Pavel Lyahovich, Member of the Board and Managing Director of Sibur, talked to Rupec about the company’s transition from petrochemical to a chemical company and explained why investments in rubber are still attractive, while “plastic cultivation” makes no sense.
How was 2018 for the Plastics, Organic Synthesis, and Elastomers Directorate?
I believe the last year was positive for us. We hit the production target, moved slightly ahead, and we were even more successful with financial targets. We managed to produce and sell more SBS (styrol-butadiene-styrol, thermoplastic elastomers) and ethylene oxide. Revenue increased by more than 10% – supported partially by prices for end products and high exchange rates of the US dollar to the Russian Rouble. In general, the year turned out to be very predictable: the business plan was delivered.
Were there any events which happened to be not so easily predictable?
Yes, for example, we did not expect natural rubber market prices to go down so significantly. We started the year expecting the medium price for the rubber to be no lower than $1,6 thousand for one tonne, while in fact, the price did not exceed $1,3 thousand for one tonne. Prices for some synthetic rubber products depend on prices for natural rubber, and that affected financial indicators in some product groups.
There is no doubt that the markets were also affected by macroeconomic factors – rapid growth of oil prices which dropped down in the 4th quarter of the year, and the dynamics of the rouble exchange rate which did not demonstrate correlation with oil prices this year. As a result, we faced high volatility of prices for our feedstock and end products. But we managed to keep our business stable.
If we take a look at our Directorate, the last year proved to be very close to our expectations in terms of revenues and secured margins. We had some product categories showing a decline, but other products demonstrated growth. I believe that vertical integration and well-assorted product offered by both the Plastics, Organic Synthesis and Elastomers Directorate and the company are strong enough to face any volatility and crises.
Is the rubber segment still attractive for the company’s investments?
Absolutely. After the launch of ZapSibNeftehim, we will have an additional 100 thousand tonnes of butadiene available, which is a valuable feedstock for rubber production. It is the task of our Directorate to monetize it. This year, the company took two investment decisions: construction of a new SBS production plant for 50 thousand tonnes, and an increase of NdBR rubber production by a quarter. More projects are under consideration.
In the long term, perspective rubbers are absolutely our product. We are ready to invest in this segment. In the first half of the coming year in India, a butyl-rubber plant will start operation under our license in a joint venture with Reliance, and it will start producing halobutyl rubber in the second half of the year.
We are also looking at business opportunities in rubber production in Saudi Arabia and China.
At what stage is the project in China now?
The joint venture with Sinopec has existed already for few years, but recently the market has not shown favourable conditions for the production launch. We are now in active communication with our partners. Let’s say 2018 was the year for the project to re-start.
What has changed on the market, does China buy more rubber now?
Firstly, demand for butadiene-nitrile rubber is growing steadily. Global demand for rubber is increasing by 3% annually and demand for butadiene nitrile rubber is growing ahead of the market in general, particularly in China.
Secondly, during the period of our joint venture with Sinopec, we improved our rubber production technology on the Krasnoyarsk plant. We introduced many of the latest synthetic rubber products and that opened up business opportunities for the company in the markets of China, Europe and Russia.
Today, we mainly export rubber products to China from the Krasnoyarsk plant, but in the future, we can start exporting them to other geographic areas and this is the way to make a “market window” for our JV.
What plans does Sibur have about other plants: Voronezhsythezkauchuk and Sibur Togliatti?
Togliatti plant specialization is a commodity products production, and we see no room for significant expansion here.
Voronezhsynthezkauchuk produces special rubber products, styrene-butadiene-styrene (SBS). We see growth areas here and plan to expand in this direction.
Speaking of global business, you mentioned Saudi Arabia. As of now, is there any understanding of what kind of project could be implemented on its territory?
I’m not ready to discuss details of this project in details because its prospects depend on the construction of the petrochemical complex by the Saudi Aramco and Total JV. When this complex starts operation, a number of by-products will become available and they can be used in rubber production. But here we are talking about 2023 and after.
It is too early to make any announcements. No decision has been taken yet.
In 2018 Sibur announced a SBS production capacity increase in Voronezh of 50 thousand tonnes. Except for available feedstock, what else factors into a decision on the project?
This plant will be built primarily for new SBS products for adhesives, compounds and so on. Today, the largest part of products targets traditional economic segments, such as roofing materials and polymer-bitumen binders. In 2018 we shipped around 50 thousand tonnes of SBS to the Russian market and exported about 30 thousand tonnes abroad.
The new production capacity will most probably have a different structure of sales and distribution. For example, cement and adhesive production are still not well developed in Russia, but 20 thousand tonnes of these materials are imported annually to the country. We believe that we can take a large share of this market.
According to our forecasts, the European SBS market will stay tight in the coming year and we will target our export geographically in this direction. Moreover, our products are well known there. We are also looking at other geographical areas: Turkey, USA, for example, where we can find more marginal markets.
Is Sibur interested in entering the polystyrene package market?
Food product packaging cannot be made using polystyrene and fire-retarding chemicals. And packaging materials for, let’s say consumer electronics, require limited use of bromine containing flame proofing initiator. All the polystirol products we produce use fire-retarding chemicals containing bromine.
We can certainly reshape Expandable Polystyrene (ESP) production and start producing antipyrine free products, but that would mean limiting ourselves with just a few products. The production volume of the Perm plant is larger than the packaging market itself, while it cannot be used for house winterizing and this is a big risk. Thus we plan to stay with antipyrine containing polystyrene, focused primarily on the construction industry
What about the acrylate business? What has changed for Sibur as a company and the market in general with the start-up of capacities in Salavat?
Let me remind you that the company acquired acrylate business 7 years ago. The plant was producing around 20 thousand tonnes of butyl acrylate annually and today we produce over 50 thousand tonnes of all ether products.
We dedicated last year to developing business in the Russian market. We helped scotch tape producers to localize their capacities in Russia by securing long-term contracts for acrylate and BOPP-film supply from Biaksplen. We helped producers of dispersions for paintwork materials to further develop their business.
Hence, demand for acrylate products on the domestic market has grown significantly, reaching today 40 tonnes of butyl ackrylate only.
We reached the limits of our capacity with butyl acrylate and the market needs another player. It is great that Gazprom Neftehim Salavat started production.
In addition to BA, we plan to continue producing 2-Ethylhexylacrylate, the technology that was developed by our corporate R&D centre – NIOST. As of the end of 2018, we produced 10 thousand tonnes of this product and about 1 tonne was sold on the domestic market. I believe that domestic consumption will grow due to import substitutions in segments like traffic control demarcation.
Near the end of 2018, Sibur gave away information about the start up of maleic anhydride production, which had been already announced in 2016. Why did the final investment decision take so long?
There are no super-efficient projects today. No project will bring super-profits in the short term. Projects today look far into the future and one needs to be able to forecast and see today what will change, what the market will demand and whether a company will be able to meet it.
Today, 5 thousand tonnes of MAN are imported to Russia. It is true that it is mainly imported in the form of end products, but at the bottom line, from the 45 thousand tonnes we produce, we can only sell about 5 thousand tonnes to the domestic market. Our challenge is (in parallel with construction works) to help potential clients have their projects in MAN processing successfully delivered. We look at the market, at potential partners.
Let me also mention that the project CAPEX optimization took a much longer time. We were looking for the best value-price solutions and spent time negotiating with potential equipment suppliers. By the end of 2018, the project had been studied by the investment committee and today it can be announced that in 2021 this capacity will start operation.
What other projects are interesting for Sibur in specialty chemicals?
We are interested in almost all products that are currently imported to the country as a feedstock and not produced domestically (such as maleic anhydride or isocyanates), or which are produced but not in sufficient volumes (such as propylene oxide), or products which are contained in some end products.
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