Russia Petrochemicals Report Q2 2016

Russia Petrochemicals Report Q2 2016

The Russian petrochemicals industry saw robust output growth as a result of the depreciation of the roubleand the decline in naphtha feedstock costs. However, growth will come under pressure in 2016 due to asluggish recovery in domestic end-markets.

Basic chemicals production rose 6.3% year-on-year (y-o-y) in 2015 with all segments witnessing increases.

According to the Federal State Statistics Service of the Russian Federation, production of ethylene exceeded2.79mn tonnes, up 16.4% y-o-y. However, Russia's petrochemicals sector also suffers from structuralinefficiencies which have deterred investment, particularly in the country's oriented production. Challengesinclude the country's manufacturing sector, which is not competitive without the presence of governmentincentives. Importantly, we do not expect such hurdles to be cleared in the short-to-medium term, resultingin a subdued outlook for the country's export-led industries.

In 2016, the construction sector is due to contract by 1.2%, while the automotive industry will see outputdecline 3.1% following heavy slumps in 2015. With these sectors playing a critical role in thepetrochemicals markets, they will impact heavily on domestic petrochemicals production across a widevariety of segments.