Easy times for the Russian PET industry related with the mass production of bottles is over. Only the most pragmatic and effective market players will be able to continue successful work.
On Monday, the 20th of February Ritz-Carlton hotel, Moscow, traditional international Creon Conference PET 2012 was held. The forum was held under the sponsorship of Sibur and Uhde-Inventa Fischer, the partner of the Conference was B?hler. Russian market of PET is now in a tricky situation - the demand for production isn`t growing practically, and in connection with probable prohibition of PET-containers for bottling of alcohol, the demand can even lessen. It is clear, that the development model that was supported by the market players during several years needs to be reconsidered. It is not obvious what influence it will make on new announced projects of PET production in Russia and the stance of the producers that are already working. With these statements CEO of Creon Sandjar Turgunov addressed the audience in the welcome speech.
The director of PCI PET Packaging David Swift made an overview report about the market of granulated PET. The recovery of the world PET market and other polymer production is going not so fast as the producers would like to, and very non-uniformly in different regions of the world. In 2011 the global consumption of PET had a growth of 6,4 % (17,7 million tons), yet in Asia the growth was over 10 % while in Western Europe and in the USA it was on the level of 1-3%.
Meanwhile the share of Asia on the world market of PET is growing because more than one third of total production is consumed in the region. The development of various segments of PET production is going uneven too. Carbonated beverages have the minimal rate of increase (4 %), while the maximal positive dynamics is shown on the market of non-food package and the products from recycled PET.
Nonetheless, more than two thirds of all PET-granulate are used for bottle production in the world. The average annual rates have fallen during the last several years; in 90s they were 15-20% per year, now they are just 6-7%. The market entered the phase of maturity. For many market players it happened unexpectedly, that`s why the capacity utilization has dropped. The total global capacity of PET is 23.6 million tons, the half of it is located in Asia, where will be almost all new projects on production increase realized. Only in 2012 3 million tons will be added, and in 2014 the increase will be 4 million tons. The consolidation of the industry is the reaction on these changes in Europe and Northern America. Three leading producers now control 90% of PET production in the USA and 60 % of PET-production in Western Europe. Indorama is the leading PET manufacturer in the world with the capacity of 3.2 million tons per year.
The growth of capacity that outgoes the growth of demand has been happening on the world PET market since 2005, which leads to the capacity utilization decrease. After the realization of investment projects in Asia it will decrease even more - from 80% to 70 %. In Eastern Europe the situation is different compared to the average in the world, because the demand rates are lower (5%), and the capacity is lower than demand and is full-utilized. The imported PET in Eastern Europe is of Asian origin, as well as in other regions of the world. Yet, in connection with outrunning demand growth in Asia the volumes of world PET trading, according to Mr. Swift, may decrease. The role of Asia as the main PET exporter will partially go to the Middle East. Nonetheless, Asia and especially China will be the center of PET price formation, which determines the economy of the industry. For polymer producers it is not very favorable, PET raw margin is only 100 dollars per ton and does not change, despite the rise of oil prices. The same processes that don`t coincide with the formal logic of increasing added value formation are typical for TPA market, but the margin is 300 dollars there. Paraxylene margin is the largest and is valued to 500 dollars. PET prices have seasonal character because of the dominance of bottle production and in 2012, according to Mr. Swift`s forecasts, wouldn`t fall.
PET high price creates interest in its recycling; moreover, in many regions of the world it is already well established. In China and Japan 75-85% of all PET production is collected and recycled, in Western Europe it is only 50 % and in the USA it`s just 30 %. In Eastern Europe and Russia only 10 % of PET is collected and it is the worst rate in the world. In China PET is collected effectively, yet the volume of its recycling lets the country be the major importer of this raw material, while China is one of the main exporters of virgin PET. In Eastern Europe small volumes of collected polymer have limited use and are exported to other countries. It is rather profitable business, because the prices of recycled PET are 70-80% from the prices of virgin one, yet before the sharp rise of prices it was two times cheaper.
CEO of Global Service International Alessandro Pirondini paid attention to various aspects of China leadership in the world polyester industry. As opposed to Mr. Swift, the reporter examined not only granulated PET, but also polyester fibers and yarns, on which goes the major part of total PET consumption (56 million tons). Polyester fibers are the basis of the balance of textile raw materials in the world while China is the main fibers` producer. Both trends will continue in the future. Besides, China is increasing the capacity for terephthalic acid production and will possess the half of world market of this product by 2016, because there are no investment projects in the world except China. The position of the country on paraxylene (TPA feedstock) is more modest - only every fifth ton of this chemical is produced in China. The paraxylene production is increasing more rapidly in Middle East, from where it is exported to China.
The development of TPA production will let China to change its status from net importer of the acid to its major exporter. Now TPA is imported from the neighbor countries: Korea, Thailand and Taiwan. Mr. Pirondini paid special attention to new projects on PET production. Newly launching capacity is 150 thousand tons minimum, 1 million tons maximum, and in average 500 thousand tons. PET from China is actively exported and among the main importers together with the USA and Japan Russia and Ukraine have one of the leading positions. The volumes of import will decrease a little in the future, yet the delivery of TPA in case of new investment projects realization in Eastern Europe may be enlarged, if it is more profitable to sell TPA instead of PET. As Mr. Pirondini has marked, in Western Europe the PET producers with total capacity of 50 thousand tones are still working thanks to the system of protection of national markets. Will it work in Russia, where the capacities are several times smaller than Chinese colleagues have and where the import channels are widely opened for a long period of time? It still remains the question.
The capacity increase of single PET units was the main topic of Heinrich Koch, the manager of polyether sales of Uhde-Inventa Fischer, report. During four years the average capacity of new plants has increased from 250 thousand tons to 450 thousand, and on the Middle East and China this figure already seems modest. The technologies of PET recycling have been developing, and they allow producing more qualitative raw materials, that is used in the sectors, where virgin PET is used. Mr. Koch told about the company`s achievements in the technology simplification and energy consumption reduction. Based on this technology the new plant of Alka-Nafta in Kaliningrad is built.
The senior analyst of Kortes Alexey Shkurin told about the Russian market of PET. It has very weak dynamics - in the previous year the visible consumption of the polymer according to the provided data was less than 1%. PET is imported to Russia from China, Korea; small volumes of fiber grade PET are imported from Belarus. The major importer with a share of 30 % is Retal Company. Large export of PET production has begun with the launch of Alka-Nafta plant in Kaliningrad according to its geographic location. Till 2015 the capacity of Russian producers will increase by 1 million tons because of Ethana, the joint facility of Sibur and Gazprom neft project and the expansion of the capacity of two existing Sibur`s plants. If PET consumption doesn`t grow, like it is, the market will face surplus in 2013. This cause a variety of problems, among which the main are the lack of raw materials (TPA and MEG) and sales difficulties. In 2015 there may be the deficit of TPA of 570 thousand tones, while the existing paraxylene resources allow doubling the production of TPA. MEG market is deficient one since 2011, and in 2015 the deficit will be about 200 thousand tons. After Russia entering WTO the rate of import duty on PET will decrease from 5 to 4% that will cause extra problems for Russian companies. Their competitiveness in the world is not very large now, and for its increase, as Mr. Shkurin has pointed, it is necessary to use raw material advantages of the country and to initiate new projects connected with TPA and MEG production. The necessity of integration with raw materials producers was also admitted by PET producers, the representative of Senezh plant said, that the rate of non-primary components in the cost of PET is low, and the availability and cost of raw materials determine the economic sector. At the same time, he tried to argue the idea of market growth lack, pointing that statistics doesn`t show the reduction of products in stocks.
Head of Commercial Department of Polief complex Ekaterina Gerasimova told the audience about management consolidation of polyester direction in Sibur Holding and market prospects. According to the expert, in 2011 the market has shown the stability in spite of unusual low demand in high season and consumption stayed at the level of previous year. The data, provided during the presentation, revealed that granulated materials stocks increased approximately by 20 thousand tons compared to the previous year. In the nearest time, according to Sibur`s estimations, potential of PET market development in Russia will be 3% per year and surplus of Russian polymer will be sold in CIS countries.
CEO of Ethana plant Sergey Ashinov represented a detailed report about the implementation of investment project of PET plant with the capacity of 486 thousand tons per year in Kabardino-Balkaria. This production site was chosen, according to him, thanks to favorable prospects of food industry in Russian South regions, the proximity to ports for raw materials import and finish products export and also owing to interest of federal authorities in economical development and social stability in the region. It`s planned that 30% of PET production will be of fiber grades, and it`s also planned to settle up fiber plant in the republic for employment of the local population. Project`s technological support is provided by Uhde Inventa-Fischer and B?hler, at the same time funds for infrastructure development are appropriated by federal authorities. Supply of raw materials (terephthalic acid) will be from Europe and Korea and it`s planned to settle up own facility of terephtalic acid by 2020. PET will be exported to Europe, CIS countries, South-East Asia and Africa. Mr. Ashinov informed that for the present Ethana doesn`t have any plan of cooperation with LUKoil, which is constructing large petrochemical complex in Budyonnovsk. Danil Polyakov, Head of Sales of CIS representative office of B?hler told about the advantages of company`s technology, chosen by Ethana. To his view, the main criterion of selection was the reliability and reduction of risks of loss due to prolonged shutdown. Technology with SSP block, offered by the company, leads to power inputs increase. They are equivalent to 4-6 days of suspension, however, insure from emergency shutdown during 2-3 months. According to data, provided by Polyakov, more than 70 % of PET in the world, are produced with the technology of B?hler, company have signed contracts for the installation of extra capacity of 6.8 million tons, primarily, in Asia.
The well-known enthusiast of chemical fibers production in Russia, Head of Textile Department of Koltech International Emil Eisenstein told the audience about polystyrene market state in Russia and in the world. According to him, the statement that polystyrene industry is developed just in China doesn`t completely meet the reality. In 2010 production of chemical fibers in USA and Western Europe has increased too. The reporter reminded that originally PET had been the material for chemical fibers production and now two thirds of all volumes of the polymer, produced in the world, are used for these purposes too. Polystyrene fibers manufacture in Russia as well as in almost all CIS countries, except Belarus, is absent. Just non-woven materials are made of recycled PET, which, according to the expert, isn`t suitable for textile yarns production. At the same time, import volumes of polystyrene fibers to Russia are estimated by him in 110 thousand tons per year. All projects of settling up domestic manufacture of this production either not financed in the country or have a small scale or have non-clear prospects. To Mr. Eisenstein`s view, the reasons of catastrophic state of Russian textile industry, production which have just 10% of domestic market and chemical fibers field, are in expensive raw materials, obsolete equipment and total non-competitiveness comparing to Asian import.
The report of Natalia Nesterova, Manager of Regulatory and Ecology of Coca-Cola Hellenic has caused heated debate as it was about the project of plastic bottles collection. Investment idea belongs to Coca-Cola, the city administration and Plarus Company, which runs business of PET recycling. Agitation in state schools plays a leading role in the project. Collection and PET recycling issue as the used plastic are the extremely relevant for Russia. More than 40 million tons of garbage per year is removed to Russian landfills, about 40% of this volume is the share of different types of package. More than half used bottles are collected in Europe, Asia and even in Brasil, meanwhile in Russia all initiatives were failed. Nevertheless, above 40% of Russians are ready to sort the garbage, according to polls. To Mrs. Nesterova opinion, Government`s initiatives to impose a special tax for package utilization in 2% of its value are meaningless. Event`s participants have doubt about Russians` readiness to dispose garbage separately and participate in such initiatives without economical drives. Results of such polls are not representative as the people not always tell the truth. Arranging of bottles collection with the assistance of schools called up the practice of the planned paper collection in Soviet period, which forced peoples to subscribe the magazines and newspapers. The interest of producers of beer, carbonated water and other beverages filled in PET bottles to such projects can be related with efforts to support falling demand as to dispose the bottles it`s necessary to buy them first.
During the Conference special attention was paid to the efforts of alcoholic drinks ban (including beer) bottling in PET-package. Chairman of the Council of the Russian Brewers Union Vladimir Mamontov and Corporative Director of SUN InBev Andrey Erin represented justification and substantiation of such obvious bias of legislative initiatives. Chemical admixtures, contained in beer after contact with the PET-package, are significantly lower than the standards and the statement that larger beer PET-bottles lead to the alcoholization of people was challenged because such bottles contains less ethanol than half-liter bottle of vodka but they are more expensive. At the same time, it`s offered in this draft legislation to ban the secondary usage of glass beer bottles and it discloses the profit owners. Executive Director of National Confederation of Packagers Alexandr Boyko called the project absurd. The Head of Direction of Sibur Bogdan Plakhotnikov told that Company with the assistance of brewers runs negotiations with the State structures in confirmation of PET safety and negative consequences of its ban for alcohol bottling. Chairman of the Board of Alfatechform Valeriy Yuriev noticed that PET without protective layers has a weak gas permeability that leads to catastrophic deterioration of the beer quality during the period of its exposure to the sunlight. Nevertheless, according to participants` consensus, ban of PET-package for alcohol will lead to reduction of demand by 35-50%.
The Head of Creon Fares Kilzie reminds that last year on the conference joint project of Sibur and Gazprom Neft was announced, but still has not received any status, that is very disappointing. PET is a niche product of B2B type. There is no speculation and speculative profits on the market as the range of major consumers is extremely limited and game rules are determined by them together with the polymers producers, similar to them by market reputation. Mr. Kilzie is sure that in Russia only the most pragmatic and integrated companies, driving PET market forward, will work. While the others are in panic now, because they see that the demand ceased to grow.