Abstract
Problems of plummeting demand and weakening margins will be compounded by the
increase of
substantial new low-cost capacity which is due to come on
stream in H209 and 2010. Owing to the effects
of the financial crisis,
much planned Russian capacity has been delayed or shelved, leading to a
major
downward revision in ethylene and polymer capacity forecasts in
BMI’s latest Russia Petrochemicals
Report.
According to Rosstat,
the Russian statistics agency, plastics production was down 10% y-o-y to
2mn
tonnes in H109, while synthetic rubber output plunged 37.5% to 401,000
tonnes. In the first five months
of 2009, synthetic rubber output dropped
by 38.8% to 335,000 tonnes, according to Rosstat. Russia' s total
PE
production in the January-May period was up 0.6% y-o-y to 452,400 tonnes. PP
output was up 6.7%
to 229,500 tonnes, but PVC production was down nearly
10% to 208,600 tonnes and PS output was down
5% to 102,300 tonnes.
Despite relatively strong performance in some segments, BMI retains a
pessimistic forecast, according to
which petrochemicals output is expected
to drop by around 15%, with the economy continuing to shrink
in H209. A
recovery is not expected until Q210 at the earliest, dependent on the federal
government’s
ability to stimulate the economy. BMI’s core
scenario for Russia is decidedly bleak, with an economic
contraction of
-7.1% in 2009. On the upside, liquidity risk is low and debt should be
manageable for most
Russian petrochemicals producers. Naphtha prices have
also fallen in line with oil prices, thereby
narrowing the cost
differential with ethane-based crackers in the Middle East, but this can only
benefit
Russian producers when it is accompanied by strong demand, which
BMI does not envisage occurring
until H210.
In response to the
financial crisis and economic downturn, Sibur’s plans to build a cracker
and PE units at
Orenburg, Russia, have been cancelled. Sibur has also
cancelled a cracker and PE complex in Astrakhan
and is instead seeking
project consolidation with other investors looking to establish similar
complexes in
the region. Meanwhile, Sibur has stated that a planned
olefins and derivatives complex at Salayat would
not come on stream until
around 2015. Planned capacities are still not known. Meanwhile, Sibur
announced in June 2009 that it intends to complete Tobolsk-Polymer’s
proposed 500,000tpa PP plant by
Q312, albeit two years behind the original
schedule and with the assistance of a generous financing deal
from the
state-owned Vnesheconombank (VEB). However, Sibur has not completely escaped
the effects
of the economic downturn. Its planned 330,000tpa PVC plant at
Kstovo, Nizhny Novgorod, has been
delayed further and is now expected on
stream in Q212; the delay is related to an expected late revival of
the
Russian construction sector.
Russia is forecast to have total polymer
production capacity of 5.22mn tpa and ethylene capacity of
4.46mn tpa,
representing increases of 98% and 43%, respectively, over 2008 levels.
However, project
postponement and cancellation of projects means that we
have taken off 770,00tpa from our 2013
ethylene capacity forecast.
Investment in capacity expansion will enable Russian producers to enter
the
European market at a time when European plants are closing in the face
of recession and a lack of
competitively priced feedstock. Petrochemicals
are particularly vulnerable owing to the prevalence of
outdated
manufacturing plants and technologies and uncompetitive products. The sector
is also saddled
with insufficient investment resources and unreliable
feedstock supplies. At the same time, it faces
sharply increased
competition in domestic and export markets.
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