Viktor Viehweg 2010 Presentation

2,768 views

Published on

Viktor Viehweg, head of corporate strategy at Sibur: Impact of crisis on Russian petrochemicals

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
2,768
On SlideShare
0
From Embeds
0
Number of Embeds
1,181
Actions
Shares
0
Downloads
58
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Viktor Viehweg 2010 Presentation

  1. 1. RUSSIAN PETROCHEMISTRY CRISIS - LESSONS LEARNED Viktor Viehweg, Head of Strategic Development Department, Management Board Member SIBUR plc Global Petrochemical VII Annual Meeting, 9-11 February, Vienna, Austria
  2. 2. Russia was among countries most affected by the global downturn Global Petrochemical VII Annual Meeting, 9-11 February, Vienna, Austria Russia China USA Domestic demand in Russia will mainly depend on liquidity imports via raw material exports Dynamics of polyolefin's consumption <ul><li>Mortgage market crisis due to huge volume of “bad debt” </li></ul><ul><li>Decreasing of housing prices </li></ul><ul><li>Downturn in construction </li></ul><ul><li>Liquidity crisis </li></ul><ul><li>Decreasing of demand </li></ul><ul><li>High oil prices ; </li></ul><ul><li>Aggressive development of petchem consuming industries ( construction, automotive , trade ); </li></ul><ul><li>Aggressive crediting of operational and investment purposes ; </li></ul><ul><li>Creation of large stocks of raw materials for minimizing of risk of permanent raw materials price increasing . </li></ul><ul><li>Global economical downturn due to demand decreasing in major consuming regions </li></ul><ul><li>Fall in oil prices ; </li></ul><ul><li>Domestic and international demand downturn ; </li></ul><ul><li>Production downturn in petchem consuming industries ; </li></ul><ul><li>Markets overstocked . </li></ul><ul><li>Massive public spending program restoring growth by nurturing domestic demand </li></ul>
  3. 3. Fall in Russian petchem was driven by global economic recession Global Petrochemical VII Annual Meeting, 9-11 February, Vienna, Austria Production index -% to previous year corresponding period - Producers price index -% to December of previous year - Source : Rosstat , internal accounting of SIBUR World financial crisis, caused the fall of consumption, accelerated RF petchem demand reduction 1 The shift in the industry development can be implemented by new competitive capacities launch. The barrier – high capital intensity. In 2009 credit availability for Russian petchem consumers was low. 6 Base petchem products price collapse because of linkage to oil prices led to negative financial results in late 2008 – beginning of 2009 Polymer segment was the most affected by global downturn because of demand fall in main petchem consuming industries ( automotive and construction) Ruble devaluation allowed export sales to increase 2 3 Manufacturing industries Chemical production Plastics and resins Industrial production Minerals production 5 Governmental support (temporary LPG export duties cancellation) allowed to maintain high GPP operating rate and to boost LPG production volume even in comparison with 2008 4 60% 80% 100% 120% 140% 1 Q 08 2 Q 08 3 Q 08 4Q 08 1 Q 09 2 Q 09 3 Q 09 2009 2010 60% 80% 100% 120% 140% 160% 180% 1 Q 08 2 Q 08 3 Q 08 4 Q 08 1 Q 09 2 Q 09 3 Q 09
  4. 4. SIBUR could not avoid industry trends Global Petrochemical VII Annual Meeting, 9-11 February, Vienna, Austria 7 665 5 063 1 743 710 1 188 916 2 076 888 737 668 707 1 256 Sept . 2008 Dec. 2008 Dry gas Rubbers Plastics Production of org.synthesis Lubricants Other * - 41% 22 925 13 622 SIBUR Sales September-December 20 08 - Mln. Rub., excl. VAT - * including mineral fertilizers, ammonium sulfate, monomers and naphtha
  5. 5. Nevertheless SIBUR maintained the adequate level of operating rates in basic segments... Global Petrochemical VII Annual Meeting, 9-11 February, Vienna, Austria SIBUR: operating rates Dec. 2008 – Jul. 2009 - % - NGL MTBE Rubbers Plastics 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 110% 120% Dec .08 Jan .09 Feb .09 March 09 April 09 May 09 June 09 July 09 PGP* * Petroleum gas processing
  6. 6. … Mainly because of export channels expansion provided by ruble devaluation Global Petrochemical VII Annual Meeting, 9-11 February, Vienna, Austria Source : Sibur analysis Russian PE market growth rate, - % change from the p revious period - Russian PP market growth rate, - % change from the p revious period - 0% 50% 100% 150% 200% 250% 2Q . 2008 Production Export Import Consumption 0% 50% 100% 150% 200% 250% 300% 350% 400% 450% 500% 24,7 5,7 Russian PP export is not significant enough to influence production 38,5 19,5 Russian export PE competitive power grew in 4Q. 2008, mainly due to the Rouble devaluation 115,2 50,6 71,5 41,9 Export Import 4Q. 2008 1 Q. 200 9 M TPA 4Q. 2008 1 Q. 200 9 Export Import M TPA Production Export Import Consumption 3Q . 2008 4Q . 2008 1Q . 200 9 2Q . 2008 3Q . 2008 4Q . 2008 1Q . 200 9
  7. 7. Global Petrochemical VII Annual Meeting, 9-11 February, Vienna, Austria 25% Kazanorgsintez* Nizhnekamskneftekhim * * 16% SIBUR Operating income margin -%- 9 % 0 % 14 % 7 % BASF Chevron Philips 3 % 8 % Arkema 6 % <0 % Westlake 4 % 3 % 14% 7% Dow Chemical 7% <0 % World companies Russian companies 1 H 20 08 1 H 20 09 1 H 20 08 1 H 20 09 1 H 20 08 1 H 20 09 1 H 08 1 H 09 1 H 08 1 H 09 1 H 20 08 1 H 20 09 1 H 20 08 1 H 20 09 1 H 20 08 1 H 20 09 Source: companies’ annual reports Even in crisis SIBUR reported the high operating income margins *According to RSBU reporting
  8. 8. Collaboration with government authorities in 2009 was important for SIBUR Global Petrochemical VII Annual Meeting, 9-11 February, Vienna, Austria Governmental international support Intergovernmental agreements, assistance to JV’s and partnership’s development with international companies Governmental action 2008/2009 <ul><li>Public authorities </li></ul><ul><li>Customs tariff and fiscal regulation </li></ul><ul><li>Financing of key development projects </li></ul><ul><li>Domestic demand promotion </li></ul><ul><li>Governmental support programmes, regional programmes for industry </li></ul><ul><li>Infrastructure development programs discussed, incl. construction of product pipelines (in frame of Federal Special-purpose Programmes) </li></ul><ul><li>Legislative authorities </li></ul><ul><li>Amendment to laws (Federal Law concerning APG) </li></ul><ul><li>Industrial groups (Russian Chemists Union, Russian Union of Industrialists and Entrepreneurs , others) </li></ul><ul><li>Legislative initiatives aligned with industry ( Technical regulation ) </li></ul>Interaction with government - outcome 2009 <ul><li>Profit tax – rate reduced by 4 ,5% </li></ul><ul><li>Property tax – rate set to 0% </li></ul><ul><li>Land tax – rate set to 0% </li></ul><ul><li>VAT – rate set to 0% for imported equipment, which is not produced in Russia </li></ul><ul><li>Temporary waiver of LPG export duty </li></ul>
  9. 9. During crisis transformation of opportunities and threats has happened Global Petrochemical VII Annual Meeting, 9-11 February, Vienna, Austria Before crisis THREATS OPPORTUNITIES + <ul><li>Expansion of main SIBUR plastic markets </li></ul><ul><li>High potential of import substitution in Russia </li></ul><ul><li>Logistic shield for domestic market </li></ul><ul><li>Ability to capture effective sources of feedstock (ethane, LPG) through collaboration with GAZPROM and other oil & gas companies </li></ul><ul><li>Shut down of number of capacities in Europe </li></ul><ul><li>Reduction of margins for main products (transition to downward phase of cycle) </li></ul><ul><li>Strengthening of competition on domestic market: main rivals announced or started up new projects </li></ul><ul><li>Escalating of worldwide competition: Middle Eastern producers among leaders </li></ul><ul><li>Rise of equipment cost, materials and energy </li></ul><ul><li>Cutting of competitors investment plans </li></ul><ul><li>Short term reduction of petchem assets price = > opportunity for acquisitions </li></ul><ul><li>Feedstock, equipment and engineering prices fall </li></ul><ul><li>Fall of polymer prices = > additional opportunities for plastic processing </li></ul>In crisis THREATS OPPORTUNITIES + <ul><li>Shrink of demand and prices on main products </li></ul><ul><li>Margins of some value chains are in “red zone” </li></ul><ul><li>Escalating of worldwide competition, rise of international companies' activity on Russian market </li></ul><ul><li>Financing availability restriction </li></ul>- -
  10. 10. In order to increase financial stability SIBUR took measures to soften crisis consequences impact Global Petrochemical VII Annual Meeting, 9-11 February, Vienna, Austria Production decline in unprofitable product chains Directions Measures <ul><li>Temporary shut down of unprofitable types of rubber </li></ul><ul><li>Temporary shut down of ABS production </li></ul><ul><li>Temporary shut down of truck tires production </li></ul><ul><li>Decreasing operating rates of all plants except gas processing capacities </li></ul><ul><li>Cancellation of materials purchases from 3d parties </li></ul><ul><li>Maximum load of gas processing capacities </li></ul><ul><li>Partial cancellation of the most expensive feedstock procurement (NGL, tech. butane) </li></ul><ul><li>Commission charges decrease due to intermediate sellers exclusion </li></ul><ul><li>Deferred payment policy toughening </li></ul><ul><li>Provision requests for contracting parties </li></ul><ul><li>Installments increase for feedstock procurement </li></ul><ul><li>General and administrative costs cutting </li></ul><ul><li>Capital assets maintenance costs cutting </li></ul><ul><li>Corporate Programs implementation costs cutting </li></ul><ul><li>Investment Program cutting by : </li></ul><ul><ul><li>Capital expenditures optimization </li></ul></ul><ul><ul><li>Mothballing of some investment projects and initiatives </li></ul></ul><ul><ul><li>Shifting the financing of investment projects to later dates </li></ul></ul>Logistics chain consolidation Working capital optimization Cost cutting and cutting the Investment Program for 2009
  11. 11. Global Petrochemical VII Annual Meeting, 9-11 February, Vienna, Austria Operating efficiency SIBUR’s strategy gained essential proactive elements during the crisis Strategic measures Developmentof capacities M&A Sales Personnel Finance <ul><li>Continuation of key projects implementation </li></ul><ul><li>Investment program sequestering. </li></ul><ul><li>Assets monitoring “as planned” ; </li></ul><ul><li>New opportunities . </li></ul><ul><li>Financing of on-going projects </li></ul><ul><li>Search for new sources of finance . </li></ul><ul><li>Optimization measures implementation ; </li></ul><ul><li>Decrease of technological risks of incomplete load. </li></ul><ul><li>Personnel education and development ; </li></ul><ul><li>Headcount optimization . </li></ul><ul><li>Sales and logistics improvement. </li></ul>Marked blue – measures taken in accordance with the Strategy Marked red – crisis-proof measures Marked green – mixed measures . supportive basic

×