SIBUR Board member Alexander Petrov: We regain our previous volumes of implementing investment projects
Alexander Petrov
Press-office
MOSCOW/ST. PETERSBURG. June 21 (Interfax) - SIBUR, the largest Russian petrochemical company, has been affected by Western sanctions both in terms of loss of production technologies and availability of raw materials for production. Member of the Management Board and Managing Director of SIBUR Alexander Petrov told Interfax in an interview during the St. Petersburg International Economic Forum in 2024 that the company managed to replace this with analogues and regain its previous investment levels within a year. Petrov also evaluated the impact of various trends taking place in the Russian economy on the company's business.
Q.: SIBUR has switched to an industry-specific business management model since April. How smoothly is this transition going for the company, and has any positive effect been seen so far?
A.: SIBUR has been piloting the industry-specific approach in two areas, construction and packaging, for several years. Therefore, the subsequent transformation of the entire business management model was tested and prepared to some extent. We became convinced that our chosen approach worked and de facto scaled up the practice by establishing eleven divisions, nine of which are dealing with major branches of industry. We also have plans to extend the approach to the Commonwealth of Independent States (CIS) market in the future, and in a number of industries, I think, to the Turkish market, as well.
We are only halfway through this large-scale transformation. The main task is not to make our clients too stressed: when their direct contacts at the company and the format of work change, these are significant changes.
The reform was needed to pay attention to our partners with much more resources and competences to create new solutions, but not simply sell a product, and develop our customers' business through more extensive use of advanced materials. For example, there were no plastic trolleys at the supermarkets yesterday, but rumbling and heavy metal ones. For the agricultural industry, we offered polymer sleeves for grain and fodder storage. The solution allows you to store and sort grain on your farm with minimal one-off expenses. You do not need an elevator. No need to build a storage facility. These are just a few of the many initiatives we have undertaken with our partners.
Today, we have a portfolio of more than 500 projects at various stages.
Q.: Can you put it in numbers, what kind of expectations does this bring in terms of demand growth?
A.: We saw a growth last year, and this gave us an incentive to develop our industry-specific approach, as well. The polymer market saw a record 9% growth last year. The polymer consumption per capita in Russia has soared around 50% over the last five years. But we are quite far from the world, Russia has a high potential for developing the use of polymer products. Consumption in the highly industrialized world that is Europe and the United States is approximately 50 kilograms to 60 kilograms per capita. To reach Turkey's benchmark level, that is, 40 kilograms per capita, consumption in Russia should add around 1.6 million tonnes, or 37%, over the next five years and reach 6 million tonnes.
Q.: Does the demand for polymers in Russia depend on their prices?
A.: There is elasticity in everything, and demand varies depending on the application.
Q.: The union of plastics processing companies said at the beginning of the year that a number of companies, including pipe manufacturers, had decided to raise imports of polymer raw materials. They said that the cost of SIBUR's raw materials is correlated with imported ones, but it is easier, more convenient and more usual for someone to work with imported raw materials. Do you see a decline in demand for polymers on the part of these consumers? And in what amounts, in what segments?
A.: All consumption sectors showed higher demand in 2023. Inorganic growth accounts for about half of this growth, which resulted from the support programs implemented by SIBUR, which offers processing companies not only new products, but also special conditions for developing production facilities, the so-called accelerators.
There was a certain seasonal decline in the first quarter of this year. In the second quarter, demand is expected to pick up again, and we expect a 3% surge at the end of the first six months of the year. But this is lower than last year's figure and somewhat below our expectations. There is a certain impact of lower investments in infrastructure and in implementing housing and utilities projects. But, perhaps, it is just a seasonal shift during the year. We will have to draw conclusions later.
Q.: Overall, what key investment projects are currently under development, and what new production facilities does SIBUR intend to establish?
A.: The company's current portfolio of projects under implementation is estimated at over 1.7 trillion rubles. We can say that we have regained our previous volumes of implementing investment projects. The access to foreign technologies and equipment was abruptly halted in 2022. And we experienced a certain reset, evaluated the investment portfolio and the terms of implementation. We sorted out what we could complete with regard to those projects that were at late stages. We found new technological solutions for projects at the early stage and made or are making new investment decisions.
We are currently working on a project to produce SEBS (styrene, ethylene and butylene-based block copolymers), which is the only capacity in Russia and CIS countries. It will cover 100% of the Russian market demand with a substantial reserve for industry development capabilities. Thanks to a number of improved properties compared to the SBS (styrene-butadiene-styrene) product already in the portfolio, we are planning to sell the product to the segments of construction (cables, sealants), consumer goods (toys, watering hoses) and transportation (car mats, sealants), fully covering the needs of the local import-dependent market.
Highly reactive polyisobutylene is the most important component for the synthesis of modern oil additives, which along with MAH [maleic anhydride] will provide our customers with a comprehensive raw material offer for market development, while the configuration of the future plant is currently being adopted.
We see a constant demand for the most important octane-boosting component - MTBE [methyl tert-butyl ether], which makes us increase production capacity and we expect to add over 30,000 tonnes of the product in annual production during 2024.
Q.: Will you still have unutilized ethylene at Nizhnekamskneftekhim after implementation of all processing projects you have already announced?
A.: Given all the projects, we have formed a full set of ethylene derivatives. In early June, we launched the "last in the chain" project for producing premium metallocene polyethylene. The production capacity will be 300,000 tonnes per year. After its launch, we will be able to meet the needs of the domestic market, which are estimated at around 170,000 tonnes in 2028, as well as to replace imports of more than 30,000 tonnes per year.
Q.: Are you still launching hexene production from 2025?
A.: Yes, we are. Nothing has changed, everything is proceeding according to the plan, which has already been adjusted.
Q.: Are all of your production facilities supplied with raw materials at this time?
A.: Following the February events, we had some disruptions in production, as hundreds of imported items from unfriendly countries were used at the plants. We have coped with almost everything for a year, either substituting them with domestic analogues or imported ones, and overall we did not incur any losses. But there were a few more critical positions. For example, the availability of N-butyllithium [NBL] directly depends on maintaining the continuity of SBS production in Voronezh that is a special elastomer for producing polymers for roofs, road pavement, and footwear. The same component is indispensable in the production chain of a number of synthetic rubbers. Fortunately, we have a strong scientific division and we obtained and tested our own technology of NBL production very swiftly. In the future, we are planning to build our own plant for its production, which means that we will be protected in this aspect, as well.
We view the production of flame retardants as an investment idea in the category of raw material safety. They are needed for the production of expanded polystyrene, ensuring non-combustibility of the structure with this material. We are considering a small capacity for our own consumption and import substitution, as well as for sale to the market.
Q.: When could the project be implemented?
A.: This is an investment idea for now. I think that by the end of the year we may make a decision one way or another.
Q.: You announced the construction of a site for testing catalysts for oil and gas chemistry, and announced the direct establishment of production and a so-called catalyst plant for mainly polyolefins on another site. Are the main parameters already clear?
A.: We are working on this project, and we believe that it is a priority. We will definitely make an investment decision next year, again one or the other.
Q.: SIBUR said that the Oil and Gas Refining and Production segment is one of the most tonnage-intensive segments in the company (over 1.2 million tonnes per year). How does the company plan to develop it, what sales volumes does it plan to reach, and what new products does it intend to offer?
A.: On the one hand, this is one of the large-tonnage segments, on the other hand, the potential is lower than in other industries.
Q.: Why?
A.: This is because it is a mature segment, and there is a saturation effect. Let's just say that in agriculture and medicine we see the potential exceeding the current consumption by several times, but here it is still at approximately 30% over the horizon of several years.
Q.: Do you sell polymer pipes in this sector?
A.: No, there are many different fuel additives for oils and for increasing the octane number, special components related to production, special chemistry. In particular, we are now discussing with producers of solid minerals the development of a special chemical liquid that would allow us to treat coal cars so that workers would not have to knock it down with a crowbar. There are quite a few examples of this kind of thing popping up right now. It is not very tonnage-intensive, but it is very creative. We are discussing a solution for the exploration of the Arctic that will prevent the permafrost from melting during resource development.
Q.: What trends do you expect in terms of sales of your products by country? Will the distribution (74% to Russia and the CIS countries, 22% to the countries in the Asia Pacific and Middle East regions, including 8% to China, and 4% to other countries) remain the same in 2024? Are there any new markets you are developing in 2024?
A.: I think we should not expect any significant changes, except for the preference of the Russian market to other geographical areas due to the growth of consumption in Russia. And as long as we do not introduce new capacities, this will result in a drop in exports. Which geography we will prefer for export is a commercial and market-specific issue.
Q.: And as for the cost of sales. Is the price on the Russian market, excluding logistics, roughly the same as that on the Chinese market, or is it much lower?
A.: This depends on the product, on time, and on the type of contract. It is very different.
Polymers are an easily traded and easily transported commodity. Therefore, prices and quotations are interrelated and dynamic. Another question is what the logistics cost for a manufacturer to reach a particular market, and what is the specific market situation at a given moment. China has an advantage that we have a container back-loading effect due to high imports.
In our pricing strategy, we always take into account the market situation and the challenges faced by manufacturers of products with polymer content. An important indicator for us in terms of the correctness of our price level is a reduction in the imports of products brought into the country, both granules and finished polymer products, and an increase in consumption on the Russian market. Unfortunately, manufacturers of finished products do not always follow our trend, despite the threat of losing a market share in finished products due to imports.
Q.: You said that investments are being resumed. Oil companies, for instance, are asking to postpone certain launches of projects under investment agreements with the Energy Ministry. Do petrochemical companies ask for this?
A.: No, they don't. This is also why we are always cautious when talking about investment plans at early stages, and we talk about them when we are sure that they will be fulfilled. And, of course, all industries have different situations.
Q.: And you do not see a fall in raw material supplies due to restrictions imposed on oil production under the OPEC+ deal?
A.: No, I don't.