Egypt Petrochemicals Report Q1 2010

In 2009, Egypt had ethylene capacity of 300,000 tonnes per annum (tpa) with PP and PE capacities at 225,000tpa and 220,000tpa respectively. In the fertiliser sector, the country had ammonia and urea capacities of 7.52mn tpa and 4.32mn tpa respectively.

While Egypt’s economic performance is set to deteriorate, it is still better than many other markets, with petrochemicals demand expected to grow, albeit at lower rates than in previous years. Of the sectors that have most direct impact on the industry, construction is faring the worst, with the report forecasting growth of 1.73% in 2009 and 0.0% in 2010. This is likely to depress polymer segments such as PVC, which are highly exposed to the construction sector. The government’s previously announced EGP15bn (US$2.65bn) stimulus package looks set to curtailed with projects harder to find than money. Q309 showed a marked slowdown in announcements, and one government official acknowledged the shortage of projects. At the same time, export markets will offer little relief, with the report estimating Egypt’s petrochemicals exports falling 25-30% in 2009 BMI still has reservations about the short-term outlook. The TCU Sanmar complex is due to add capacities of 400,000tpa of VCM and 200,000tpa of PVC. This comes at a time of growing over-capacity in China that is undermining PVC prices. Petrochemicals and fertilizers industries are being particularly badly hit by falling prices and demand.

Over the medium- to long-term, leveraging Egypt’s petrochemicals future to its full potential still very much depends on attracting concrete multinational interest in its US$20bn petrochemical masterplan. This could still be derailed by the international financial crisis and the global economic downturn. Progress on petrochemical projects depends on securing finance, which is proving hard to find at a time of significantly tighter lending standards and higher borrowing costs. At the same time, the Egyptian government has made investment unattractive by imposing a 20% profit tax on petrochemicals operators, including those located in the ‘free zones’. Industry players are now calling for the industry tax breaks to be re-instated and also for the Egyptian government to lower the price of feedstock. Projects are already delayed.

On current forecasts, ethylene capacity is set to rise from 300,000tpa in 2008 to reach 600,000tpa in 2010.

PE capacity should rise from 225,000tpa in 2009 to 600,000tpa in 2010. BMI expects PP capacity to rise to 600,000 by the end of the forecast period. We do not believe EHC’s proposed complex near Suez will come online by 2013, even if it does manage to secure financing by 2010. Similarly, it is doubtful that GAFI’s bid for foreign investment in a US$200mn PVC plant with a capacity of 120,000tpa and a US$150mn PS plant with a capacity of 200,000tpa will materialise in time for them to come onstream by the end of the forecast period. Other projects include EPPC’s new 350,000tpa PP facility at Port Said, which is believed will be fully functional in 2010. The nitrogen-based fertiliser sector is also expected to expand, with EBIC and Agrim adding around 2.2mn tpa of ammonia production capacity by 2010.

In the Middle Eastern Petrochemicals Business Environment Rankings matrix, Egypt is ranked eighth with 48.7 points, up 1.5 points since the previous quarter due to planned increases in petrochemicals production capacities. The country is 3.1 points behind Kuwait and 2.1 points ahead of Turkey. It ranks above Algeria because of higher production and a significantly better national (as opposed to sectorspecific) business environment. The government will need to convince petrochemicals producers that their investments are safe and will not be jeopardised by arbitrary government intervention, as has been the case recently in the fertiliser sector. Without greater transparency and consistency in government policy, Egypt will find it difficult to meet the ambitious targets under its petrochemical industry plan.