Boston, MA -- (SBWIRE) -- 06/21/2013 -- While some petrochemicals projects have experienced significant delays, we believe the industry is on course for strong growth as new plants are opened and domestic demand for plastic accelerates. The automotives industry is set for expansion while the construction industry should experience a solid recovery, although overall economic growth will remain below par. However, there will need to be greater focus on adding value to production if the domestic industry is to take full advantage of market growth.

The Algerian government set out a US$80bn five-year investment budget in 2012, a US$12bn increase on previous plans as a result of investment in the country's unconventional gas reserves. This will have an inevitable knock-on effect on the petrochemicals industry, not only because there will be more gas available for feedstock, but also because Sonatrach will have more money to invest in revamping and boosting its petrochemicals industries.

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Algeria has focused on low added-value production, relying on commodity chemicals that are highly price responsive to market fluctuations and easily undermined by capacity elsewhere in the world. The industry is some distance from competing on equal terms with European petrochemicals producers in terms of product diversification. As such, it will be vulnerable to market fluctuations in the narrow range of products it produces, although the effects on margins should be cushioned by the local availability of competitively priced feedstock.

Overall, the petrochemicals market will undergo a period of massive change over the next decade as unconventional shale and gas reserves are produced, which will alter the dynamics at play within the market. Given the vast reserves thought to be available in Algeria, the impact of these hydrocarbons resources cannot be underestimated.

However, 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, 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.

BMI has the following forecasts/views:

- The expansion of the automotives industry will provide growth in domestic petrochemicals consumption over the medium-term. Local car manufacturing is set to be transformed following the news in December 2012 that Renault has signed a deal with the Algerian authorities to set up a new production plant in the country. This should stimulate local plastics demand, although much of the supply is likely to come from outside Algeria, which has no polypropylene (PP) production and lacks capacities in rubber and elastomers that are among the most used petrochemicals products in the automotives sector.

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