Russia’s SIBUR bullish on H2 despite pandemic eroding demand

LONDON (ICIS)–SIBUR’s outlook for its petrochemicals business is bullish for the second half of the year if a second wave of coronavirus infections is avoided, the Russian producer said this week.

“This is apparently when we hit the bottom. At the end of the second quarter, early in the third quarter we see improvements in spreads as well as demand,” said SIBUR executive director Sergey Komyshan.

“If we do not see any significant second wave of the pandemic, then we should be able to come back to levels in terms of margins that we saw before, but that will be very uneven among different regions.”

As with other global chemicals producers, SIBUR marked a downturn in earnings as a result of the economic crash brought about by the pandemic, but the Russian producer may have fared better than competitors by retaining steady margins.

Sales for the first half fell 11.6% year on year to Russian roubles (Rb) 235.3bn ($3.2bn); however, some segments’ earnings rose sharply.

SIBUR EBITDA* (In Rb/m)	H1 2020	H1 2019	Change
EBITDA*	73,865	86,116	-14.2%
Olefins & Polyolefins	31,065	22,649	37.2%
Plastics, Elastomers and Intermediates	5,253	10,774	-51.2%
Midstream	31,403	56,232	-44.2%

*EBITDA: earnings before interest, taxation, depreciation and amortisation.
($1 = Rb73.59) 

As the strongest performing business segment for the first six months of 2020 was the olefins and polyolefins unit, earnings from this value stream succeeded in growing on the previous year’s levels.

The key factor in supporting polyethylene (PE) and polypropylene (PP) sales was the ZapSibNeftekhim plant in Tobolsk, Russia becoming operational and propelling sales volumes to both domestic and export markets.

Although weaker prices upstream weighed on the earnings for the midstream business unit, the integration enabled SIBUR to benefit from competitive feedstocks.

SIBUR tracked stable EBITDA margins at 31.4%, compared to 32.3% in the first half of 2019, cushioned above competitors.

Coupled with the increased demand in the medical, hygiene and food packaging sectors offsetting the lack of buying interest in the automotive and construction sectors, this helped the Russian producer weather the downturn more than others.

“Demand this year has really been affected by pandemic, but we saw huge additional demand in everything that has a relationship with health and care applications, and this is what we think is here to stay,” said Komyshan.

“Packaging as a sector has been a benefactor of the current situation and there is demand for more effective packaging and solutions for materials like PE and PP are essential in making sure the end products reach end place in safe.”

–
Apart from resilience of demand in key regions like China, the key determining factor for SIBUR’s outlook is raw material price volatility.

“The ability of the industry deal with higher feedstock prices is linked to crude pricing, so it is an open question as to how spreads will behave until the end of the year,” said managing director Alexander Petrov.

If SIBUR can continue to pass on raw material costs while maintaining a comfortable buffer for its own margins, the Russian producer could be better placed than most emerging from the pandemic.

Front page picture: SIBUR’s facilities in Tobolsk
Source: SIBUR

Focus article by Morgan Condon