The Algerian petrochemicals market continues to evolve with the development of the industrial and agricultural sectors at a time when basic chemicals and fertiliser production is set to surge, according to BMI's latest Algeria Petrochemicals Report.
BMI is upbeat about the prospects for growth in the Algerian petrochemicals market in the context of rising, yet not spectacular, economic growth. We project real GDP growth in Algeria of 3.3% and 4.6% in 2013 and 2014, respectively, from 2.2% in 2012. The acceleration in growth in 2013 was mainly be due to low base effects, and, given slow projected petroleum production growth and the lack of structural reforms, the economy will grow below potential over the medium term. Yet, industry should remain broadly supportive of rising petrochemicals consumption, even as the non-oil economy slows.
Delays to current projects indicate that the realisation of the country's full potential in petrochemicals is unlikely over the forecast period. These delays will not only raise costs and lead to a narrowing of margins in the long term, but they will also create a more opaque business environment that will undermine progress and put the industry's significant cost advantages - in terms of domestic natural gas feedstock availability -at risk.
- Our optimism over the agricultural sector, which accounts for 12% of GDP, has diminished somewhat this quarter, with wheat production growth falling to 6% in 2014 from over 21% in 2013. This will, in turn, diminish growth in domestic fertiliser demand. However, this should be seen in the context of the past two years of bumper harvests which were partly the result of increased chemical fertiliser use. As such, by historical standards fertiliser consumption is set to remain high, although this will represent a small amount of local fertiliser production.
- In terms of polymer consumption, the growing automotive industry should support increased demand for engineering plastics, particularly PP, with 2014 likely to prove to be a transformative year for Algerian auto production. Renault is soon to start output of cars and Mercedes-Benz soon to start output of commercial vehicles.
- Commercial ammonia and urea production at the new US$2bn Sorfert Algerie plant began in Q313. The fertiliser complex, 51% owned by OCI and 49% by Sonatrach, was due to commence production in 2012 but delays in the issuing of environmental and export permits forced the commissioning to be pushed back. The export-oriented facility will produce 800,000tpa of merchant ammonia and 1.4m tpa of granular urea once fully operational. Ammonia will be pumped via a pipeline to Arzew port, and the urea will be moved by road to warehouses at the dockside. Algeria's geographical position and lower freight costs mean it will be able to tap into European, North American and Latin American markets.
- Algeria ranks 10th in BMI's Middle East and Africa Petrochemicals Risk/Reward Ratings (RRRs) matrix this quarter, with an overall score of 40.6 points out of 100, unchanged on the previous quarter. Its petrochemicals-specific scores benefit from progress at the Arzew petrochemicals complex, but are held back by delays in other projects.