Analysis: Sibur reverses SR production cuts

London - Petrochemicals major Sibur increased production of synthetic rubber in the first quarter of 2015 following a better-than-expected start to the year, according to the Russian group’s CEO Dmitry Konov.

The move partly reversed a trend from last year, when Sibur significantly cut back rubber production in response to low margins in the business, Konov said at a press conference in London. SR prices , he noted, were also held back by the continuing poor state of the natural rubber market.

The combined effect was that revenues from the SR business, which represents around 8 percent of Sibur group sales, fell 14.1 percent to RR27.8 billion (E507 million) in 2014.

Konov linked the rebound in the first quarter of this year to price increases – due mainly to rouble depreciation and a better supply-demand balance. Margins were also helped by decreasing monomer production costs due to lower oil prices, as well as reduced production costs.

Sibur produces 27 percent of Russian polybutadiene rubber output, 50 percent of its styrene-butadiene rubber (SBR) and 100 percent of its SBR block copolymer. However, last year’s production cuts, said Konov, mainly affected the company’s polyisoprene operation, with a “slight reduction” also in nitrile rubber output. Sibur’s butyl rubber production, increased following a plant upgrade project.

Explaining the turn-up of production rates, Konov said: “At the beginning of [2015] we had this strong development in the [rubber market], mostly because of the rouble devaluation and global oil prices which means lower feedstock prices.”

Meanwhile, demand for Sibur’s SR products has remained stable, the CEO also reported. This, he said, was in-line with growth in the Russian replacement tire market – the main destination for the company’s rubber materials.

However, the recent recovery at Sibur’s SR business and output could well be short-lived, its CEO commenting: “The trend is reversing in the rouble/dollar rate and we still have to see how the market development progresses.”

To maximise margins, Sibur decides its SR capacity utilisation rates on a month-by-month basis: using a model that takes account of logistics costs, feedstock costs, demand curves and consumption.

Based on these estimations, explained Konov “we either feed some of the downstream plants to full capacity or we don’t feed them and send the by-products into the market.

“We can, for example, send butadiene for rubber production, sell butadiene as butadiene or ship butadiene to some other process capacity. This [guides] the decision on whether we have 100-percent capacity on a rubber plant or 20-percent capacity,” he concluded.