Rustam Minnikhanov draws Vladimir Putin’s attention to Russian polymer exporters’ problems

Promotion of Russian products in world markets turned out obstructed due to unilateral restrictive measures

Tatarstan President Rustam Minnikhanov voiced the Russian petrochemical sector’s general problem of product exports to Russian President Vladimir Putin during an online meeting on how measures supporting the economy and social sphere were taken. The president of the country asked Rustam Minnikhanov to prepare detailed information about economic barriers some countries erect to the export of Russian petrochemicals. Read in Realnoe Vremya’s report what Russian petrochemical manufacturers lose, how much their foreign colleagues pay and what the situation in the Russian industry with uneven economic conditions is like.

Problems of rubber and plastic exports

Rustam Minnikhanov reported on measures taken in the republic to combat the coronavirus epidemic, the role of Tatarstan companies in this process to Vladimir Putin during a teleconference in late May.

He particularly talked about Nizhnekamskneftekhim PJSC, which is a part of TAIF Group, that not only didn’t stop the production the country needs during the tough period — plastics, polyethylene, rubbers — but also arranged the production of antiseptics, which were in short supply especially at the beginning of the pandemic, as well as single-use masks. NKNK purchased equipment to make them with its own money and managed to launch the production literally a day after it was delivered.

Polymatiz — a subsidiary of Nizhnekamskneftekhim and one of the four biggest manufacturers in Russia — increased the production of nonwoven fabric for both masks and single-use hazmat suits many times. The report also read that it became possible in the republic in general to avoid a significant fall in the amount of products in the first four months of the year. While the economy was seriously hit.

“Due to problems with prices in the oil and petrochemical market and lower demand for these products, considering that over 50% of our petrochemicals and refined oil products are exported, the financial performance of these enterprises has collapsed, which influenced budget revenue. According to the Federal Treasury’s information, we account for 11% of the general fall in Russia during the first four months. As of 1 May, delayed taxes totalled 25 billion rubles compared to last year, of which about 20 billion are income tax. 80% of these 20 billion come from the oil industry, oil refining, petrochemistry. We need federal support,” Rustam Minnikhanov delivered his report to the Russian president.

First of all, the case is about the creation of equal competitive conditions with foreign companies importing their products to Russia.

“Our oil refinery, petrochemistry work, but the promotion of our products for experts is obstructed because our market is open, while foreign partners, unfortunately, impose duties, restrictive measures. We ask the government of Russia for some supporting measures for us,” the Tatarstan president voiced the sector’s topical problem.

Vladimir Putin didn’t interrupt Rustam Minnikhanov to ask him for specifications but admitting the importance of the issue tabled made a note and immediately turned to this topic after the Tatarstan president’s speech ended:

“Mr Minnikhanov, first of all, this is what I would like to say: you have mentioned that foreign partners introduced restrictive measures in commerce. You should report on this to me in detail so that we could react at the level of governments,” the president of Russia asked Minnikhanov.

“It refers to plastics and rubbers. I will explain everything and give you information where and what countries do this,” the Tatarstan president promised.

To recover import duties

Today Russian petrochemical manufacturers pay twice: taxes in Russia and import customs duty in the country of export. And if the first clause doesn’t cause objections, a question arises in the second one: foreign opponents, as a rule, take advantage of benefits and the government’s support in their homeland, and they get to the Russian market without difficulty, therefore the Russian budget has losses. When selling products in foreign markets, Russian manufacturers have to sell products for a price reduced by the amount of the import customs duty. This fact decreases the profitability of Russian producers’ sales and reduces taxes paid to the Russian budget. While manufacturers from other countries don’t pay the import customs duty on some polymers in Russia (6,5%) and turn out in a more beneficial situation that a Russian manufacturer, including Kazanorgsintez PJSC and Nizhnekamskneftekhim PJSC, which are a part of TAIF Group. Consequently, they can dump prices. At the same time, obtaining profit from the products sold in Russia, foreign companies replenish their countries’ budgets at the expense of Russian opponents.

Considering Russian companies’ active work to expand capacities and, as a consequence, on a surplus of polymers, the effectiveness of production and sales goes down: exporting becomes unprofitable due to double taxation. Prices for products turn out higher than those of local producers, thus making it not competitive. On the other hand, the Russian market has a surplus of domestic production, which in combination with analogous imported goods supplied from Uzbekistan, Turkmenistan, Azerbaijan, Ukraine and some “far abroad” countries with zero rates of customs duties with prices lower than market prices also seriously impedes an honest competitive fight.

Moreover, some big investment projects, which would completely implement the Development Strategy of Chemical and Petrochemical Complex of Russia through 2030, are already frozen. More precisely, final investment decisions haven’t been made on because businesses aren’t sure that production will be profitable and products will be in demand. Moreover, the importance of developing import substitution and export potential is stressed at federal level.

“We think it is feasible to consider the possibility of the following measures providing growth and full support of the development of the gas and petrochemical complex of Tatarstan and Russia in general. In other words, it is to recover the import customs duty on low-density linear polyethylene, general-purpose polystyrene and polyester to 6,5% fixed by WTO rules,” Director General of Nizhnekamskneftekhim PJSC Ayrat Safin expressed the position of TAIF Group on this issue in an interview with Realnoe Vremya.

Experts suppose that if the current situation is disregarded by the state, this can lead to a surplus of goods and a forced shutdown and even suspension of plants. The same foreign manufacturers of polymers whose aspiration to expand export markets are backed by their countries’ governments, will take advantage of this chance.

As a consequence, hopes of the Russian petrochemical sector in general to increase the potential and expand their footprint in world markets will remain hopes. Moreover, a big part of the domestic market of polymers will be occupied by non-residing opponents, while it is risks for the country’s petrochemical sector in general, lower competitiveness of Russian polymers around the world and economic security of Russia, thinks Director General of Kazanorgsintez PJSC Farid Minigulov as well.

Synthetic rubber production needs support too

During the world economic crisis worsened by consequences of the COVID-19 coronavirus pandemic, the amount of production and sale of cars, lorries and passenger transport is falling around the world, tyre factories are stopping.

A surplus of synthetic rubbers and stiffer competition became a consequence of the falling demand, which leads not just to a reduction in the price for different types of synthetic rubber but also the unprofitability of the production. The growth pace of feedstock prices to manufacture synthetic rubber has gone ahead of the rise in the price of synthetic rubber itself more than twice in the last few years. To minimise losses, Nizhnekamskneftekhim has to reduce production volumes: just 257,000 tonnes out of 330,000 maximum tonnes were sold in 2019. Today special regimes are gradually lifted around the world, but the recovery of the market at least to the pre-quarantine level will take at least 1-2 years, Ayrat Safin, director general of Nizhnekamskneftekhim PJSC, is convinced.

Isoprene is the main feedstock to manufacture synthetic rubber. TAIF Group made its offers imposition of a reverse excise on it, which would allow key companies of the sector at least not to be in the red. Otherwise, the enterprise is considering the possibility of switching to a shorter working week with a greater reduction in production volumes. And this is the best-case scenario.

If the situation in the Russian and world markets gets worse, the production of rubber, which is the feedstock for the tyre industry and rubber goods, which will immediately influence these sectors, can completely stop. The market will react to the shutdown of such a big producer with a rise in prices. The enterprises that use rubber in their production will have to import the feedstock, which will create a dangerous situation for the economic security of the country and its defence capacity. And given the close relationship between enterprises inside Nizhnekamskneftekhim PJSC, the shutdown of rubber production will lead to a feedstock imbalance of production in general: the shutdown of production of monomers and their derivatives.

Development Strategy will go on

Despite the tough economic situation in Russia and in the world, TAIF Group doesn’t plan to refuse the 2030 Development Strategy.

Nizhnekamskneftekhim plans to put the styrene-butadiene rubber plant with a capacity of 60,000 tonnes a year into operation until the end of 2020. The rubber designed to create the so-called green tyres — environmental friendly with the best operational characteristics — promises to be a very sought-after market. Apart from this plant, it is planned to arrange the production of thermoplastic rubbers that are in demand in road construction and creation of roofing, with the equipment that has already been delivered and assembled.

The work on the project on methanol production with a capacity of 500,000 tonnes a year goes on. The complex created with Haldor Topsoe’s licence will fully meet the needs of synthetic rubber production in this feedstock. According to plan, current synthetic rubber plans are modernised and reequipped.

“All crises end, and Nizhnekamskneftekhim focuses on a rise in demand in the market. The big investment programme that is implemented is the foundation for the effective start after the pandemic crisis,” Ayrat Safin believes.

Director General of Kazanorgsintez PJSC Farid Minigulov shares the same opinion.

Tatarstan President Rustam Minnikhanov recently visited the enterprise on the eve of the Chemist’s Day. In the company of Vice Prime Minister of the republic and Minister of Industry and Trade of Tatarstan Albert Karimov, Director General of TAIF JSC Ruslan Shigabutdinov, Senior Development Adviser to the Director General of TAIF JSC Albert Shigabutdinov and Director General of Kazanorgsintez PJSC Farid Minigulov, the leader of Tatarstan drove around the industrial zone of the enterprise and paid special attention to the modernisation and construction sites. He visited a construction site of a new cumene plant and low-density polyethylene refining plant, new pyrolysis furnaces in the ethylene plant.

“Nowadays the work on development projects of Kazanorgsintez through 2015 goes on. The introduction of new technology, new joint ventures will allow saving leading positions in the market. The strategic development programme, which was adopted at a meeting of the board of directors, is implemented. Nowadays three of 10 investment projects have already been completed. Another two plan to end this year. It is modernisation of the ethylene and polycarbonate plants with a rise in the capacity up to 100,000 tonnes a year,” Farid Minigulov explained to the president during the tour.

“We should pay tribute to TAIF and Kazanorgsintez. During the decline in the world economy, there is a fall in demand, all this has a painful impact. Nevertheless, the enterprise hasn’t stopped even for a day and operates stably,” Rustam Minnikhanov shared impression later, during a talk with journalists, and added, “I don’t doubt that Kazanorgsintez’s investment programme will be implemented. Yes, there can be some changes, but we have new proposals. Even what we have looked over today allows tripling polyethylene production with the existing capacities.”

And, indeed, if necessary measures to create equal conditions for the competitive fight are taken for Russian manufacturers and importers of petrochemicals at federal level, there is no doubt all products will be demand.

By Arseny Favstritsky