New Market Research Report: Russia Petrochemicals Report Q1 2014

Russian petrochemicals capacity expansion over the medium term will be stimulated by expansion of non-oil industrial sectors and domestic market growth. BMI believes that a structural change in the economy towards domestic demand-led growth should benefit the petrochemicals industry, and domestically driven growth should ensure expansion does not lead to an imbalance between supply and demand, although in some segments there is the prospect of exports.

According to the Russian Federal State Statistics Service, in H113, Russian production of chemicals rose by 3.3% y-o-y, while rubber and plastics grew 7.8%. This performance placed the chemicals and petrochemicals industries well ahead of overall manufacturing performance which saw zero growth over the period and total industrial growth of just 0.1% y-o-y. In the first 10 months of 2013, plastic in primary forms was up 14% y-o-y to 5mn tonnes while synthetic rubber grew 5.1% to 1.2mn tonnes. Boosting polymers, particularly in the polyethylene segment, Russian per capita consumer spending is forecast to increase by 59.0% between 2013 and 2017, compared with a regional growth average of 42.0%.

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Following planned capacity expansion in 2014, Russia will be transformed from a net polypropylene (PP) importer to a net exporter, and polyethylene terephthalate (PET) and polyethylene (PE) capacities will continue to keep pace with growing demand. Further major developments are planned in polymers over the forecast period, including Sibur's expansion of its Tomskneftekhim (TNKh) subsidiary through a debottlenecking programme that will raise PP by 10,000 tonnes per annum (tpa) and HDPE by 40,000tpa by 2016. Gazprom is building a 1mn tpa naphtha cracker and downstream units at Salavat, and Rosneft is also planning a naphtha cracker with capacities of 1.4mn tpa ethylene, more than 600,000tpa propylene, 230,000tpa benzene and 200,000tpa butadiene. The complex, which could come on stream by 2016, will be engaged in polymers production and will produce a range of other petrochemicals products.

BMI's key views for the petrochemicals sector are:

* At 6kg per capita, PP consumption in Russia is half China's 12kg, Eastern Europe's 14kg and Western Europe's 14kg. BMI expects that growth in per capita consumption could return Russia to being a net importer of PP by 2018, on the back of potentially double-digit demand growth. Russia produced around 453,000 tonnes of PET in 2012, importing 185,000 tonnes, and the national market has substantial growth potential. Russian per capita consumption of food-grade PET is 4.1 kg, compared with 9.5 kg in the US, according to Sibur.
* Over the next five years, PE will lead polymer capacity growth, accounting for a total of 69% of the increase with LLDPE accounting for 25%, LDPE 24% and HDPE 20%. PP will contribute a further 17%, PET 13%, and PVC 1%.

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