Russia’s Sibur breaks silence, says elastomer business remains strong

MOSCOW—Russia's leading synthetic rubber producer has kept silent about the status of its SR business since Russia invaded Ukraine—until now.

It's been nearly six months since the invasion, and Moscow-based Sibur Holdings, a top five global supplier of synthetic rubber, said the war hasn't had a major impact on its elastomers operations to this point.

Sibur Holdings gave the update on its polymer businesses in a July 26 call with media—its first public statements since the war began. And officials said while the decision by most of the foreign-owned tire companies to suspend operations or end production at the facilities in Russia has impacted the firm, the elastomers business overall has been able to operate at a high level.

Company officials also said during the call that the plastics part of the group has had to find new markets to sell its polypropylene because that material has been subject to economic sanctions from the European Union.

However, they added that Sibur's synthetic rubber and polyethylene lines aren't included in the sanctions that have been levied against Russia after the nation's unprovoked attack beginning Feb. 24 on neighboring Ukraine. That has left those businesses with more freedom to continue operating as they have traditionally.

The invasion of Ukraine came not long after Sibur had increased its rubber footprint substantially.

The Russian petrochemicals firm claimed its spot in the top five among the global suppliers of SR when it closed on a deal in September 2021 to take over 100 percent of TAIF, its former rival based in the Russian Republic of Tatarstan. With much of the elastomer holdings coming from TAIF—the company had a 64-percent share of Russia's rubber output in 2020—that deal left Sibur with 1.2 million metric tons of annual synthetic rubber capacity, according to data the company released at the time of the deal.

That left it behind world No. 1 Arlanxeo, a subsidiary of Saudi Aramco, at 2.1 million tons, and ExxonMobil, with its annual capacity of 1.4 million tons. Sibur said it is on equal footing with China's Sinopec and South Korea's Kumho Petrochemical.

A little more than two months after the close of the TAIF deal, Sibur said it was splitting off its elastomers business into a separate Synthetic Rubber Division because the acquisition more than tripled its SR business, giving it large footholds in isoprene and butyl rubber. Sibur produces rubber at two of its own facilities in Russia, and at two other factories where it is involved in joint ventures, one with Sinopec and the other with Reliance Industries Ltd. in India.

But when the Russian invasion of Ukraine started, Sibur officials said there initially was some uncertainty with how sanctions would impact the overall business.

"The first couple of weeks there was quite a bit of uncertainty about the deliveries of the different packages of sanctions that have been continuously launched and accepted by the EU," one official told Rubber News during the media call. "Both sides took some time to make some responsible decisions on how we move forward. It was a difficult period."

After it was determined that synthetic rubber wasn't targeted by the sanctions and the firm was free to do business with virtually any nation, the other major issue that Sibur's elastomer business had to deal with was the pullout of the foreign-owned tire manufacturers from the Russian market.

Seven international tire makers have factories in Russia: Bridgestone Corp., Continental A.G., Michelin Group, Nokian Tyres P.L.C., Pirelli Tyre S.p.A., Titan International Inc. and Yokohama Rubber Co. Ltd., according to data from sister publication Tire Business. All have either ended, suspended or cut back on those operations.

The Sibur official said many of these operations have been separated from the global parent companies and had to stop production because of supply chain and other issues. "This has impacted Sibur's sales of rubber domestically because of these cutbacks," he said.

Operations controlled by the four Russian-owned tire firms have continued, according to the Sibur official. "None of the domestic Russian brands either decreased or suspended production," he said. "All domestic producers worked as per their budget plans for 2022."

As for its own operations, the official said it has been able to continue with production of all of its SR lines. There was one product where there were delays in the supply chain, but that already has been resolved and production of the material has resumed.

Sibur has had to deal with a shift in business, though, with exports taking a larger share than before because of the tire production cutbacks in Russia.

"The key thing at the moment is how to adjust to the current limitations if they are affecting the supply chain, or particular products," another Sibur spokesman said on the call. "The other is how to forecast the production cycle of our customers because, in most cases, they are dependent on the sustainable supply of the rubbers that we produce at our sites."

Despite the tire firms that have curtailed production in Russia, the first Sibur official said the SR producer has contractual agreements with major tire producers that both parties—in most cases—want to sustain.

"These have been built on long-term relationships," he said. "We are in the top five in synthetic rubber producers. I don't think any tire major can completely work without some consequences (if they) stop doing businesses with us."

Those consequences, the official added, would be in terms of having trouble acquiring adequate alternate supplies of the SR that Sibur supplies, as well as the tire manufacturers potentially facing higher costs and having to raise the price of its end product.

And while Sibur said its business has remained strong both with its tire and non-tire rubber customers, it does face some headwinds. One of those is that closed shipping lanes have made it more difficult—and costly—to export materials to North America.

Despite these obstacles, the company remains bullish on the prospects of its rubber business. "We see significant demand in the market, and we are prepared to support it, and we have the capacity to do so," the official told Rubber News.

The deal with TAIF also made Sibur the world's No. 5 polyolefins producer, with 8.1 million tons of annual capacity, the firm said when the deal closed. It said that put it behind Sinopec, ExxonMobil, LyondellBasell and Saudi Aramco, and ahead of Dow.

Right after the invasion of Ukraine, Sibur first froze and then decreased prices for its domestic customers, a spokesman for the plastics part of the business said on the July 26 call.

"Starting from February of this year, we made the decision to hold the prices for Russian clients on a certain level, and not to change them, despite the fact that the local currency, the ruble, was inflating a lot," he said. "We did our utmost to support the local converters so they could keep their production running."

With the shuffling in volumes for polyethylene and polypropylene, he said Sibur had to find different places for the product. It first looked to find additional consumption in the Russian market to supply, and then made plans to increase volumes in the Europe, Middle East and Africa (EMEA) region, along with Southeast Asia.

"We have ambitious plans to increase our export volumes to EMEA and SEA and continue our journey with new markets," the spokesman said. "We are discovering new markets in SEA, built up a local team there and plan to place our volumes in that market."

The polypropylene that traditionally was exported to Europe but is "no longer welcome," the spokesman said, has been redirected to EMEA and China, along with other countries in Southeast Asia.

He said of the 4.7 million tons a year of polyolefins capacity Sibur has, the materials supplier looks to sell at least half to Russian customers. Besides selling more in EMEA and Southeast Asia, Sibur also looks to develop transit points there. Turkey, for example, will be a future hub for distribution to EMEA sites.

While Sibur stopped the supply of sanctioned product sometime in March or April, the firm said it continues to meet contract obligations for other materials with European customers as able.

"As for promises and contracts signed, we keep our promises and we keep our responsibility in front of the customer," the plastics unit spokesman said. "It's all about the customer, and it's all about the customer of the customer. So we do it as much as we can. There are a lot of headwinds but we keep our promises. And I think this is the core of Sibur. We keep our promises, which are reflected in our actions."