Despite visible calm the situation in the industry is extremely intense and Russian PVC market`s fate may be determined in coming months
On Thursday, 16 June Creon held in Moscow the International Conference "PVC 2011". The Golden Sponsor of this event was HimTradingGroup, sponsorship was provided by Centropolymer, the partner was Transhim. Forum was supported by Information Analysis Center Kortes. In spite of the tensions on the market and long-standing conflict of interests between different participants, the event was in calm and constructive atmosphere with detailed studying and discussing each issue. The situation on the Russian PVC market is very difficult and interesting for every player of the industry. Counting on demand growth and prices increase, the processors and traders have created vast stocks of PVC, both raw and processed, using loans. However, traditional seasonal demand growth is late. If the market doesn`t fulfill hopes of industry players, then many participants may face serious financial problems by season end. This was described in welcome address of Sandjar Turgunov, CEO of Creon.
The Head of "Rusvinyl" Marketing Department Natalia Proskurjakova told the participants about the Russian PVC market trends. Russian PVC market reached a record volume in 2010 (about 1 million tones), mostly due to import increase. Competition between importers became more intense: the European producers supply is no longer significant, while the US PVC have phased Chinese one out and the U.S. share of imports exceeded 50% PVC in the 1st quarter of 2011. European producers keep the leading positions only in emulsion PVC supply. The American PVC has almost the same price as the domestic product, while Asian PVC is more expensive. In general the prices for polymer raw materials increase gradually, but there is no sharp price raise in 2011 yet, despite early forecasts of some market players. According to the pessimistic "Rusvinyl" estimates a demand for PVC in 2011 will grow only by 10%, because the activity in construction sector, the main industry driver, remains low. Profiled moldings (door and window profiles, vinyl siding, etc.) make up to 70% of the PVC market in Russia. However, the processors hoped for higher demand growth and introduced 162 thousand tons of capacities of these products. Despite the import share in PVC demand is close to psychologically important level (50%), Ms. Proskurjakova thinks, that demand growth this year could be achieved by loading of available domestic capacities, Sterlitamak "Kaustik" in particular.
At the same time the PVC import structure in Russia may change radically soon, as the new production, which capacity is 300 thousands tones, has been launched by LUKoil in Ukrainian Kalush. According to Kirill Popov, Deputy Head of the Gas and Energy Operations and Sales of Petrochemical Products and Gas Refining Coordination of oil company, the new facility works stable and already produces 4 grades of polymer. Company takes into account that in CIS unlike for example the European countries, the major part of PVC demand accounts for a profile moldings. At the time of the conference operating volume of PVC was more than 10 thousands tones; the first deliveries have been undertaken. According to Mr Popov, the production quality responds Vinnolit technology, which the new plant uses and the marketing price is determined by this. Heated debate was raised by price questions on new polymer and also prospects of its buying by traders. Igor Valushkov, Deputy Head of gas and energy operations and sales of petrochemical products and gas processing the Coordination of LUKoil, confirmed that the company will sell PVC primarily to major end-users but not traders until the realization strategy is not designed. Speaking about market prospects, Mr Popov evaluated them even more skeptical. According to him, already now Russia consumes PVC per capita more, than the world in average, and the consumption structure tilted in the direction of plastic windows and other analog production, but no compounds and pipes as in Europe. Due to market saturation and environmental regulation tightening, demand on PVC in Russia will decline. The presenter related PVC consumption decrease in USA and free volumes of American polymer appearance on the market with PVC`s deprivation for environmental reasons.
Michael Turukalov, Chief Editor of Prices and Regional Markets Department of IAC "Kortes" has a different view on the PVC market. According to him, the large amounts of American PVC appeared on the market due to reduction of consumption and not because of the polymer failure for environmental reasons, but because of the sharp reduction in housing construction because of the economic crisis. But the plastic windows consumption doesn`t become low, because the Russian market is still premium one and has a high profitability, according to Mr. Turukalov. Only for last five years the PVC consumption in Russia grew by more than 30% and the market players think, that growth will continue. The total PVC capacities could rise from 642 thousand to 1489 thousand tons to 2015 if all announced investment projects will be released.
The trader`s point of view on domestic PVC market was expressed by Stanislav Krivopusko, the Head of mass polymers department of HimTradingGroup. According to him, the domestic PVC market will grow no less than 20 % in this year in general for expense of imports increase. There is activity increase of both processors and traders on the market, because of the fact that market became overheated and it`s hard to predict how the price will change in July-August. Later start of the season and inevitable influence of LUKoil`s PVC on the market together work for decline in prices, and, in general, non-economic factors affect increasing in prices. In Japan because of the recent earthquake PVC supply volumes have been reduced, that can lead to Chinese polymer import decrease in Russia. American producers have problems because of storms and floods too. Besides, Chinese PVC is transported to Russia across Sino-Kazakh border, which capacity is not large enough. That leads to delivery delays. HimTradingGroup looks for new suppliers of PVC into Russia; in particular, for this role could pretend LG, SABIC and Iranian plants. According to Mr Krivopusko, the possible collapse of prices with low demand and increasing the supply will affect traders much less than processors because they have already sold the PVC, which latter paid by credits taken from banks.
Head of the "HimTradingGroup" low-tonnage products Department Natalya Kraskovskaya told about the prospects of processors` cost reducing by changing additives suppliers. The company in particular offers to the Russian processors Chinese titanium dioxide, not Ukrainian and already sells products of five Chinese suppliers. China could save out Russia`s PVC processing also by supplying cheaper shock-strength modifiers. Mrs. Kraskovskaya said that you can use cheaper chlorinated polyethylene instead of traditional acrylic modifiers, and many processors already use it. But the conference participants noticed that the PVC products will quickly turn yellow as a result of such production cheapening, and the ecological characteristics will be deteriorated. Only construction companies can make a demand for them, because they have to install any windows (which will be replaced during the repairs anyway) for residential buildings for state and municipal customers.
Nikolai Gavrilov-Kremichev, CEO of IC "Modern Building Design", told the audience about condition of the construction market and profile-molded PVC products launch industry. According to him, such PVC products are produced by 300-400 firms of different size, and only 50-60 ones produce window and door profiles, about 100 ones manufacture windowsills, 80 plinths and more than 200 produces vinyl siding. In output structure the profiles dominate and together with windowsills make 55 % of production. There are more than 9000 products processors (producers of plastic windows etc.). In general, the production concentration in the industry is relatively low as top 20 companies account only 70% of the market. The stance of the market induces weak optimism as in 2010 the volumes of house construction decreased for second year in a row. Now the market starts to revive, however, but demand for plastic windows traditionally related with final stage of construction, and that`s why in 2011 the expert doesn`t expect rapid growth. The lion`s share of plastic windows is consumed in Moscow, Moscow region and some large metropolitan areas. However, housing construction in Moscow decreases for third year in a row and have reached historic minimum as resource for development is exhausted. It is noteworthy that the residential buildings` construction in Russia correlate with oil production volume and the latter is not expected to grow. In general, the potential growth of demand in residential construction is great enough, as Russia takes the third place from the end in Europe`s rating of individual apartments` size and intensity of upgrade the housing stock is very low. However, the expert relates demand growth not with economic centers but with low-income regions where housing construction could be provided by the State only. Veniamin Alpern, the director of Russian affiliate of Solvay, agreed that demand saturation for PVC products in many Russian regions as in many world countries will not be soon, although such rumors have been talked in the industry for years.
The conference participants generally agreed with the speaker`s main ideas during the "round table". According to "Profine RUS" Procurement Director Yuriy Shterk the demand growth projections made early in the year were overly optimistic. In physical terms the market will not grow even at 15%. The representative of "Vintek" Sergey Asadchev noted, that the processors are trying to increase prices, but it slows down the demand in the commercial sector, and the state and municipal building activity is low. The trading company "Centropolymer" CEO Alexey Zavjalov agreed, that market participants` expectations were too high, a lot of imported PVC was purchased because of it. But now the market is balanced and there won`t be the price volatility although the LUKoil`s new plant impact will be strong enough. The demand slowdown is not unique to Russia: American "Oxyde" co-owner Tony Mohan confirmed that India and China have reduced PVC purchases from the U.S., but in spring Russian companies (that bought such large volumes that the supply was restricted) took their place. The "Selena-Plastic" Director Julia Bondaruk confirmed that there is 4 thousand tons of PVC in the company`s stocks, but the market remains stable. The trading company "Transkhim" CEO Deputy Erkin Boltaev noted, that there is almost no hope for high demand growth, the market volume will remain the same as last year at best.
"Ruskhimset" CEO Alexander Ivlev told the participants about the plasticizers for Russian PVC market. Plasticizers are used to change PVC properties and PVC compaunds` manufacture. The reaction of various alcohols with phthalate anhydride is basic in the most used softeners production technology. DOP obtained in reaction with 2-ethyl-hexanol, DINP - with isononyle alcohol, C10 - with isodecyle alcohol. "Sibur-Himprom" and "Gazprom Salavat" produce 2-ethylhexanol, but "Gazprom Salavat" fully uses 2-ethylhexanol for its own needs, because it also produces phthalate anhydride. "Kamtex-Khimprom" and paint plant in Lida (Belarus) also produce phthalate anhydride. There are a lot of softeners producers in the market, but the strongest positions occupied by "Salavat" and "Neftekhimprom" Group, which controls three plants. Expert estimates the total softeners Russian market at 11.5 thousand tons, 3.4 thousand tons of which is imported DINP.
In 2011 its import and consumption has growth primarily at the expense of a sharp increase in prices of DOP because of summer Roshal factory stop in 2010. The number of customers switched to DINP is not full. In prospect, however, it`s more probably transition to non-phthalate plasticizers because the ban can affect DINP as well as DOP which already was assigned to the second class of danger due to its toxicity. Besides, the world market of isononyl alcohol is extremely narrow, as only 4 companies manufacture it and refine it into DINP by themselves. Consumers are interested in destruction of the oligopoly, and moreover, the prices on non-phthalate plasticizers, for example, DINCh are not much higher than on traditional ones. Russia may have its own specific way, as there is TPA in Russia and it`s possible to start dioctyl terephthalate production. However, many consumers, trying to reduce the cost of PVC, widely use surrogate materials instead of plasticizers. It allows producing cheap low-quality plastic compound. Independent expert Georgy Barsamyan told in his report about similar trends on PVC market. According to him, due to the rising cost of raw materials and difficult financial situation processors look for cheapest resources. In particular, demand for chalk is increased. Individual processors add the chalk in PVC products in volume to 20 parts per 100 parts of polymer. Mr Alpern told about his own attempts to create domestic association of PVC producers and/or processors for battling with such phenomena, but these efforts have not led to anything because of industry immaturity.
According to Creon Head Fares Kilzie the conference has fully confirmed the assumption that the Russian PVC market is overheated. Market players offer fundamentally different forecasts of the demand growth for the first time, and we are concerned with this uncertainty, because if the demand growth will not fulfill the processors` hopes, many of them will be in a very difficult position. There is no doubt that the Russian market will be able to overcome the current difficulties, but the number of the market participants will reduce. Large, competitive, "adult" processors, who can save the industry`s high technical level and the market principles, will lead the industry in the future.