Spain Petrochemicals Report Q4 2013 - New Market Study Published

In 2012, the industrial production index for chemicals declined 0.7% on average, while for rubber and plastic products it plummeted an average of 9.0%, compared with growth of 0.2% and -1.5% respectively in 2011. In the first four months of 2013, the chemicals production index fell by a further 7.3% while the rubber and plastics index fell by 5.0%. This signalled a deterioration of chemical and petrochemicals performance in H113. Although there was an uptick in April, the operating environment has not changed radically to support a sustained recovery.

With the rest of the eurozone caught up in a pronounced slowdown, Spain's capacity to export its way out of recession has disappeared entirely. We estimated that GDP contracted 1.4% in 2012 and the recession should deepen in 2013, when growth should fall to -1.7%. Only a fiscal stimulus is likely to provide a turnaround to escape the debt-deflationary trap Spain is in, but this appears off the cards over the next year.

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Over the last quarter BMI has revised the following forecasts and views:

* La Seda Barcelona's (LSB) decision in June 2013to file for insolvency underlined the parlous state of the industry, with rising raw material costs combined with low demand and increased inventories. This puts in doubt LSB's plans to expand its PET plant at El Prat de Llobregat fFrom 220,000tpa to 265,000tpa in 2013.
* Overall, 2013 could be a worse year for chemicals production, while plastics are set to remain in a slump. However, we believe Spain's economic contraction is now bottoming out, with the country's increasinglycompetitive labour market moderately boosting export growth and the outlook for investment spending improving over a medium-term time horizon, which should see the industry turn the corner in 2014.
* Spain scores 66.7 points, leaving it in sixth and last place in our Western Europe petrochemicals business environment ratings. It lies 4.9 points behind the United Kingdom.

A recovery in the Spanish petrochemicals market is highly unlikely in 2013, with another year of contraction forecast. Combined with the effects of the eurozone slowdown and increased competition from integrated facilities in the Middle East and Asia, we could see further closures of ageing Spanish petrochemicals units, which are functioning at a far lower capacity than producers in these regions.

In H113, the chemicals production index fell by a further 7.7%, while the rubber and plastics index fell by 2.3%. Although there was a modest uptick in Q213, the operating environment has not changed radically enough to support a sustained recovery. Cracker closures have been longer than expected, partly due to market conditions. Repsol has yet to announce a restart of its Puertollano cracker, following closure due to a fire in July 2013. An unplanned stoppage at Dow's Tarragona cracker over the first half of September has exacerbated supply tightness.

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