Spain Petrochemicals Report Q4 2009

The Spanish petrochemicals industry may have reached a nadir by mid-2009, but BMI's latest Spain Petrochemicals Report suggests a recovery is unlikely until H210 at the earliest, due to the impact of the economic crisis and difficulty raising capacity limits.

With reduced demand in petrochemicals such as ethylene and PP, the industry is set to struggle. Many petrochemicals consuming firms face falling sales, rising arrears and lack of credit are likely to go out of business in 2009. BASF is set to close its 'Styropor' expandable polystyrene plant at Tarragona in August. Spain will be supplied by the company's facilities in Ludwigshafen in Germany. According to BASF, the Spanish plant was too small to continue to operate economically. Dow Chemical is also planning to permanently close its 65,000tpa PS plant at Bilbao in Q309, citing poor demand and depressed PS margins in European markets. In June, Repsol announced plans to idle its propylene oxide (PO)/styrene monomer (SM) plant at Puertollano, for three months due to market fluctuations and a fall in demand. It produces 70,000tpa of PO and 160,000tpa of SM at Puertollano. But it continued to run a larger PO/SM facility at Tarragona at maximum capacity. Meanwhile, the Dow/Repsol 150,000tpa LDPE joint venture TDESA plant at Tarragona was shut down temporarily in June. However, in July Artenius announced it was stepping up production at its polyethylene terephthalate (PET) lines at El Prat de Llobregat to satisfy increased demand in the region. The larger of the two lines was restarted following closure in May, but the other was to remain down, resulting in 70% capacity utilisation.

Although the situation in Spain has been gloomy in recent months, signs of stabilisation in the broader economy indicate that the country's petrochemical industry had reached its nadir. Petrochemicals has been one of the first industries to suffer economic contraction and output doesn't have much further to fall. Across the industry, inventories will have been adequately drawn down in H209 to revive some output, although capacity utilisation will remain well below pre-recession levels. However, while BMI does not envisage that the situation facing the Spanish petrochemicals industry will get worse, neither will it see rapid improvement, with the country's economy set to remain in recession until well into 2010.

Spain's construction, automotive and consumer goods sectors, which underpin petrochemicals markets, are nowhere near turnaround. Meanwhile, the Eurozone economy remains weak and the appreciation of the euro against the US dollar makes Spanish exports outside the currency area highly uncompetitive in a challenging global market. Consequently, losses in the industry will mount and there may be further closures or consolidation of smaller enterprises and facilities. Recovery is also likely to be sluggish, although the government's stimulus package will help ameliorate the situation facing petrochemicals.

Growth in the Spanish petrochemicals industry has been limited by capacity constraints. Spain's high energy costs and insufficient transport and logistics infrastructure will also continue to hinder the chemical industry's growth. Unless further major capacity expansions are planned in the years ahead, the sector risks long-term stagnation even beyond the immediate downturn. BMI forecasts that Spanish petrochemicals exports are unlikely to recover to 2007 levels, while imports are likely to exceed 2007 levels by 2013. We believe Spanish petrochemicals producers will struggle to compete on key export markets in the aftermath of the recession, as more competitive producers in the Middle East and Asia ramp up production. Small plant scale is a further problem ??