BMI's Executive Summary

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The Ukrainian petrochemical industry is growing, with plans for the significant addition of polyvinyl chloride (PVC) capacity in 2009, but the industry could face a downturn in investment activity unless the government improves the business environment and ensures a reliable long-term flow of gas feedstock in the olefins segment, according to BMI's latest Ukraine Petrochemical Report.

In the first 11 months of 2007, Ukrainian chemicals and petrochemicals output grew 5.9% y-o-y, according to the State Statistics Committee, including a 3.6% y-o-y rise in chemicals production and 13.6% growth in rubber and plastic products. However, no breakdown of the output figures was published. Plastic production in primary form amounted to 464,200 tonnes, up 13.3% y-o-y. This followed a strong performance in 2006, when plastic output rose 15.8%.

The Ukrainian petrochemicals sector will depend on a continuous and reliable source of feedstock. According to a study by the Ukrainian National Academy of Science, Ukraine's natural gas consumption could double by 2030, while the country's natural gas production may only increase 33% over that period. As a result, Naftogaz Ukrainy is considering other sources of natural gas, including Iran and Norway. Iran is looking to increase its natural gas imports to Europe, and Ukraine is interested in maintaining its position as the major transit point for natural gas to Europe. However, the distance and substantial projected cost of such a pipeline has so far inhibited the implementation of this plan. Any level of uncertainty will have negative consequences for the petrochemicals sector with a shortage of feedstock for its cracker units. BMI believes that gas price hikes will lead to a downturn in ethylene output, with exports declining to zero over the forecast period. Ethylene output will be in the range of 525,000-535,000 tonnes per annum (tpa) over the next five years. Cuts in ethylene output will increase dependency on polyethylene (PE) imports, with the domestic industry without a ready availability of feedstock. Ukraine will also become more dependent on polypropylene (PP) imports.

BMI has revised its method of risk scoring in the petrochemicals sector, introducing dynamic scores that reflect on future growth as well as current capacities and the size of the internal market, along with investment risk assessments of the political, economic and regulatory environments. Despite this revision, Ukraine remains second from last in BMI's Emerging Europe Petrochemicals Business Environment matrix with 43.1 points, compared to a regional average of 52.2 points. Ukraine's uncertain political environment coupled with rising gas import prices and the possibility of supply disruption are undermining the country's potential for increased petrochemicals production capacity. The sector is dominated by Russian petrochemicals majors and remains tied into the old Soviet economic framework as a satellite of Russia. However, further investment is seeing greater self-sufficiency in some areas of petrochemicals production, notably in the EDC-VCM-PVC production chain with the establishment of new plants in Kalush.

Contents

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Chapter 1 - Executive Summary

Industry Overview

Foreign Direct Investment

Company Developments

WTO Accession

Chapter 2 - SWOT Analysis

Ukraine Petrochemicals Industry SWOT

Ukraine Economic SWOT

Ukraine Business Environment SWOT

Chapter 3 - Market Overview

Ukraine Chemical, Petrochemical Product Output, January-October 2006

Foreign Direct Investment

Market Structure

Table: Ukraine Petrochemical Sector: Cracker Capacity--Historical Data & Forecasts (’000tpa)

Chapter 4 - Industry Trends and Developments

WTO Accession On The Anvil

Chapter 5 - Industry Forecast Scenario

Table: Ukraine Petrochemicals – Olefin & Polyolefin Data and Forecasts

Chapter 6 - Economic Outlook

Table: Macroeconomic Data and Forecasts

Chapter 7 - Company Monitor

Profiles

KarpatNaftoKhim

TNK-BP

Stirol

Chapter 8 - BMI Forecast Modelling

How we generate our Industry Forecasts

Chemicals & Petrochemicals Industry

Cross checks

Competitive Landscape for Emerging Europe Petrochemicals Reports: Sample of Companies Ranked

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Comparative company analyses and rankings by US$ sales, % market share, employee size, registration date and ownership structure. Company SWOTs (Strengths, Weaknesses, Opportunities, Threats) on all leading international and national operators in each market, including competitive intelligence in the following: Overall geographic presence, competitive positioning against local companies; production capacity, sales and market share; joint ventures, foreign direct investment, projects and acquisitions strategy.