Hungary to rely on exports for chemicals recovery

hungary flag.jpgBorsodChem, TVK, MOL and others are in for a tough 2010 as a new report suggests there will be no recovery before 2011. Hungary’s chemical industry has suffered from plummeting domestic demand as well as falling demand from export countries, particularly Germany.

According to, 75% of the country’s polymer production is exported. While Germany has exited recession, it has yet to fully utilise its own capacities with operating rates below 80% in H209. Hungarian producers will also have to compete with regional peers, particularly the Czech Republic, which are also seeking a boost in orders from Germany to revive output. With the forint looking bullish in late 2009 and predictions of a strengthening in its value, the industry is likely to struggle to compete.

A combination of low base effects, global inventory restocking, in addition to the resumption of suspended investment plans should provide a significant boost to Hungary’s petrochemicals growth potential in 2010. This has already been seen in latest industrial production figures, which show the pace of decline slowing markedly in Q409.

The decline in domestic demand for petrochemicals is likely to be broad-based affecting all product chains and will remain subdued well into 2011. The construction industry is set to stagnate in 2010 after shrinking by over 11% in 2009, thereby undermining domestic PVC and PE sales. Likewise, sales for local carmakers will be depressed well into 2010, impacting adversely on PP demand. According to our estimates, polymer production declined by up to 30% in 2009, but the situation is unlikely to improve markedly in 2010.

In 2009, Hungary had olefins production capacities of 620,000tpa ethylene and 305,000tpa propylene and polymer capacities of 400,000tpa HDPE, 210,000tpa LDPE, 320,000tpa PP and 440,000tpa PVC. In the fertiliser segment, Hungary had capacities of 380,000tpa ammonia and 195,000tpa urea. With no new investment planned, we do not anticipate any new petrochemicals plants coming onstream before 2015. Recent expansions in cracker capacity to 610,000tpa have helped reduce ethylene feedstock imports to virtually zero, with 90% of olefins output consumed within Hungary. Over the long term, the Hungarian petrochemical industry’s ability to expand its exports will likely be constrained by capacity.

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