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«SIBUR» LLC is the managing organization of PJSC «SIBUR Holding».

117218, Moscow, Krzhizhanovsky st., 16/1

SIBUR primarily focuses on the domestic market, with some exports to Asia and Europe – Oleg Makarov, Managing Director

- SIBUR and China Petroleum & Chemical Corporation have recently signed an agreement for a JV to produce synthetic rubbers at its East Siberian Krasnoyarsk synthetic rubber plant. Sinopec has around 25% of the equity in the JV. Are there any further plans to co-operate with Sinopec in other synthetic rubber ventures in either Russia or China?

- SIBUR’s plant in Krasnoyarsk supplies nitrile butadiene (NBR) rubber globally: to Russia, China, SE Asia, US, etc. China is a major consumer of KZSK produced nitrile butadiene rubbers, and Sinopec doesn’t have nitrile rubber in its portfolio. These are the reasons why we decided to partner with Sinopec.

SIBUR and Sinopec are also discussing establishing a joint venture to manufacture nitrile butadiene rubber and isoprene rubber in Shanghai.

- Reliance SIBUR Elastomers Private Limited started construction of a 100,000 mt/year butyl rubber plant in Janmagar, India, earlier this year. Will there be any further expansions in India?

There is mutual interest in joint work with Reliance, but we are not planning any other specific projects at present.

- A number of synthetic rubber producers, namely Versalis, have said it will have the Asian market as a focus for its activities. What role will Asia play in SIBUR’s strategy?

- In 1H 2013 we’ve exported around 60% of our synthetic rubbers. In Asia, India and China are the markets we focus on and where we’d like to develop production. We are looking at more active work in Asia through partnerships with local producers. SIBUR’s unique technology and many years of engineering expertise combined with partner’s capabilities and understanding of the Asian market puts a JV in an excellent position in the market.

- SIBUR recently started production at its 50,000 mt/year Voronezh styrene-butadiene-thermoplastic. Are there any further synthetic rubber production capacities in Russia or Europe lined up?

SIBUR is expanding and upgrading the butyl rubber facilities at the Togliatti production site with the aim of increasing the capacity from 48,000 tonnes per annum to 53,000 tonnes per annum. The project is scheduled for completion by the end of 2013. SIBUR isn’t planning any projects in Europe.

- SIBUR started up its newly expanded EPS line at its 50,000/mt Perm facility, doubling capacity. One of its recently stated aims was to seek to complete and to replace imports. Will there be additional EPS expansions? Will there be any plans to grow EPS exports to Europe?

- With the new line SIBUR increased EPS capacity to 100 K tonnes per annum, becoming the absolute leader in Russian EPS market. At this moment, there are no plans to expand the capacity further. In EPS sales, SIBUR targets primarily Russian and CIS market. Domestic EPS market is still unsaturated and, according to our estimates, is expected to be dependent on imports over the long-term.

- SIBUR began production at the first polypropylene line at its Tobolsk-Polymer complex earlier this year, are there any further expansions planned?

- SIBUR started trial production of PP in May. Since then the Company has been making trial shipments of some PP grades to its customers. Both PP lines have already produced on spec material.

We are not planning any further expansion at the moment.

SIBUR’s management is currently evaluating a significant greenfield project involving the construction of an integrated polyethylene and polypropylene production complex in Tobolsk, referred to herein as the ‘‘ZapSib-2’‘ project. The facility is projected to operate a steam cracker with a total annual capacity of 1.5 million tonnes of ethylene, four polyethylene production units with a total annual capacity of 1.5 million tonnes, and one polypropylene production unit with an annual capacity of 500,000 tonnes. The Group plans to make a final investment decision on the project after completing a FEED stage this year

- What are the demand and supply forecasts in Russia for polymers and olefins? And what role will SIBUR play?

- According to IHS, over the last decade, Russian/CIS demand for basic polymers grew generally above GDP, driven by several high-growth industries such as automotive, FMCG, construction and infrastructure. Currently, Russia lags behind developed and emerging market regions by per capita consumption of PE and PP. The Russia/CIS basic polymers market remains highly reliant on imports (roughly 30% of consumption in 2012), particularly in PP, IHS predicts that it will remain short through 2017.

Market demand for polymers in Russia will continue to grow above GDP growth level, although the growth rate will eventually slow as the economy matures. The highest demand growth rate will be seen for polystyrene, polypropylene and PVC. Demand for olefins will grow with an equal pace. Significant olefins supply growth, however, will happen only after the start-up of new crackers as the existing facilities are running almost at 100 % utilization rate.

SIBUR primarily focuses on the domestic market, with some exports to Asia and Europe. The Company’s exposure to international sales of basic polymers will increase going forward, as the new PP production plant in Tobolsk is being launched in 2013.

- In terms of end user/derivative markets, where are you seeing strongest growth?

- The construction industry, autopart and [auto] component production and housing [development] are usually showing the strongest growth in demand. In mid-term, Russian demand for basic polymers is forecasted by IHS to grow above GDP (4.3% p.a.).

  • Automotive and packaging sectors are among key end-use industries for basic polymers. In 1H13, on the back of negative macro environment and overall economic slow-down automobile production in Russia was down by 3.1% y-o-y. Nevertheless, industry experts forecast automobile production to increase in 2014, following economy improvement.
  • Positive mid-term outlook for automotive sector is also supported by OEMs’ plans to expand local car production.
  • Packaging sector continued to demonstrate double-digit growth rate in 1H13 (up by almost 20% y-o-y in volume terms vs. 24% y-o-y growth in 1H12).
  • Retail industry constitutes most of the demand for packaging. In1H13 growth of retail sales in Russia slowed down (up 3.7% y-o-y vs. 7.7% y-o-y in 1H12). For 2014, Russia’s Ministry of Economic Development forecasts retail sales to grow above 4% y-o-y.

- We are seeing improved economic data and growth rates in Europe, Asia and the US are currently being revised upwards as the economy is recovering. What are your expectations for the end of the year and 2014?

- While beginning of 2013 was marked by instability in EU and US, we remain cautious on the prospects of acceleration of global petrochemicals consumption. Economic growth of China, the key market for basic polymers, has slowed down in 2Q13, triggering downward  revision of forecasts by global financial agencies. Mixed signals of dynamics of consumer demand, production and exports in China suggest that the market will remain volatile for some time. In EU, revival of the petrochemicals demand is also a function of sustainable economic recovery.

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