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Azerbaijan Petrochemicals Report Q4 2010

Azerbaijan's petrochemical industry is expected to witness strong growth in 2010 from a very low base, according to BMI's latest Azerbaijan Petrochemicals Report. But it is likely to be plagued by volatility and low capacity utilisation until the country's leading producer Azerkimya undergoes restructuring and expansion. Between January and April 2010, Azerbaijan exported 12,467 tonnes of polyethylene, up 50.5% year-onyear (y-o-y). Production was up 650% y-o-y, to 19,900 tonnes, according to the News.az website, which quoted quoting the Azerbaijan State Statistical Committee. Nevertheless, it was still operating at around two-thirds capacity. Overall chemicals output grew 120% y-o-y in the first five months of 2010, with production worth AZN88.3mn (US$110mn). Meanwhile, the manufacture of rubber and products grew 15.2% y-o-y to AZN21.8mn. In 2009 Azerkimya produced chemical goods worth AZN163.1mn (US$203.11mn), down around 20% y-o-y. BMI has raised its 2010 chemicals output growth forecast from 25-30% to 30-35%, although most local demand will continue to be met by imports as the industry is unable to fulfil all domestic requirements. This will come after an estimated decline of around 35-40% in 2009, but close to the 35% growth reported in 2008. While the company has heralded the results in 2010 as proof that restructuring is producing significant results, the level of output is still very small-scale and until production facilities are upgraded and expanded it is unlikely that Azerkimya will compete effectively against foreign rivals on both domestic and export markets. Rather, for the time being it owes its existence to state patronage and protection, while remaining plagued by major disruptions in output caused by periodic rapid rises in electricity and raw material costs. Azerkimya's output has tended to be highly sensitive to changes in the non-oil economy with the rate of petrochemicals sales growth tending to be two or three times the rate of overall economic growth, amplifying the overall economic trends. While the strongly pro-cyclical nature of the industry is likely to result in high rates of growth with real GDP growth forecast at 11% in 2010, with low level of capacity it will not add much value and Azerbaijan will remain dependent on imports of chemical products. Moreover, with economic growth set to decline to 7.5% in 2011 and 5.0% by 2014, unless the industry is improved and restructured it will see yet further declines in the years ahead. There are also some positive developments that should boost the industry, aside from the restructuring of the industry and plans for a new petrochemicals complex. The stabilisation of oil prices should help to bolster capital inflows, which in turn will filter through to the petrochemicals industry. However, domestic credit will be constrained by actions by the Central Bank of Azerbaijan, which has stipulated inflation targeting as its main monetary policy priority in 2010. We are currently pencilling in 500bps of rate hikes to the refinancing rate in 2010, taking it to 7.00% by the end of the year, thereby tempering household and corporate consumption and slowing growth in the domestic plastics and chemicals market. Stable oil prices will also stabilise feedstock prices, which in turn makes planning easier. Azerbaijan is in 10th and last place in BMI's proprietary Europe Petrochemicals Business Environment Rankings with a score of 33.1, unchanged since the previous quarter. Azerbaijan lies 4.3 points behind Ukraine. The score could rise if plans for a new petrochemicals complex come to fruition. Azerbaijan's considerable energy reserves and rising gas output have been hampered from improving the petrochemicals capacity, largely owing to the poor business environment which has deterred investors. However, there are signs this is changing for the better as the government makes a concerted effort to restructure the sector.

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Azerbaijan Petrochemicals Report Q4 2010

  1. 1. Find Industry reports, Company profilesReportLinker and Market Statistics >> Get this Report Now by email!Azerbaijan Petrochemicals Report Q4 2010Published on August 2010 Report SummaryAzerbaijans petrochemical industry is expected to witness strong growth in 2010 from a very low base, according to BMIs latestAzerbaijan Petrochemicals Report. But it is likely to be plagued by volatility and low capacity utilisation until the countrys leadingproducer Azerkimya undergoes restructuring and expansion.Between January and April 2010, Azerbaijan exported 12,467 tonnes of polyethylene, up 50.5% year-onyear (y-o-y). Production wasup 650% y-o-y, to 19,900 tonnes, according to the News.az website, which quoted quoting the Azerbaijan State Statistical Committee.Nevertheless, it was still operating at around two-thirds capacity. Overall chemicals output grew 120% y-o-y in the first five months of2010, with production worth AZN88.3mn (US$110mn). Meanwhile, the manufacture of rubber and products grew 15.2% y-o-y toAZN21.8mn. In 2009 Azerkimya produced chemical goods worth AZN163.1mn (US$203.11mn), down around 20% y-o-y. BMI hasraised its 2010 chemicals output growth forecast from 25-30% to 30-35%, although most local demand will continue to be met byimports as the industry is unable to fulfil all domestic requirements. This will come after an estimated decline of around 35-40% in2009, but close to the 35% growth reported in 2008.While the company has heralded the results in 2010 as proof that restructuring is producing significant results, the level of output isstill very small-scale and until production facilities are upgraded and expanded it is unlikely that Azerkimya will compete effectivelyagainst foreign rivals on both domestic and export markets. Rather, for the time being it owes its existence to state patronage andprotection, while remaining plagued by major disruptions in output caused by periodic rapid rises in electricity and raw material costs.Azerkimyas output has tended to be highly sensitive to changes in the non-oil economy with the rate of petrochemicals sales growthtending to be two or three times the rate of overall economic growth, amplifying the overall economic trends. While the stronglypro-cyclical nature of the industry is likely to result in high rates of growth with real GDP growth forecast at 11% in 2010, with low levelof capacity it will not add much value and Azerbaijan will remain dependent on imports of chemical products. Moreover, witheconomic growth set to decline to 7.5% in 2011 and 5.0% by 2014, unless the industry is improved and restructured it will see yetfurther declines in the years ahead.There are also some positive developments that should boost the industry, aside from the restructuring of the industry and plans for anew petrochemicals complex. The stabilisation of oil prices should help to bolster capital inflows, which in turn will filter through to thepetrochemicals industry. However, domestic credit will be constrained by actions by the Central Bank of Azerbaijan, which hasstipulated inflation targeting as its main monetary policy priority in 2010. We are currently pencilling in 500bps of rate hikes to therefinancing rate in 2010, taking it to 7.00% by the end of the year, thereby tempering household and corporate consumption andslowing growth in the domestic plastics and chemicals market. Stable oil prices will also stabilise feedstock prices, which in turnmakes planning easier.Azerbaijan is in 10th and last place in BMIs proprietary Europe Petrochemicals Business Environment Rankings with a score of 33.1,unchanged since the previous quarter. Azerbaijan lies 4.3 points behind Ukraine. The score could rise if plans for a newpetrochemicals complex come to fruition. Azerbaijans considerable energy reserves and rising gas output have been hampered fromimproving the petrochemicals capacity, largely owing to the poor business environment which has deterred investors. However, thereare signs this is changing for the better as the government makes a concerted effort to restructure the sector. Table of ContentExecutive Summary .5SWOT Analysis ......... 7Azerbaijan Petrochemicals Report Q4 2010 Page 1/4
  2. 2. Find Industry reports, Company profilesReportLinker and Market StatisticsAzerbaijan Petrochemicals Industry SWOT .... 7Global Overview ....... 8Petrochemicals Market Overview .... 8Table: World Ethylene Production By Country, 2009 And 2014 (000 tonnes capacity) ............ 8Financial Results ............ 12Table: Financial Results Of Major Petrochemicals Companies, 2009 ....... 12Global Oil Products Price Outlook 12Table: Oil Product Price Assumptions, Q409-Q410 (US$/bbl) ... 15Table: Oil Product Price Data And Forecasts, 2007-2014 (US$/bbl) ........ 16European Petrochemicals Overview ... 17Table: Financial Results Of European Petrochemicals Producers, Q110 (EURmn) . 21Azerbaijan Market Overview . 22Table: Azerbaijans Petrochemicals Sector Cracker Capacity Data And Forecasts, 2004-2012 (000tpa) ......... 22Table: Manufacture Of Petrochemicals Products, 1999-2008 (000 tonnes, unless otherwise stated) ..... 23Industry Trends And Developments ... 24Upstream Activities ......... 25Petrochemicals 26Petkim Privatisation ....... 26Petrochemicals Business Environment Ratings ............. 29Table: Central And Eastern Europe Petrochemicals Business Environment Ratings 29Industry Forecast Scenario ... 31Table: Azerbaijans Petrochemicals Sector, 2007-2014 (000 tpa, unless otherwise stated) .... 31Macroeconomic Outlook . 33Table: Azerbaijan Economic Activity, 2007-2014 ..... 35Company Monitor ... 36Azerkimya ........ 36State Oil Company of Azerbaijan (Socar) ..... 38Country Snapshot: Azerbaijan Demographic Data .......... 41Section 1: Population ...... 41Table: Demographic Indicators, 2005-2030 . 41Table: Rural/Urban Breakdown, 2005-2030 42Section 2: Education And Healthcare ........... 42Table: Education, 2002-2005 ........ 42Table: Vital Statistics, 2005-2030 .. 42Section 3: Labour Market And Spending Power .......... 43Table: Employment Indicators, 2001-2006 ... 43Table: Consumer Expenditure, 1999-2004 (US$) ........ 43Table: Average Annual Wages, 2000-2012 ... 44Glossary Of Terms . 45Table: Glossary Of Petrochemicals Terms ... 45BMI Methodology ... 46How We Generate Our Industry Forecasts ... 46Chemicals And Petrochemicals Industry ...... 46Cross Checks ... 47Business Environment Ratings ....... 48Table: Petrochemicals Business Environment Indicators And Rationale .... 49Weighting ......... 49Table: Weighting Of Indicators ..... 50Azerbaijan Petrochemicals Report Q4 2010 Page 2/4
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