Romania Petrochemicals Report Q3 2012

BMI’s Romania Petrochemicals Report examines the impact of the planned privatisation of local producer Oltchim on the domestic industry. Furthermore, we also look at how – if successful – such a move would allow Romania to overcome the feedstock issues that have crippled production over the past two years.
In an effort to cut costs, Oltchim reduced its output to just 30% of nameplate capacity in H211 after it found itself unable to finance its working capital. The resumption of operations at its 56,000 tonnes per annum (tpa) propylene production facility in June 2011 will boost local polypropylene (PP) production, although this represents only a small portion of Romanian petrochemicals output. Ultimately, the fate of the sector will rest on the privatisation of Oltchim and its integration into the Arpechim refinery as part of the Romanian government’s deal with the IMF.
Petrom’s decision to close the Arpechim refinery in March 2011 has had a deleterious impact on downstream operations. Much of the country’s petrochemicals production is dependent on the refinery, which suffers due to complex logistical issues – namely there is no seaport access for imported oil – meaning the facility is not commercially viable, at least as a stand-alone operation. The closure of the refinery has cut off naphtha feedstock supply to the 200,000tpa cracker that Oltchim acquired from Petrom in early 2010. Until the situation is resolved, the country’s petrochemicals industry will operate below its full potential, although this will be partly outweighed by growth in production at Rompetrol’s high density polyethylene (HDPE) plant in Navodari.
Over the previous quarter BMI has revised the following forecasts: 􀂃 BMI estimates that production of chemicals and chemical products grew 9% year-on-year (y-oy) in 2011, while rubber and plastics production grew 6%. However, output declined towards the end of the year. In Q411, BMI estimates that chemicals output fell 8% y-o-y, while rubber and plastics output declined 4% y-o-y.
􀂃 The deteriorating outlook for Romanian exports – due to the downturn in the eurozone – will depress domestic petrochemicals consumption over 2012, despite supportive domestic demand.
􀂃 Output will still rise if Oltchim finds a new owner and is again integrated with the Arpechim refinery, which should help overcome problems in accessing feedstock supply.
􀂃 Romania ranks seventh in BMI’s CEE Risk/Reward Ratings (RRRs) for the Petrochemicals industry, scoring 45.1 points out of 100 – unchanged since the previous quarter. This puts it 1.3 points behind Slovakia and 4.2 points above Ukraine. Successful privatisation of Oltchim and its planned integration with the Arpechim refinery would significantly improve the country’s market risks scores, potentially enabling Romania to rise up the rankings to take sixth place.