Despite slowing demand in Europe, Russia's chemicals sector is expected to remain stable over the next 12-18 months due to strong domestic demand for polymers and fertilizers, Moody's Investors Service said in a report Thursday.
"While we expect demand from Europe to slow due to ongoing economic uncertainty, demand in Asia -- particularly China and India -- and Latin America remains robust," said Julia Pribytkova, Vice President, Senior Analyst at Moody's Corporate Finance Group and author of the report.
"We would revise downwards our outlook for the Russian chemicals sector if Chinese economic growth were to slow to less than 5%."
Russian chemicals producers will benefit from planned increases in polymer production. Russian domestic demand currently outstrips supply, with Russia importing mostly high-value-added chemical products, the report said.
Moody's said it believes demand will be supported by strong growth in the Russian retail and construction sectors, which the rating agency expects will continue to grow in the next 12-18 months.
Moody's expects demand for fertilizer will remain strong, supported by emerging markets and a growing domestic market.
Risks are posed by cheap feedstocks in North America, increasing production of nitrogen-based fertilizers in the Middle East, where input costs are even lower than in Russia, and a ramp-up in Chinese domestic production. Russia, however, remains competitive on cost.
Ongoing investment will also benefit the sector, but has delayed deleveraging, Moody's said. Key players such as Acron and Sibur, will not see a contribution from new projects for another 18-24 months, when Moody's would expect them to deleverage and generate free cash flow.
