas price hike was expected to deal a blow to the country's petrochemical and chemical sectors. Russia's major fertilizer producers, including Acron and Eurochem, have warned that "equal profitability" could make their exports uncompetitive.

As many Russian companies reduced production volumes and were forced to accept lower prices in 2009, their ability to deliver on their earlier investment pledges became limited. For example, there has been no mention of Lukoil's planned $3.5bn gas-chemical complex in southern Russia, which was originally due on stream in 2010.

However, Gazprom-controlled petrochemical major Sibur is still pursuing a project to build new facilities for the production of 500,000 tonnes/year of polypropylene (PP) at the premises of its subsidiary, Tobolsk-Neftekhim.

The project is due on stream in 2012.

Russia's petrochemical companies, many already owing huge sums to domestic and foreign lenders, continued to feel the pain of the economic downturn throughout 2009.

The country's major PE producer, Kazanorgsintez, reportedly remained on the brink of bankruptcy and was seeking a bailout from the government. Russia's major potash producer, Uralkali, had dropped its plans to expand its capacity. In 2010-2011, Uralkali's capacity was due to remain at 5.5m tonnes/year, having previously planned to raise potash output up to 10m tonnes/year.

In 2010, Russian petrochemical companies are expected to struggle to achieve profitability and serve their sizeable debts. Growing feedstock costs, notably higher domestic gas prices, could deal their balance sheets yet another blow.

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By: Sergei Blagov
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