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Hungary Petrochemicals Report Q4 2010
Business Monitor International, Aug 2010, Pages: 61
Business Monitor International's Hungary Petrochemicals Report provides industry professionals and strategists, corporate analysts, petrochemical associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Hungary's petrochemicals industry.
Fiscal austerity measures in the eurozone and the effects of the sovereign debt crisis have dashed hopes that exports will help revive the Hungarian petrochemicals industry, according to BMI’s latest Hungary Petrochemicals Report.
Retail sales data paint a particularly bleak picture on the outlook for private household consumption, suggesting a sharp slowdown in plastics end-markets. Investment activity also looks set to suffer through 2010, while construction output also continuing to fall. Consequently, the decline in domestic demand for petrochemicals is likely to be broad-based affecting all product chains and will remain subdued well into 2011. This was confirmed by Q110 petrochemicals sales figures for petrochemicals producer MOL which showed that despite a 23% rise in HDPE output and a 5% rise in the value of total sales, its level of sales in Hungary fell 3% y-o-y. The LDPE segment was particularly weak, leading to a 9% decline in output. Consequently, the weak recovery observed in Q309 appeared be in reverse in the following two quarters and the effects of fiscal austerity packages and sovereign debt crises in Europe are likely to make matters more difficult in the months ahead.
On the upside, exports may be lifted by the weakness of the forint amid low investor confidence. This should help give the industry something of an edge against Czech and Romanian competitors in the important German market. The forint is forecast to depreciate against the euro by 7.4% in 2010 and 4.8% in 2011 helping to keep Hungarian export prices down in euros. While base effects will be a key factor mitigating the pace of the contraction in the country’s petrochemicals industry over the coming quarters, we maintain our core view that Hungary is set to enter a protracted period of low growth.
The domestic market, which absorbs around 30% of total petrochemicals output, is arguably in a worse state. Hungary's Central Statistical Office reported a 5.0% year-on-year (y-o-y) drop in retail sales in May on a calendar-adjusted basis compared with a 4.0% fall the previous month. This constitutes the 39th straight month in which retail sales have declined. The most recent data continues to support our view that household consumption will remain weak as the private sector continues to focus on deleveraging. We believe the current trend could continue through H210 with private consumption set to remain weak over the medium term. This will in turn impact badly on the Hungarian petrochemicals market. The construction industry is set to stagnate in 2010 after shrinking over 11% in 2009, thereby undermining domestic PVC and PE sales. Likewise, sales for local carmakers will be depressed well into 2010, impacting adversely on PP demand.
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