Plugging the PVC gap

26 July 2013 08:50 Source:ICIS Chemical Business

The RusVinyl joint venture project will help SIBUR to grow its presence in the thriving polyvinyl chloride market

Kstovo, a small town on the bank of the Volga river, 450km east of Moscow, is set to become a key source of polyvinyl chloride (PVC) once SIBUR/SolVin's new plant is completed, as expected, next year.

Costing more than rouble (Rb) 50bn ($1.54bn, €1.17bn), the RusVinyl complex lies in the Nizhny Novgorod region of Russia and is a 50:50 joint venture with SolVin, itself a 75:25 JV between Belgium-headquartered Solvay and Germany's BASF. Once complete, the country's largest integrated PVC plant will have nameplate capacities of 300,000 tonnes/year of suspension PVC, 30,000 tonnes/year of emulsion PVC and 225,000 tonnes/year of caustic soda. The polymer will be used for various applications, including rigid profiles, pipes, bottles, fittings, cable insulation, flexible films and sheets.

 

 RusVinyl is a great example of genuine project finance

Ethylene, a key monomer used to produce PVC, will be supplied from SIBUR's steam cracker that is being expanded in parallel and lies 0.5km from the RusVinyl site.

Discussions started with Solvay in 2005, the negotiations culminating in the joint venture being agreed in June 2007. Basic engineering was complete in 2008, with the first stone laid in the ground in 2010.

The European Bank for Reconstruction and Development (EBRD) is also lending support to the initiative by contributing one fifth of a €750m financing package. Besides EBRD committing to an 11-year loan worth €150m in roubles, this sum is being matched by Russia's Sberbank. The export credit agencies of France and Belgium - COFACE and ONDD - will provide insurance cover on the remaining €450m in loans from a group of commercial banks comprising ING, BNP Paribas/Fortis, and HSBC.

"This is a great example of genuine project finance which is very rare in Russia. We're now in the middle of construction and plan to be complete by end 2013, with commissioning in 2014," says Sergey Komyshan, managing director, head of basic polymers division.

"The novelty of this project for Russia and CIS is that joining forces with SolVin we have brought together outsourcing partners for two significant parts of the project. One is the logistics platform, which has been built on a turn-key basis by Karl Schmidt, for the technical gases we have Air Liquide building and operating the oxygen and nitrogen producing unit," he says.

"In light of these decisions we have now started looking much more carefully and with more interest at these kinds of opportunities. We have introduced them into SIBUR's existing sites and will consider them for future projects. I have to admit we've learnt a lot while structuring and executing this project and plan to use these ideas in other parts of our organisation," notes Komyshan.

Last year, PVC consumption in Russia and CIS exceeded 1.4m tonnes, with a growth rate of around 6%. Imports amounted to almost 500,000 tonnes. Emulsion PVC is barely produced in Russia and imports account for about 90% of the 170,000 tonnes consumption.1

"Market research2 suggests the PVC market in Russia and CIS will continue growing at a rate of 5-6%/year from 2012-2020, mainly driven by the construction industry," he says. "We believe we will sell all the PVC within Russia for domestic use and there will be no need to tap into export markets."

Komyshan sees plenty of potential for the new venture. PVC consumption per capita in Russia is still rather low at around 8kg/head whereas in Europe this is closer to 12kg,3 so there is certainly room for increased uptake, he says.

Conversely, the situation with caustic soda is a little different. The market was reasonably balanced in 2012 with demand growth relatively modest at about 2%/year.4 Sluggish demand in Europe resulted in several shutdowns and a decline in capacity utilisation of electrolysis units in the region - which in itself poses opportunities for the new venture. Some of the output may be exported but most of the caustic soda will remain in Russia, he says.

Even after the capacity comes on stream, it will not cover the deficit in the PVC market and some tonnage will still be imported. Komyshan points out that the designs therefore include an option to increase capacity in the future.

"If the market permits, and we achieve our marketing targets, then together with our partner we'll look at the situation. The logistics platform and facilities will support the expansion," he says.

By Andy Brice