10 марта 2012

Polyethylene 2012: event report

Despite the efforts the polyethylene producers make, they won`t be able to catch up with processors in the coming years.

On Wednesday, the 29th February the traditional international Conference "Polyethylene 2012" was held by Creon in Ritz-Carlton hotel in Moscow. Company Centropolymer was the golden sponsor of the conference, also the sponsors were Europlastic and Polyplastic, HimTradingGroup was the partner of the forum. The event was held under the support of information analysis center Kortes. In the welcome speech CEO of Creon Sandjar Turgunov noted that Russian market of PE is close to the point of stagnation and urgently needs the innovative development, the manufacture of new products and new areas of polymer application. That`s why Creon made the stress on perspective technologies and products in Russia and innovative grades of PE that are required for their production. Before this moment all market players were interested only in market situation, but now it becomes evident that even the fall in prices doesn`t stop demand decrease during market saturation. That`s why the issue of qualitative development of the industry becomes the main issue. Herewith there are not many companies in the country that can share positive experience in advanced polyethylene grades processing and there are no producers of such grades of PE in Russia. Yet we have a hope that the situation will change in future. Mr. Turgunov asked the participants of the conference to support Creon`s initiative and share the positive experience of new and modern products sales and related problems that can be solved only in cooperation, when the number of innovative companies will be considerable.

The leading specialist of petrochemicals division of Kortes Valeria Samarina made an overview report on the results of 2011 on the Russian market of PE. Polyethylene market in the country continues to grow, yet the rates of demand growth are decreasing and are very non-uniform in different sectors. Overall visible PE consumption in the previous year got close to the point of 1,8 million tons, yet 30% of this volume is imported. The tendencies of previous years continued in 2011: the demand for LDPE is growing too slow, its production decreases and foreign trade is determined by geographical, but not technical reasons. This segment didn`t reach the pre-crisis rates yet. Quite opposite, the market of HDPE shows good dynamics but mostly because of the import. Among the exporters the positions of companies from South-East Asia become more solid. The market of linear polyethylene was characterized by the expert as growing one with small rates, yet early estimates of Creon showed a decrease in demand for this product due to increased import of finished films. The production of linear LDPE in Russia remains unstable and reduced in 2011. The head of strategic development department of NKNH Dmitriy Kobelev told that it is difficult for the company to maintain high capacity utilization in linear LDPE production regime only, because the demand is not very high compared to HDPE that is produced at the same unit. The manager found it difficult to tell the plans of linear polyethylene production for 2012. Nevertheless, now the construction of a new plant with capacity 1 million tons of ethylene is starting, which involves the creation of new capacities of 380 thousand tons of HDPE and the existing unit will focus on linear PE production entirely.

The head of Borealis representative office in Russia Roman Romanov told about the company`s innovations in the sphere of polyolefin production. Borealis is a European company controlled by the holding in UAE, where a large polyolefin production is located. Now the capacity of the company is over 2 million tons of polyolefin, and till 2014 after the realization of investment projects in UAE, Borealis will produce 4,5 million tons of polyethylene and polypropylene per year. The reason of the competitiveness of the firm that continues to invest actively into European plants too is the manufacture of special grades of products. Company offers special grades of cross-linked polyethylene for cable industry, polyolefin pipe grades for hot and cold water supply and sanitation, polyolefin grades for the various types of packaging production by the method of molding, film and fiber grades and composites for automotive industry. Approximately 30-40% of sales are of bimodal grades. Mr. Romanov paid thorough attention in his speech to the advantages of special grades of polyethylene and their realization in Russia. According to his words, the level of 100 thousand tons sales was overcome by the company in 2007, mostly polymer of European production is imported to the country, and due to high demand the supply from UAE is expected to increase. The speaker said in particular that Borealis does not rely on single product or only market and thus the company insures itself against the risks related with the market situation.

Among the questions of short-term perspective of the market the shutdown of Stavrolen plant remains the main question for the participants of the conference. And Kirill Popov, the deputy head of office for the coordination of gas energy and sales of petrochemical products and gas processing of "LUKoil" began his report speaking about the plans of its work resumption. According to him, the resumption of PE production is expected in April, polypropylene production will be resumed earlier. The head of department of supply and sales of petrochemical products and gas processing Eduard Vilhovetskiy explained that the company now partially compensates the supply of film grades of PE with the help of Ukrainian plant Karpatneftechem, and for PE pipes producers the downtime of Stavrolene in the season of low demand is not critical, yet the situation may become worse in April and May. In addition, most consumers had large stocks and that makes their situation easier.

Mr. Popov also told the audience about the plans of PE production development in Budyonnovsk after the construction of Caspian gas and chemical plant, which competitiveness was characterized by the reporter as extremely high due to gas raw materials. The increase of grades assortment is planed, and the basis of it will be HDPE and linear LDPE. LUKoil doesn`t consider export variants, and, moreover, suggests the development of polymer processing at the place. For this aim the industrial park is constructed in Budyonnovsk now. The company is negotiating with processors about the production of new brands for their needs and long-term contracts for the supply of polyethylene. New grades can be used for production of stretch films, films for agricultural purposes, pressure pipes, bimodal films and other production. CEO of Polyplactic group Miron Gorilovskiy noted that the creation of polymers processing in the places where they are produced is not always economically justified, because the production of polymers is more spatially oriented on consumers than on raw materials. For pipe industry the effective range of sales usually is not more than 500-600 km for European part of Russia, though in Europe, where the density of consumers is higher, it is about 200 km, while in Siberia it reaches 1200 km. Nevertheless, Mr. Gorilovsky said that the company is ready to discuss its participation in Budyonnovsk techno park because of North Caucasus market.

Alexey Chubykin, Head of Special Films Division of Biaxplen, told about the state and prospects of Russian market. According to him, total market capacity of multi-layer polyethylene films is 145 thousand tons per year, 20 more or less large companies work in the industry. Just 4 plants of them have capacities of more than 1 thousand tons per month. For the last 6 years consumption volumes of multi-layer films has increased approximately in 3 times primary due to phasing other types of packages out of the market. Thereby, cardboard (for washing powders package) and glass jars (for mayonnaise) usage has almost ceased.
Biaxplen participates in market development and it has already installed two new production lines in Tomsk and Novokuybyshevsk, which will produce package films for food industry. Shrink and dairy film are in the list of falling demand, and Biaksplen doesn`t plan to invest into this production. Basic industry problem, according to Mr. Chubykin, is consumers` non-readiness to pay for the quality. "Either something better at the same price or the same production cheaper is in demand." As a result, Russian market is too small and narrow to create full-scale hi-quality production as it is easier to import such products. That explains the problems of domestic print companies, which give the market of film with printing to the competitors from Turkey and Eastern Europe. There is extremely low profitability on stretch-film market due to mass import of this production from the countries where linear polyethylene is not subject to import duty. In Russia it is cancelled formally but is collected in practice. To solve above-listed problems, according to Mr. Chubykin, industry association should be created which will not mere collect payments and write the letters to bureaucrats but work in reality and determine the industry`s standards.

Speaking about excess of transparencies films, respiring films for fruits and vegetables, biopolymer ones and other innovative products, common for Europe and exotic for Russia, manufacture of such production, according to the reporter, has not great economic meaning as now Russian market is extremely narrow. As an example, even market of protective film for plastic profiles is just 3 thousand tons per year and stretch-hood, becoming popular, is 6.5 thousand tons while total market of stretch-film is estimated in 150 thousand tons. It`s hard for Russian film producers to work on export as it`s impossible to manufacture the product, demanded in the global market, made of Russian raw materials.

Igor Druzhin, engineer-technologist and Yuriy Kiryanov, chief technologist of Granit-M told about the same problems. Firm runs business in processing of the high and super-high-molecular polyethylene, which has a number of valuable features and can substitute traditional materials. However, consumers in the mass have no deep understanding of super-high-molecular polyethylene`s advantages and experience of work with it. For the present it is applied in lining of mining plant`s bunkers and skating rinks with artificial covering manufacture. Company processes just 20 thousand tons of materials per year. Denis Monakhov, expert of UNIDO, complained about consumers` conservatism. He told about organization`s project of industry energy effectiveness increase.

Miron Gorilovskiy, CEO of Polyplastic, told about the prospects of Russian market and some CIS countries market of PE pipes and difficulties with feedstock supply for plants. Now the main issue of Russian producers of polymer pipes is not so much prices on polymer, which increased significantly after New Year, but raw materials deficit. An accident on Stavrolen has aggravated the situation. According to Mr. Gorilovskiy, it is early to speak about the price formula and forward contracts in such stance of market. Demand on pipes in Russia has recovered to pre-crisis levels and can increase up to 500 thousand tons by 2018. At the same time demand growth rates in CIS countries, especially in Ukraine, will be significantly higher. In 2012 Polyplastic Group predicts increase of pipes market in Russia by 13%, however, it is extremely small figure, in comparison with the previous years. Market remains unsaturated. General capacity of plastic pipes market in Russia is less than 300 thousand tons, while 1.1 million tons in Europe and 1.25 million tons is in North America are consumed.
Mr. Gorilovskiy, commenting upon significant market share, which is occupied by major producers of pipes in Russia, noticed that high share of such producers is typical for many developed markets, where companies, which have network of plants, control 70-80% of market. Holdings were created by principal players by means of new plants construction and independent producers that had good technical and marketing potential, but couldn`t increase realization up to volume, which would promote enough profit for development. Joining larger companies gave these plants the supply that is necessary for survival and development. Polyplastic Group has already made the same offers about integration and, it`s possible, that the company will tell about it on the Creon`s Conference "Plastic Pipes 2012".

Possibilities of Russian producers of PE in demand satisfaction of plastic pipes producers are limited. Now total capacities of Kazanorgsynthez, Stavrolen and NKNH are 260 thousand tons, but they will be expanded by 120 thousand tons and thanks to new plants will grow up to 650 thousand tons by 2018. However, due to demand growth in other CIS countries, where manufacture of PE of pipes grades is absent, total market of CIS countries will be deficit for at least next five years. But the number of market players eager to satisfy this demand is already large. PE suppliers from the countries of Persian Gulf grows, product from South-East Asia is in greater demand. Even if some new large-scale projects, called to correct the situation, are realized just now, they will put on-stream only in 5-7 years. Nevertheless, even current projects were previously planned to be realized in 2012-2013. Mr. Gorilovskiy summed it up that at the same time for large-scale pipe producers a purchase of imported raw materials is not a problem (70% of Russian market, as in Europe, is a share of three companies), however, it would like to have hi-quality domestic PE in enough quantity and at reasonable price.

Fares Kilzie, Head of Creon Company, notices that to have feedstock resources is not the most important in PE production. Western Companies like Borealis make stakes on market diversity and a wide portfolio of high-tech brands. Middle Eastern and Asian players choose the same way. The question arises, what market niche in current conditions will be occupied by Russian producers. If company can`t find itself on world market, it very soon won`t able to find itself even on domestic market. However, the Conference has broken up a number of illusions of polymers processors too. They considered that market growth will provide them guaranteed sales of any product, however, they don`t have a possibility to develop its quality and they give the market to import products. Cheap PE demanded by market grades in Russia does not exist, and it`s not clear, what are the advantages of polyethylene processing in Russia? According to Mr. Kilzie, it`s evident that processors have a few interest in participation in different clusters on the base of one major plant, they want to be closer to the consumers and have a choice of suppliers.
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