How Russia Might Deal With Surplus Butadiene in 2020?
Russia’s SIBUR is seeking options to deal with surplus butadiene capacity in 2020. SIBUR produces synthetic rubbers (butadiene derivatives), and Russia is a net exporter of synthetic rubber as production is more than 2.5 times the local consumption. Russia currently has a total butadiene capacity of 510 KT. The country is observed to have marginal exports, with most of its produce consumed domestically. This article discusses how Russia is expected to weigh its options to tackle the excess butadiene supply once SIBUR’s butadiene plant goes online in 2020 with a major global downturn observed in the automobile industry.
China, the chief export destination for Russian butadiene derivatives, is not expected to show any improvement in demand. The initial investment for butadiene shipping is high, and none of the nearby markets like Europe are import-dependent for butadiene. This article also discusses how SIBUR may strategize with subsidiaries and joint ventures.
- Butadiene supply and demand scenario in Russia
- Shift in butadiene supply dynamics
- Weighing of SIBUR’s options
- SIBUR-Tatneft Deal
- SIBUR and joint ventures
Butadiene in Russia
Butadiene is an industrial chemical used in the manufacture of synthetic rubber. Butadiene is produced as a byproduct in the steam cracking process used to produce ethylene and other olefins, except for dehydro (“on purpose”) BD (5-6 percent of the total world capacity). It is used in the production of derivatives such as ABS, NBR, and SBR. These derivatives are widely used by the automotive industry for the manufacture of tires and other components.
Russia was observed as a net exporter of butadiene as of 2018 with marginal net exports of 236 MT. A majority of its imports come from Iran, and most of its exports go to the Netherlands. Belgium was also observed as another trading partner, contributing to both imports and exports in the region.
Of the 510 KT regional capacity, only 236 MT account for net exports. This indicates that butadiene production in the region is mostly domestically consumed.
Butadiene Producers in Russia (2019)
Nizhnekamskneftekhim JSC - (NKNK)
Novokuibyshevsk Petrochemical OJSC
Omsk Kauchuk JSC
Sterlitamak Kauchuk CSC
Russia is observed to have enough downstream capacity to use the butadiene produced in the region as it is also a net exporter of SBR, a major downstream industry for butadiene. Capacity addition by SIBUR in 2020 will lead to a supply surplus of butadiene in Russia.
Shift in butadiene supply dynamics
Russia will have an excess supply of butadiene once SIBUR’s 100,000 MT/year BD unit starts up in 2020 as part of the ZapSibNeftekhim (ZapSib) project in Tobolsk. The ZapSib BD unit start-up will add 100,000 MT/year to Russia’s 510,000 MT/year capacity, of which an estimated 73,000 MT/year may be consumed by additional downstream capacities in neodymium butadiene rubber (Nd-BR) and styrene butadiene styrene (SBS) by SIBUR in Voronezh. This will leave approximately 17,000 MT/year of excess BD supply.
Weighing of options
SIBUR and Tatneft have closed the sale and purchase of certain production and other assets, which, to date, have been registered as SIBUR Togliatti and Togliattisintez legal entities. The assets include production plants for various types of synthetic rubbers, methyl tertiary butyl ether, butadiene, isoprene, and other intermediates, as well as the infrastructure of the industrial park. Tatneft intends to further develop the acquired assets in line with its gas and petrochemical strategy, while SIBUR will focus on establishing and developing global-scale production of basic polymers, high-potential medium-tonnage products, and premium special chemicals. However, SIBUR will continue to cooperate with the Togliatti-based companies as partners.
SIBUR and Joint ventures
While the joint venture with Sinopec is in Russia itself, SIBUR’s joint venture with Reliance is in India. In February 2012, the group entered a joint venture arrangement with Reliance Industries Ltd., pursuant to which a jointly-owned company Reliance Sibur Elastomers Pvt. Ltd. was set up, in which the group owns a 25.1% stake. This joint venture was established for the development of a butyl rubber production facility in India with capacity of 120 ktpa and halobutyl rubber with capacity up to 60 ktpa (using butyl rubber volumes). The lead time and distance will pose as a hurdle for SIBUR to redirect its excess butadiene supply to India.
SIBUR is expected to run at low operating rates (75–85%), and thus, minimize the excess in butadiene supply. Tire manufacturers like Michelin have made announcements to permanently close their plants in Europe. Therefore, butadiene supply in the region is anticipated to increase with decreases in downstream production. This will limit export options for SIBUR not only in Eastern Europe, but also in western Europe. SIBUR is expected to utilize demand for commodities such as acrylonitrile-butadiene-styrene (ABS) and styrene block copolymers (SBC) and pump investment into that. This will better-align with its long-term strategy instead of diverting investments for infrastructure for butadiene exports.
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