Algeria Petrochemicals Report Q3 2012

We maintain our view that the Algerian economy will experience moderate rates of real GDP expansion, with growth rates of 3.0% and 1.9% forecast for 2012 and 2013 respectively. This reflects the country’s poor external outlook and a contraction in public consumption. We expect a deterioration in the local petrochemicals market, with low or zero growth anticipated over the medium term.

The government's plans to cut back on spending from 2012 and beyond will be countered by continued growth in fixed investment and, over the longer term, an uptick in hydrocarbons export receipts.

Household spending is set to expand at a relatively constant rate. This should sustain demand for plastic products, particularly in packaging applications, thereby providing opportunities for Middle Eastern and European producers hoping to use the North African market to offset diminishing demand growth in their own markets. Healthy domestic demand will lead to a rise in imports of finished products. The country’s petrochemicals industry is narrowly focused, with a low level of capacity, and the country will remain dependent on imports. However, Algeria's massive import needs will cause net exports to shrink precipitously.

In 2011, it is estimated that Algeria had petrochemicals production capacities of 130,000 tonnes per annum (tpa) ethylene, 178,000tpa of polyethylene (PE), 40,000tpa of vinyl chloride monomer (VCM), 35,000tpa of polyvinyl chloride (PVC), 120,000tpa of methanol and 990,000tpa of ammonia. Algeria’s ethylene and PE capacities are forecast to remain static until 2014, after which they will increase in line with the addition of new capacity. By 2016, ethylene capacity is anticipated to be 1.23mn tpa and PE capacity will be 878,000tpa, with further new capacity in the production of other derivatives also anticipated. Methanol production capacity will increase by 1mn tpa to 1.12mn tpa and with Sonatrach expected to complete a new plant, in addition to new fertiliser plants, the country will have ammonia and urea capacities of 5.59mn tpa and 3.59mn tpa, respectively.

Algeria ranks 10th in BMI’s Middle East and Africa Petrochemicals Risk/Reward Ratings (RRRs) matrix, with an overall score of 39.2 points – 5.3 points behind Egypt and 7.2 points ahead of Nigeria. Its petrochemicals-specific scores benefit from progress at the Arzew petrochemicals complex, although delays to the project are undermining the country’s petrochemicals market risk score. Algeria scores lowest on almost every indicator and this is likely to remain the case until the Arzew complex comes onstream.