Spain Petrochemicals Report Q2 2012

Spanish chemicals and plastics producers will witness a year of flat growth at best in 2012 as they face an increasingly hostile operating environment, according to BMI’s Spain petrochemicals report for Q212. In 2011, it is estimated that Spain had combined olefins capacities of 1.65mn tpa ethylene and 1.35mn tpa propylene. In the polyethylene segment, it is estimated to have had capacities of 245,000tpa HDPE, 495,000tpa LDPE and 490,000tpa LLDPE. In styrenics, Spain has capacities of 625,000tpa styrene monomer, 165,000tpa PS, 165,000tpa acrylonitrile-butadiene-styrene copolymer and 60,000tpa styrenebutadiene rubber. In the PVC chain, Spain has 750,000tpa ethylene dichloride, 470,000tpa vinyl chloride and 515,000tpa PVC. The country also has 870,000tpa PP capacity. In the fertiliser segment, capacities total 615,000tpa ammonia and 500,000tpa urea. Producers have announced plant closures and reduced capacities.
According to the Instituto Nacional de Estadística (INE, National Institute of Statistics), in 2011 the chemical production index grew on average just 0.2% y-o-y (down from 4.8% in 2010) while the plastic and rubber production index fell by an average of -1.5% (down from 8.1% growth in 2010). Chemical output was far lower than the 2.0% BMI forecast, with relatively buoyant output throughout the first nine months of the year wiped out by a poor performance in Q411.
The outlook for the Spanish petrochemicals market has worsened considerably as the economic situation has deteriorated. Overall spending growth will remain negligible as the housing market continues its slump, leading to further contraction of the PVC used in construction applications. Additionally, packaging and consumer durables will be hit by high unemployment, thereby depressing demand for all grades of PE and PP. With the external picture also souring given increasingly poor data out of the eurozone bloc, we see little immediate hope for the Spanish petrochemicals industry. In light of the souring external environment, in particular the growing likelihood that the eurozone bloc could edge back into recessionary territory, this avenue of growth for Spain is no longer guaranteed.
Overall industrial production growth, which serves as a barometer of chemicals performance, has already slowed in a pronounced manner while both manufacturing and services purchasing managers' indexes have witnessed a steep decline (a trend seen across most of the eurozone bloc). Come a further worsening of the eurozone's debt crisis, this would most likely send confidence in the eurozone bloc tumbling further, in turn curbing demand for Spanish wares even further. This would undoubtedly knock Spain back into a deep recession, which would prompt us to further downgrade our medium-term growth forecasts, as well as the administration's ability to meet its fiscal deficit targets.