Mr Komyshan, how did 2022 go for Sibur? How well is the Russian petrochemicals industry doing amid the sanctions?
Last year was like a roller-coaster: we were all looking forward to the end of COVID-19, but instead got an avalanche of new external changes. The first thing we had to deal with was lack of access to equipment, technology and a whole range of imported special components and chemicals, which was followed by numerous export restrictions. All this certainly created quite a bit of turbulence in our life. As a matter of fact, we had to muster all the company’s strength to tackle these challenges. Thankfully, SIBUR came in well-prepared for whatever happened, so we managed to successfully address key challenges in all areas. For example, we substituted 743 out of the 749 components that were no longer available for import, with imported or domestic alternatives, and our own products (in some cases). This enabled us to keep the company’s production results as close to our targets as possible. We certainly had to redirect our sales fr om Europe to Asia. As a result, the share of European sales in our portfolio fell fr om 20% to below 5%.
We actively supported our clients to help them manage similar problems. They approached us with more than 1,000 inquiries concerning issues of the same kind that we faced. While handling one of them, we leveraged our network of contacts throughout almost the entire industry nationwide and later used the outcomes from this exercise to assist other clients of ours. We were firmly committed to providing this support — although we saw some players focus fully on their internal problems and gain a competitive advantage this way. We felt, on the contrary, that it was time for saving the wider industry as a whole. I believe that together with our partners and clients we have generally succeeded in doing this.
This, in turn, has changed the industry dramatically and will drive more changes going forward. We see strong growth potential for the domestic processing industry. Further on, we could help leverage takeaways from 2022 to the benefit of the entire industry.
Last year was marked by high oil and gas prices. How did they affect global polymer prices?
The global market saw some fascinating developments. Indeed, energy prices were up. Prices for petrochemicals and polymers, which are usually aligned with energy prices, were not going up so fast this time. The global spread between the price of feedstock and finished products considerably narrowed, hurting global petrochemical margins. The geopolitical crisis and a raft of restrictions disrupted supply chains, causing major problems for the global petrochemicals industry. As a result, Russian producers had to leave Europe for Asia. To replace us, other producers needed to make shipments to Europe. Previously this was not the case as other producers viewed that as less profitable. In order to make shipments to Europe profitable enough, prices in Europe had to rise on average as compared to other world prices, which is exactly what happened. As a result, European consumers of petrochemicals are now paying the highest prices in the world.
We keep monitoring European prices but currently, they have no impact on the Russian situation. Chinese prices saw a major uptick in 2022, followed by a decline, and have been back again on an upward trajectory since December. The amplitude of price fluctuations during the year exceeded 30%.
How has the company navigated the process of redirecting supplies from Europe to Asia? What does your sales split by market look like now?
Traditionally, about 60–65% of our products go to the domestic market, which has been and remains a priority for us. As for the European share, we have managed to successfully redirect our sales. However, this naturally comes with increased logistic costs to ship our products to Asia. The company also saw its working capital increase as the days working capital went up slightly amid changes in the sales geography. But this is the reality faced by all Russian exporters today – shipments now take longer and are more expensive.
We have managed to step up our presence in a number of regions that are not typical for us. China is the key sales market accounting for up to 80% of our total exports to Asia-Pacific. We also see significant potential demand in other markets in Southeast Asia, such as Bangladesh, Vietnam, Malaysia, Cambodia and Indonesia, wh ere our business has been growing fast since mid-2021. We have already set up regular supplies to these countries, albeit in quite small volumes.
We are fairly successful in the Turkish market, wh ere our share has expanded considerably and is now above 20% in the polymers segment. We believe that in Turkey, we are there to stay. Do you think Turkey could become a transit hub for Russian petrochemical supplies to Europe, similar to a planned gas hub?
This is possible provided there is certain development in the infrastructure and suppliers. If we are talking about Turkey turning into a hub that adheres to European restrictions, then this country has a chance to bolster its role in the petrochemical industry as well. Until recently, Turkey was a major refiner of petrochemicals. It is cheaper than Europe in terms of factors of production and has always capitalised on its geographical location at the crossroads of trade routes fr om Asia to Europe Now, with petrochemical products sold in Europe at prices so high they are unmatched globally, Turkey has even more chances to strengthen its market standing. We are very optimistic about growth prospects for Turkish processors and producers of films, rugs, paints and compounds – and this is who we sell our products to.
Last spring, SIBUR disclosed plans to increase exports to China by 40% in 2022. Have you reached that target? What are your plans for 2023?
We have basically exceeded the sales targets that we had for Asia. Our shipments to Asian markets increased by 50% in Q2 2022 vs Q1 2022, with a further more than 2.5-fold rise, mainly due to higher sales of basic polymers and synthetic rubbers. In addition, in 2022, we began exporting products previously not supplied by us to Asia, such as isobutanol, methyl acrylate, polycarbonate, polystyrene and others. Our long-standing partnership with Sinopec played a big role here as they helped us with securing local sales channels and setting up logistics. China is by far the biggest market in Asia and our key sales destination, but we look for opportunities in other markets as well. In 2023, we will continue developing our Asian exports. In total, we plan to be selling about 2 mt of petrochemicals to Asian consumers.
How has the recent spike in new COVID-19 cases in China affected the petrochemicals market and SIBUR’s supplies to China?
COVID-19-related restrictions weighed heavily on China’s economic growth. I think that was one of the strongest arguments for the Chinese government to relax its zero-COVID policy. We believe that will help boost the economy, with knock-on effects felt by the global petrochemical industry as a whole. We hope that will get the automotive segment moving again and drive the consumption of rubbers.
Overall, in most of the Chinese market segments wh ere we operate, with synthetic rubbers as the only exception, our share is not large enough for a 3–5% change in demand to affect our sales potential.
In 2022, SIBUR launched production of MAN (maleic anhydride) in Tobolsk. Has the facility already reached its full capacity, and who are the buyers that you ship to? We are currently in the pilot phase. This is a unique product that can have a variety of applications in all the key industries, even food. We do have a focus on exports as the facility has a capacity of 45 kt, with Russia’s entire MAH market not exceeding 7–10 kt annually. We have already started shipments to Asia. This is a rapidly growing market and we expect it to become a robust destination for us.
Is there potential for MAH domestic consumption in Russia to go up?
We believe there is. We see that the market has already responded to the fact that MAH is now being produced domestically. Given the very wide range of applications that MAH derivatives can have, going forward we expect double-digit rise in its consumption.
The Amur GCC, a major project for SIBUR, has seen its launch moved to a later date. What is the current progress of construction?
We are going ahead with the project together with our Chinese partners and are currently constructing the cracker unit and power facilities. We also continue to fine-tune the project as needed regarding its polymerisation units. This will definitely cause us to push our construction completion dates somewhat further away, but we have no doubts that the plant will eventually be built and launched. This is still an efficient project that will evolve into one of the world’s most competitive production sites.
In terms of its products, we have firmly reached an agreement with our partner to sell the bulk of the products in the Chinese market. This is one of the reasons for our partner, Sinopec, to get involved in this project in the first place. It opens up great opportunities both for us and Sinopec as the largest producer and distributor of polymers in the Chinese market.
What do you think the year 2023 will be like for the company? What are SIBUR’s key growth vectors and plans?
We will go ahead with our efforts to develop new products as we hope to launch new grades of polypropylene: film grade for improved heat-sealing, retort packaging, modifier to help against tiger stripes, and high-modulus polypropylene block for pipes. In terms of polyethylene, we plan to make film for lamination, for steel-coated pipes, PERT, and secondary polyethylene for bags and films. We are also in the stage of homologation for a number of grades, following which these will be marketed at a larger scale (grades for caps and lids, fuel tanks in cars, medical blow molding, and melt blowing).