Turkey Petrochemicals Report Q3 2009

Economic recession will weigh heavy on Turkey's relatively small petrochemical industry in 2009, but expansion in crude and refined oil production provides the basis for long-term expansion by providing access to more local naphtha feedstock sources, according to BMI's latest Turkey Petrochemicals Report.

Crucial to the development of the Turkish petrochemical industry is access to feedstock, which is likely to come from the expansion of oil production in the Black Sea. Newly discovered reserves in the region could potentially make Turkey self-sufficient in oil. By Q209, Petkim's plans for a number of projects were pending approval from the Energy Market Regulatory Agency. These include a US$3bn refinery that will help the company meet its feedstock requirements, reducing dependency on imports. Studies required to obtain the Environmental Impact Assessment (EIA) are being conducted along with engineering studies for feasibility and configurations. The refinery will have 200,000 barrels per day (b/d) capacity and will open in the city of Aligaha in 2012, according to plans. However, the economic downturn and the lack of financial capital are already weighing heavily on industrial ambition. Turcas announced in March 2009 that it was postponing its refinery project in Ceyhan, although the company is looking to restart development when financing can be secured. Other planned refinery and petrochemicals projects are being spearheaded by Tpras with capacity of 763,000b/d by 2011, Indian Oil Corporation and Calik Enerji of Turkey with 410,000b/d capacity and Cevahir Group's planned 200,000b/d refinery. Were all of the projects to proceed, overall Turkish refining capacity could reach 1.5mn b/d by around 2013. BMI is assuming there will be delays and cancellations, and forecasting a maximum capacity of 800,000b/d by 2013.

As there have been no firm new project announcements, BMI has not changed its forecasts for the petrochemicals sector. By the end of 2009, petrochemical capacities are forecast to include 420,000 tonnes per annum (tpa) of PE, 150,000tpa of PP, 150,000tpa of PVC and 520,000tpa of ethylene. The economic downturn will have a highly negative impact on petrochemicals output in 2009, particularly given the importance of the automotive industry as one of its chief consumers. BMI believes the days of 15%+ annual growth in polymer demand seen in recent years will come to an end, with a contraction in the market expected. Plastics production capacity reached around 5.6mn tpa in 2008 and was forecast to reach 6.5mn tpa in 2009, 11.3mn tpa in 2013 and 13mn tpa by 2014. However, the plastics industry will be impacted by the raising of import tariffs on petrochemicals from 3% to 6.5%. Although providing local producer Petkim with some protection from foreign competition, the new taxes will make it more expensive to import the raw materials needed for plastic production. Turkey is dependent on foreign raw materials for its needs, with 84% imported in 2007. On a positive note the Turkish Plastics Industry Association has reported that plastics exports increased by 25% in 2008 to reach US$43.7bn. Plastics accounted for roughly 27% of total chemicals exports, with the main export markets being Russia, Romania, Ukraine, Iraq and Germany. However, BMI expects a slower rate of expansion in 2009, in line with a slump in demand and more restrictive lending terms in the financial sector. Consequently, by 2013, BMI forecasts plastics production capacity not exceeding 9mn tpa.

Turkey is in ninth place in BMI's Middle East and Africa Petrochemicals Business Environment Rankings with 46.6 points, 0.6 points behind Egypt and 11.4 points ahead of Algeria. Turkey's strength lies in the improvements in market risks, particularly following Petkim's privatisation in 2008, but this has been partly offset by a decline in its country risk score amid economic recession and deteriorating indicators. Foreign investment is being encouraged into downstream sectors in order to bolster the country's industrialisation. However, it is starting from a very low base in regional terms and has a long way to go to rise in the regional rankings. While the gap between Turkey and Egypt may be small, we see more rapid expansion in the Egyptian petrochemical industry over the near term, helping to maintain a gap between the two countries' scores.