Boston, MA -- (ReleaseWire) -- 02/17/2014 -- The extent to which the Israeli petrochemicals industry will benefit from growth will depend on the sector's competitiveness. Growth in natural gas production, with the beginning of production in the Tamar gas field, will provide an opportunity to reduce feedstock costs of an industry that is currently dependent on naphtha feedstock supplied by local refineries, according to BMI's latest Israel Petrochemicals Report.
Falling domestic consumption has hit the domestic chemicals, plastics and rubber industries. Plastics and rubber output fell by 0.6% y-o-y in 10M13 while chemicals production exhibited growth of 2.0%. While chemicals output showed an overall increase in output in 2013, much of this growth was concentrated in Q113.
Over the last quarter, BMI has revised the following forecasts/views:
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- We downgraded our construction industry growth forecast for Israel in 2013 from 6.2% to 2.4% and this was reflected in a downturn in plastics, which include polyvinyl chloride (PVC) and other plastic products used in construction. As a whole, the industrial sector contracted in 2013 with knock-on effects for petrochemicals products.
- Naphtha costs will be crucial over the medium-term. The theoretical surplus between supply and demand in the global oil market will grow over the coming years, precipitating a decline in the price of oil and a corresponding decline in naphtha feedstock costs. However, naphtha prices will remain at historical highs while ethane costs, particularly in the US, are set to decline. For Israel's relatively small, naphtha-fed petrochemicals industry, this could lead to a squeeze on margins in the long-term.
- We project real GDP in Israel to expand by 3.2% in 2014, compared to growth of 3.2% in 2012 and 3.5% in 2013. The robust economic recovery has increased capacity utilisation in manufacturing firms and could lead to purchases of new plants.
- In BMI's MEA Petrochemicals Risk/Reward Ratings (RRRs) matrix, Israel remains in sixth place with its score rising 0.1 point to 57.5 points as a result of improved country risk. As a result, Israel is 1.6 points behind Iran and 5.0 points ahead of South Africa.
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