The Hungarian petrochemical industry will be faced with a sharp deterioration in both external and domestic market conditions in 2009 and 2010, with levels of production unlikely to return to prerecession levels until 2011 at the earliest, according to BMI's latest Hungary Petrochemicals Report. Structural constraints are also having an impact on some petrochemicals segments with Hungary's lack of domestic oil and gas resources are is proving to be an increasing problem for the country's downstream industries, which are up against more competitive and larger foreign producers. Demonstrating the problems affecting the sector, in June 2009 Yara International announced it would permanently close an NPK fertilizer plant at Peremarton. Production had been temporarily halted in October 2008. Yara says the 150,000 tonnes per annum (tpa) plant lacks access to competitively priced raw materials and is not flexible enough to accommodate new market requirements for nitrogen, phosphate, and potash combinations. The problems facing the Peremarton fertiliser plant are facing all petrochemicals production in Hungary and the rest of Central and Eastern Europe. Amid the gloom, Hungary fears a hostile takeover bid of domestic refiner MOL by Russian oil producers, having successfully fought off a bid by Austria's OMV. Added to this is Hungary's woeful domestic market, with GDP set to shrink 3.4% in 2009. In the near term, demand from domestic industrial consumers of petrochemicals will fall sharply and although we foresee a modest recovery beyond 2011, trend growth will continue to underperform relative to Central European peers. BMI forecasts a 30% drop in domestic polymers consumption to 770,000 tonnes in 2009. The construction industry is set to shrink over 11% in 2009 and stagnate in 2010, thereby undermining domestic PVC and PE sales. Meanwhile, domestic car sales are plummeting with the Hungarian Vehicle Importers Association (MGE) predicting the market will halve in size in 2009, leading to a sharp decline in sales for local carmakers and a drop in automotive output that will impact on PP demand. With household consumption set to contract markedly under tight credit conditions, sales of consumer goods as well as packaging will also fall, with a resulting decline in domestic consumption of a broad range of polymers. Meanwhile, the outlook for export markets for Hungarian petrochemicals and locally manufactured products that use petrochemicals, such as cars and consumer goods, will be poor over the near term. With 75% of Hungary's polymer output sold abroad, the performance of export markets will be a major determinant of the sector's performance. As external markets are the key drivers for the country's petrochemicals industry, the weakness of demand in the eurozone is forcing such firms to rein in production. A decline in polymer production of up to 30% is expected in 2009, but the situation is unlikely to improve markedly in 2010.
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