15 февраля 2011
1920

RUBBERS AND TYRES 2011: EVENT REPORT.

Today only the Finnish Nokian Tyres company considers Russia as a global center of tyre production, but there are not yet many market players who are eager to follow it.

On Tuesday, November 22 in Moscow at the Baltschug Kempinski hotel the International conference "Rubbers and tyres 2011" was held. Lanxess was the golden sponsor of the event, NPP Qualitet rendered sponsor`s support , Orghim and Quest International Trading were the partners of the conference, International Rubber Study Group supported the activity. Russian tyre and rubber industry globalizes rapidly and prepares to fit into the world trends. Already three foreign tyre companies (Michelin, Nokian, Yokohama) have their own enterprises in Russia, however, the share of tyre products` import in the Russian market continues to grow, and not only passenger car tyres being increasingly imported, but heavy truck tyres too. The transition to world standards and technologies means new business conditions for Russian companies, which work on the rubber and tyre market, and the main purpose of the conference was to search for the answer to the question whether the companies are prepared for it. Creon`s CEO Sandjar Turgunov told about it in his welcome address to the participants of the event.
Stephen Evans, Secretary General of the International Rubber Study Group, made a review report about the current state and prospects of the world`s production of natural and synthetic rubber. More than 10 million tons of natural rubber is made in the world annually and the volume of its production increases constantly as it has doubled during the last twenty years. The demand for natural rubber now exceeds the supply, which leads to a sharp increase in the prices for this resource, which for several years have skyrocketed from 2 to 5 thousand dollars per ton. Asian countries are main producers, among them Thailand and Indonesia still occupy leading positions, but a share of new players, in particular, Vietnam and Myanmar, grows, while Malaysia gradually leaves the market. Whereas the geography of production of natural rubber changes gradually, the structure of its consumption by regions of the world has changed dramatically during the recent years. The share of Asian countries, primarily China, now accounts for more than half of the demand for natural rubber, the market of this product begins to lock on Asia, which creates a deficit in other regions of the world and pushes prices up. This is facilitated by the limited land resources, which may be allocated under the plantations of rubber tree. By 2020 production of natural rubber could grow up to 16.5 million tons, while production of synthetic one - up to 19.3 million tons.
China with the annual production of 3 million tons came out on top place on output of synthetic rubber, while production in Russia does not reach 1.5 million and the country occupies the fifth place in the global ranking between Japan, where production stagnates, and South Korea, where the manufacture increases. In Europe and the U.S. industry of synthetic rubber develops in more qualitative way rather than quantitative one. In the world rating of manufacturers Russian companies Sibur and NKNK occupy the ninth and tenth positions respectively, while the leadership belongs to German Lanxess. A lot of major producers of synthetic rubber tightly integrated with the tyre companies, however, fully independent producers - Sinopec, Exxon, PetroChina take significant position on the market too. Whereas the position of Russia in production of synthetic rubbers is still strong, the volumes of consumption on a global scale are small and comparable with combined demand of South Korea and Taiwan. However, the qualitative development of the industry is in progress in Russia - Sibur is one of the leaders of production of styrene rubbers, it also develops production of solution styrene rubbers, which are produced not by all the companies in the world. On the market of butadiene and butyl rubbers, despite the implemented investment projects, Russia loses the ground, while on the market of isoprene rubbers the country remains a world leader. But on the market of special innovative rubber Russia, unlike the young Asian manufacturers, is represented very poorly, either not represented at all.
The world market of butadiene was reported in details. More than 7 million tons of butadiene is used for the needs of the rubber industry annually in the world. By the year 2015 this indicator will approach to 9 million tons. Russia`s place in the market is very modest, but the country has a unique competitive advantage, as half of butadiene in Russia is produced from gas feedstock (butane) at specialized facilities, not generated as a side product of ethylene cracking. Serious competitors of Russia in this sphere will not emerge in the next few years. Moreover, due to return to the use of lighter feedstock for cracking in the United States, production of butadiene may be reduced there. In general production of butadiene in the world up to 2015 will increase slightly (from 10 to 11 million tons), capacities will remain not fully utilized. However, despite all of it, Russia is not yet presented on the world market of butadiene trade, which is highly developed. Mr. Evans suggested that it might happen in the next few years.
Head of marketing department of the synthetic rubbers` Business Unit of Sibur Yulia Surganova told the participants of the conference about the new projects of the company, as well as about general situation in the industry of synthetic rubber and directions of its development. According to the data, presented in the report, Russia`s share in global production of synthetic rubber is about 10%, however, the situation varies for individual types of rubbers. Whereas Russia is in the leading positions on isoprene rubber production and occupies two-thirds of the market, and on the production of butyl rubber with 16% has strong representation too, the country` share in the global production of butadiene rubber is 11%, butadiene-styrene - 8%, and nitrile - 5%. Ethylene-propylene rubber and SBS rubber are produced in very small volumes and the country`s share in this production does not exceed 2%. Capacities of synthetic rubber in Russia are underutilized - only 1,2 out of possible 1,6 million tons are manufactured. Two-thirds of products are supplied for export, mainly to the European and Asian countries markets. The structure of domestic consumption of rubbers in Russia is very different from European and Chinese ones. In particular, in Russia the share of the technical rubber products accounts for only a quarter of the consumption, while in Europe and China this segment makes up one half. Also in Russia natural rubber is traditionally not used in the composition of the rubber mixtures, but the synthetic isoprene rubber similar to it used instead. The share of special rubbers in the structure of consumption due to poor development of the industry of technical rubber products is small. According to the speaker, in the recent decade no significant changes in the structure of domestic demand for rubber took place as Russian companies are conservative in changing of traditional mixtures to new ones.
Toughening of requirements for the ecological characteristics of the tyres and their fuel-effectiveness, which changes the receipts of rubber mixtures, which are used for their production, reduction of resource use in the tyre industry, the transition from ordinary to the special-purpose rubbers due to toughening of requirements to the products are the main global trends of the industry, which are perceptible in Russia too. According to estimates given by Mrs. Surganova, up to 2016 in Russia production and consumption of synthetic rubbers will grow: potential consumption will increase by 29%, from 426 up to 550 thousand tons, and the capacities of the synthetic rubber production will reach 1.8 million tons. Thus, the country will remain a major exporter of rubber products.
The investment plans of Sibur, which were disclosed by Mrs. Surganova, are headed for development of all sectors of the rubber business of the company. In Tobolsk it is planned to increase capacities of production of butadiene up to 215 thousand tons, the plant of nitrile rubbers in Shanghai with a capacity of 50 thousand tons will be constructed within the bounds of joint venture with Chinese Sinopec, the plant of butyl rubber is built in India with a capacity of 100 thousand tons in the partnership with Reliance Company. In Voronezh it is planned to increase the production of neodymium butadiene rubber up to 40 thousand tons, solution styrene rubbers to 95 thousand tons, of which 60 thousand tons will be produced by the new line, the output of thermoplastic elastomers will be brought up to 85 thousand tons. At the factory in Togliatti it is planned to increase the production of butyl rubber to 53 thousand tones, of which 30 thousand will be halogenated. Mrs. Surganova paid special attention to the production of isoprene rubbers. The demand for them in the recent period, in relation to the natural rubber peak prices, has risen sharply and the company plans to expand their production in Togliatti up to 120 thousand tons. At the same time, a steady demand for these products exists only in Russia and among some of the long-term partners of Russian companies.
In spite of the fact that the Russian market is slowly transferred to foreign standards and technologies, this does not reduce the interest of companies, which offer high-tech rubber and rubber additives. Regional marketing and sales manager of the TRP business department of Lanxess, Sebastian van Gemert told about the special rubber for the manufacture of general mechanical rubber products, which are offered by the concern. According to him, non-tyre sectors make up to 29% in the world structure of demand for synthetic rubber in the world, brand structure of rubbers is fundamentally different than in the tyre industry. The most important indicators, which determine performance characteristics of modern TRP, are temperature resistance and swelling in the oil. Technical progress in this sector of the rubber industry is aimed on their improvement. At the same time the believe of many market participants that the automotive industry first of all is a consumer of tyres, and TRP only after that, is not quite correct. Tyres make up only 16 kg of the weight of a modern car while TRP make 18 kg. Mr. van Gemert told in details about chloroprene, ethylene-propylene and nitrile rubbers of Lanxess. In 2011 new plant of the company in Brazil was launched with the capacity of 10 thousand tons of ethylene-propylene "Keltan Eco" rubber, for which sugarcane will be used as a feedstock.
Regional manager for separation agents of business-department Rubber Rhein Chemie Lanxess Frank Osswald told about products of the company, particularly, chemicals, which provide superior extraction of tyres from vulcanize cameras, as well as the aperture of cameras itself with a special anti-adhesion surface. In addition, the company offers marking paints, reagents, preventing adhesion of unfinished tyre units, and other products, that are in growing demand of Russian consumers. Due to this fact subsidiary of Lanxess Rhein Chemie plans to build and launch its first plant in Russia soon.
Representatives of group of companies "Qualitet", Chairman of the Board, Alexander Medzhibovskiy and an expert in anti-oxidant and rubber-chemicals Semyon Kavun presented new domestic products for the rubber and tyre industry. This sphere of activity of the diversified holding company has being developed relatively recently. The company is currently testing adhesion reducing powders for rubber and stabilizers, accelerators of vulcanization, antioxidants for the tyre industry. The purpose of anti-agglomerators use is to prevent the adhesion of particles of rubbers, now the company fully meets all the needs of Russian manufacturers of isoprene rubber in these supplements. The company`s products, according to the reporters, are based entyrely on domestic researches, and are not inferior to foreign analogues, but cheaper and are notable for having less resource consumption. Due to the fact that content of additives in ready tyres and rubbers is small, they do not require special certification in the countries of the EU and are successfully exported, although "Qualitet" mainly focuses on domestic market.
Traditional participant of Creon`s conferences Company "Orghim" was presented by sales and marketing manager Oleg Shilkin, who told about the new brands of oils "Norman". The company specializes on production of non-carcinogenic oil modifiers of rubber mixtures. By 2014, when the US and the EU will implement almost complete use of non-carcinogenic tyre oils, the Russian company intends to occupy 18% of the world market. In addition to installed capacity of 80 thousand tons in Nizhniy Novgorod region, new capacities of 50 thousand tons each are built in the Nizhniy Novgorod region, Houston and Chinese Tianjin. Besides oils, the company offers also granulated rosin for the tyre industry; however, the prospects of this business are not so optimistic. Raw materials for the rosin (soft resin of pine trees) is purchased in Belarus, where the state system of its gathering still exist, while in Russia this type of activity has practically disappeared after the liberalization of the forest legislation. According to Mr. Shilkin, the company`s products are sold abroad well, while in Russia structure of consumed oils is still dominated by traditional carcinogenic oils.
John MacClure, Senior Economist of rubbers and tyres department of LMC International presented the review report of the world tyre industry and the place of Russia in it. The global demand for tyres is determined primarily not by the volume of output of cars, but by the global vehicle fleet, its structure and growth rates. Only 28% of passenger car tyres and 21% of trucks tyres are used for original equipment of vehicles. Dynamics of the secondary market, in turn, is determined not only by the size of the fleet, but also by the rate of change of tyres. The level of motorization of the population is entirely proportional to the level of income, although there are a lot of country-specific exceptions in this rule. A slowdown in the growth of motorization starts, when it reaches 700 cars per 1000 inhabitants, however, Russia is still far from these figures. The crisis of 2008-2009 effected world car market dramatically, then the market has been restored, but now again has stopped in growth. Long-term forecasts assume that the global passenger car market will grow in the next five years from 75 to 110 million pieces, but the rate of growth of demand will be minimal in developed countries, now more than half of all cars in the world are sold in emerging markets. In addition, the important trend in Europe is the increase in the average size of tyres in original equipment by 1 over the past ten years, from 14-15 to 15-16.
In Russia, according to the forecast, the output of cars will grow in one and a half times by 2016. Chinese market demonstrates unprecedented rapid growth, as the market boomed from 2 to 15 million cars for ten years. At the same time in the USA average mileage of a car is not growing because of raise of prices for gasoline and fuel economy, therefore, tyres wear out slowly. As it was shown in the presentation, when the price of gasoline is 3 dollars for gallon (3,78 liters) annual average mileage of the car starts to decline, now it is 3000 miles. Similar trends are experienced also in Germany, where the volume of cargo transportations by motor transport has still not returned to pre-crisis level, which reduces the demand for truck tyres. Moreover, consumers prefer to buy restored tyres instead of buying new ones. In Germany restored truck tyres make up to 30% of sales. Speaking about demand for passenger car tyres, after the recent cold winter in Europe the interest to winter tyres is increased. In Russia it is the most fast-growing segment of the market, while the overall market for passenger car tyres will grow only by 10% in the next five years, from 50 to 55 million units.

Uneven growth rates in developed and developing countries lead to increase of world trade of tyres. Now more than 80 % of globally consumed passenger car tyres are imported from other countries, even in USA and EU such indicator doesn`t fall below 50%. The USA, where tyres manufacture reduced by one third for last 5 years, introduced anti-dumping duty on import tyres from China to protect domestic producers. In Russia, according to presented forecast, net imports of passenger car tyres volumes will continue to increase and reach 16 million units by 2016. At the same time, as European tyres were represented actively in the import structure until recently, now Asian producers replace them steadily.
The main issue of the common discussion was the search an answer to question about what is an obstacle for Russia to become one of the world centres of tyre manufacture. John McClure noticed that Russian tyre companies are in competition with tyres, produced in Eastern Europe, premium segment is occupied by imports and budget one being reduced. How to become Michelin quickly for the low cost? No easy way, only time and customers` trust to good economic tyres are necessary for it. Complicated logistics and high transportation costs were named the main problems of Russia by the expert. But market and feedstock advantages attract foreign companies to the country. Stephen Evans objected that cheap feedstock and large market not always guarantee the success of national tyre industry and exampled India, where all producers conflict with each other. As a result, investment of foreign companies involve nearby China and countries of South-East Asia. In Russia coordination between tyres and rubbers market players is weak. Semyon Kavun developed that idea and stressed that any efforts to be engaged in tyre business only (as Amtel did) are doomed to failure. To gain success in tyre industry the close integration with raw materials (rubbers and rubber-chemicals) producers is necessary. However, domestic tyre industry lives its own life as well as rubber one, as they headed on different markets. At the same time, he noticed, tyre protector, which determines the wear of the tyre, is made only of synthetic rubber, in production of which the country has great technological experience, which must be used. Deputy of Director of Trading House Kama Evgeniy Istomin told that tyre business could develop even without foreign investment if the owners interested in the industry. Nizhnekamsk tyre plant, which belongs to Tatneft, has created a new workshop of rubbers-mixing, has began manufacture of silica-containing products and now it exports production in Europe widely. Besides, a new plant with capacity of 1.2 mln all-steel truck tyres has been constructed. He called officials to protect domestic market and domestic producers hardly, as China does. That`s why Chinese tyre industry is developed actively and vice versa in Russia. When in few years new standards of tyre quality will come into force, equipment of 1970s on the Russian plants should be scrapped. Igor Shulgin, head of Cord Direction of Severstal-Metiz added that with membership in WTO, duties on used tyres will reduce and that can complicate the life of Russian tyre producers.
Ilya Polskiy, CEO of Topof Firm told about difficultiess of on-line sales of tyres in Russia. According to the data, only 3.7% of tyres are sold this way in the country, however, it makes already 3% in the on-line sells structure. In this case, on many sites, which offer trading, description of different kinds of production is absent, as the sellers either don`t possess them or don`t consider it`s necessary to publish, as the main criterion of tyre choice by a customer is the price per unit.
Alexander Ustavschikov, Director of Production and Technical Supply of Nokian Tyres in Russia, told about Finnish company activity in the country, while it`s the only foreign company to date, that made Russia the main manufacture base. Nokian, founded in 1898 in Finnish city Nokia, had been specialized in winter tyre manufacture for almost entire history. In 2005 the second own plant was constructed in Vsevolozhsk. Now it`s the major producer of passenger car tyres in Russia and exceeds output volumes of Finnish plant. Plant in Nokia will become research-and-development center in the future, while Russian Vsevolozhsk will become the main production site. By 2013 the capacity of the plant must reach 17 million tyres per year. Now more than 30% of company sales are accounted by Russia and the CIS. Its sales are larger than in Eastern Europe, where company had come earlier. More than 70% of tyres, produced in Vsevolozhsk, are shipped for export. Company doesn`t differ tyres for Russian and foreign markets, works with standards and receipts unified for both plants. Company uses Russian raw materials widely, in particular, oils, made by Orgkhim and isoprene rubbers of Sibur. Company doesn`t run business in the field of tyres OEM supply, as it prefers to orient on final customer and it has started the development of summer tyres segment just recently. Mr. Ustavschikov added that unlike European countries, loyalty of drivers to originally installed tyres` brands is not high in Russia. Reporter doubts that tyres manufacture in Russia by other foreign companies will change market seriously as all key players are already represented in the country in form of imported production. Take into account duty decrease after WTO entry anybody of the competitors can change the decision about creation of own production in Russia. Nokian doesn`t consider domestic Russian tyre producers as competitors as they, generally, deal with shrinking budget segment. At the same time market of passenger car tyres, according to Nokian forecasts, will grow up to 60 million for 5 years, which is more optimistic than LMC`s estimation which forecasts the number 55 million, presented by John McClure.

The Head of Creon Fares Kilzie considers that the Conference has shown great investment potential of domestic tyre and rubber industry. Market has been divided into two segments weakly related with each. There is a "new market", which was based by Finns, continued by Germans and Italians and its example is Pirelli. Here international standards rule and foreign companies operate, those who already have own production in Russia and who had not, and their Russian partners. They invest to win positions on the global market, and Russia is being the key part of it. The State must anyway support all projects in this area and provide everything from administrative assistance to financial one. However, "old market" also exists, where plants with old equipment dwell and where goods of limited demand being manufactured. Extinction of this industry`s sector is ongoing and it`s a natural process, but the State must actively participate in life of this market too, securing the output of strategic products of military use. Foreign medium-sized technological companies can interest in this business too.

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