15 февраля 2011

Sibur bets on PET

Russia looks like an island of stability on the world market of this polymer and petrochemical holding will become its flagship.

At 14 February 2011 Creon`s Conference "PET 2011" was held in Hotel Baltchug Kempinski Moscow. The golden sponsor was Sibur, the sponsor - Uhde Inventa-Fischer and the partnership was provided by B?hler. Three investment projects were presented for production of bottle-grade PET in Russia at the event: by companies "Alco-Nafta", "Ethana" and "Sibur". Such investment activity seems strange for the current global PET market situation. In the heat of the crisis many investment projects in the sector were cancelled as investors are limited with deficit of raw materials (PTA and paraxylene) and comparative low demand growth now.

Vice-president of Uhde Inventa-Fischer Stefan Bartz told that problems of the industry are not only in raw materials shortage. According to him, more than two thirds of the 15 million PET consumed in the world accounts for fibers, 4% for the film, and the rest - for bottles and other food package. Polymer sheets are the new direction of PET usage. The Russian market of PET is almost entirely focused on the demand of the packaging industry, as well as Latin American one. New projects in regions with cheap feedstock (primarily in the Middle East), rising production costs due to increased cost of oil and gas, the limited effect of energy saving technologies, more strict environmental requirements for packaging - are the major challenges both for the global and Russian polyethyleneterephthalate industry. Stefan Bartz said that the world market is now eager for package made of biodegradable plastics and renewable raw materials, and PET, which already became a petrochemical commodity, has little innovative potential and not well suited for this role.

Uhde-Iventa-Fischer is implementing a project of creation of a pilot-production of new bioplastics (polylactide). The capacity of production will be 500 tons per year, the raw material for them is renewable organics (waste of food industry and woodworks), while the technologies of polylactide (PLA) and PET processing are similar.

According to estimates of Alessandro Pirondini, who is the manager of GSI, global demand for PET reaches 17 million tons per year and there are plans to add 7 more tons of capacities including 3,7 in China in this and next years. The results of this booming investment activity are predictable. Decline of capacity utilization, market withdrawal of a number of traditional players and strengthen of China, the Middle East and Russia in short term positions are clearly visible. At the same time prospects of raw materials supply are not clear enough because the projects of new capacities of paraxylene are almost absent, its price ratio to the naphtha price has reached the historical maximum. Another factor of PET cost is demand for polyester fibers, which are closely related in turn to cotton market. Production of the last one is limited by farmlands size and doesn`t grow significantly. Last year`s weather anomalies have caused the drop of cotton yield and that spurred the prices firstly for cotton itself, then to polyester fibers and finally for PET. Mr Pirondini suggests the PET price peak has not been reached yet.

Managing Director of "PCI PET Packaging" Andrew Noone explains the opposite PET market dynamics with different economic situations in developed and developing countries. He predicted that in 2011 there will be 10% demand growth for PET in China, 8% in Eastern Europe, but only 3% in the USA. The world`s demand growth for the polymer will be 6,6% in general. However, the growth of global demand will not exceed 4-5% and more than half of the market will be in China. The latter will have capacities` surplus by 2013. The worldwide PET capacities are already surplus: 21,3 million tons. Meanwhile, new factories` products sales are not clear, there is no understanding where to export them.

Joy Mukherjee who is the head of polymer business of Amgulf Polymers & Chemicals presented for audience the report about PET imports possibility in Russia. According to him, although the PET market localizes and closely related with feedstock suppliers, PET import in Russia will grow. In this case the winner is China which has a huge capacity reserve, relatively low cost of this product and geographical proximity to Russian Far East which far from its Russian competitors and Korea will benefit from its integrated complex producing TPA and PET and where TPA surplus is already exported. In addition the Asian CIS countries`s market estimated by Mr. Mukherjee at 150 thousands tons is almost entirely serviced by Iran, whose presence will grow there. At the same time supplies format of PET is changing because bottlers are actively moving to direct contracts with suppliers.

According to the Head of Sibur`s sale department Nikolay Levchenkov, the Russian polyethyleneterephthalate market lost about 10% of consumption during the crisis, but quickly recovered. The consumption in 2010 was 5% above the pre-crisis level. The company "Alco-Nafta" is going to launch the factory in Kaliningrad in March 2011, but almost all of its products will be exported, so there won`t be a serious impact on the Russian market. Import, mostly from China and Korea, accounts about a half of the PET consumption in Russia. The import volume will increase, until new major projects in Russia will not be realized. The company plans to upgrade the existing factories in Tver (up to 90 tons) and in Blagoveshchensk (up to 200 tons). This will stop "Polyef"`s TPA deliveries to the third Russian operating factory in Solnechnogorsk. Sibur will strengthen its leading position on market after realization of these projects.

Dmitry Shabanov who is CEO of "Alco-Nafta", an investor of the new plant in Kaliningrad told the audience about current state of project and business plans. The plant with capacity of 220 thousand tons is fully loaded by stocks of raw materials for three months of work and these stocks are supplemented by PKN Orlen, SABIC and BP in Europe. At first, the plant will work on export to the EU although about 30% of production will in the future go to the domestic market. All manufactured PET will be of bottle-grades as fiber-grades production isn`t economically reasonable while technically possible.

This opinion was strongly opposed by Emile Eisenstein, head of textiles department of "Coltech International" and well-known propagator of chemical fibers` industry development in Russia. According to him, two thirds of all consumed textile fibers are chemical fibers, mainly polyester. In the balance of domestic textile industry however their share makes just a quarter that, he thinks, is not sufficient. As an example he points to China where 70% of world polyester market is located, noticing that unlike Russia the Eastern Giant also accumulates about the half of world textile industry. According to Mr Eisenstein estimates, Russian demand for polyester fibers is around 90 thousand tons ("Sibur" estimates are three times less), but only low-quality fibers for technical use are manufactured. The raw materials for it are, according to the speaker, being "gathered in junkyards". Mr Eisenstein showed particular outrage to the facts that Belorussian "Mogilevkhimvolokno" plant is switching to bottle-grade PET output instead of fibers and to announced new projects of bottle-grade PET production. Bottles, he thinks, could be manufactured from PP.

Modification of plastic package becomes more popular. Tonino Severini, who is managing director of "Point Plastic" presented to participants of conference the technology of covering of rigid PET package with barrier film of the ethylene copolymers. Such modified containers are low-permeable for oxygen that prolongs shelf life of foods packed in them and opportunity of their retail. However, similar barrier coating can be used for package made of other polymers too.

The recycling of PET, which is familiar in Europe and emerging in Russia, makes particular interest. Head of sales in the CIS Swiss Company "B?hler" (a technology partner in the "Ethana"`s project of PET production in the North Caucasus) Danil Polyakov said that Europe has no problems of PET recycling because of the used package gathering programs, which runs down to the household level. The recycling of this product under the concept of "responsible production" is very important for company, whose technology is used by 70% of the world primary PET producers. Representatives of "IFC" Viera Fetskova and Alexander Kanunnikov told about the organization`s programs in Russia, one of the areas is financing of projects for recycling polymer materials.

In Russia the recycling of PET is developed actively by a number of companies in particular by "Plarus" located in Solnechnogorsk. This company is subsidiary of Europlast and has design capacity of 12 thousands tons per year, which it can`t reach because of technical problems and raw materials supplies complications. According to Evgeniy Orlov (CEO of Plarus) the reason of the latter is that used PET containers are gathered for recycling pretty bad even in Moscow region. In addition the recycled PET is cheaper then primary by 100-200 dollars and require special additives to eliminate the yellowing and can`t be used on high-speed blow molding lines, as it was told in the followed discussion.

According to Creon head Fares Kilzie, PET market is exceptionally interesting and investment attractive, especially in Russia where serious market and feedstock advantages in this area are visible. But it`s not necessary that investment boom in the industry will be made by companies which have created the market. It inspires optimism that "Sibur" have claimed to play the role of market driver.

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