Russia Petrochemicals Report Q4 2009

Russia Petrochemicals Report Q4 2009

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.

Executive Summary .5
SWOT Analysis....7
Russia Chemicals And Petrochemicals Industry SWOT7
Russia Political SWOT8
Russia Economic SWOT ..8
Global Market Overview9
Global Ethylene Capacities ..9
Table: World Ethylene Production By Country, 2008 And 2013 (‘000 tonnes capacity) .9
Polypropylene.12
Global Oil Products Market Review..15
Table Global Oil Prices, 2003-2013 (US$ per barrel)19
European Overview20
Regulation..20
Table: Key Elements Of REACH...21
Production .22
Russia Market Overview..23
Petrochemicals Trade....25
Market Structure..26
Table: Russia’s Cracker Capacity, 2009-2015 (‘000 tpa)26
Foreign Investment ...27
Petrochemicals Business Environment...28
Table: Central And Eastern Europe Petrochemicals Business Environment Ratings ....28
Limits Of Potential Returns.29
Risks To Realisation Of Potential Returns ...29
Russia’s Foreign Investment Policy...30
Foreign Trade Regime ...31
Tariffs/Non-Tariff Barriers .31
Tax Regime 32
Industry Trends And Developments ...34
Upstream ...34
Olefins And Aromatics ...38
Polymers....41
Financial Results And Developments.44
Belarussian Privatisation....45
Industry Forecast Scenario ...47
Table: Russia’s Petrochemicals Sector, 2007-2013....49
Macroeconomic Outlook50
Table: Russia – Economic Activity, 2006-2013.52
Company Monitor...53
Nizhnekamskneftekhim (NKNK)....53
Lukoil....55
Salavatnefteorgsintez 57
Sibur Holding .58
Table: Sibur’s Output, 2005 And 2006 (‘000 tonnes, unless otherwise stated) ....59
Country Snapshot: Russia Demographic Data .60
Section 1: Population60
Table: Demographic Indicators, 2005-203060
Table: Rural/Urban Breakdown, 2005-2030 ....61
Section 2: Education And Healthcare61
Table: Education, 2002-2005 ..61
Table: Vital Statistics, 2005-2030.61
Section 3: Labour Market And Spending Power ....62
Table: Employment Indicators, 2001-2006..62
Table: Consumer Expenditure, 2000-2012 (US$) ..62
Table: Average Annual Wages, 2000-2006..63
BMI Methodology ...64
How We Generate Our Industry Forecasts ..64
Chemicals And Petrochemicals Industry 64
Cross Checks ..65
Business Environment Ratings.66
Table: Petrochemicals Business Environment Indicators And Rationale...66
Weighting...67
Table: Weighting Of Indicators ....67