Page 6 - FSUOGM Week 08 2020

FSUOGM COMMENTARY FSUOGM
Supply chain for the Amur gas chemical complex. Source: Sibur.
companies can be heavily punished for a bad ESG score – Norway’s pension fund has banned investing in companies with low ESG scores completely – companies with especially good ESG are not yet being rewarded: there is no alpha in being a green company yet.
But change is clearly coming. Komyshan points to the speech given by the current man- aging director and chairwoman of the Inter- national Monetary Fund (IMF) Kristalina Georgieva at this year’s Davos World Economic Forum summit, where she said the IMF would start costing ESG compliance and called on all the world’s government to set up similar schemes.
“There are no taxes on carbon emissions or other restrictions, but they are coming. At some point exports could be affected if countries start imposing a carbon tax on those that don’t meet specific standards,” says Komyshan. “The prob- lem is when you make an investment decision the results will last for decades. You have to get it right now. And these changes require a raft of internal changes in thinking and processes that take years to implement. If you want to be ESG friendly you need to embed it in the corporate DNA as early as possible.”
Consumption and demand
Sibur is in a growth industry. And based in Russia it can tap the abundant hydrocarbon resources, as all the major oil and gas producers in the country are happy to sell off the lighter and heavier hydrocarbon fractions that are not part of their core oil or natural gas businesses.
Today the use of plastic is still rising faster than economic growth throughout the whole world. In places like Europe and other developed markets the rate of growth is slowing and is now 1.2 times the rate of GDP growth, but in emerg- ing markets the growth is higher at between 1.5
and 1.6 times GDP growth, according to Konov. “The growth in the use of plastics is a problem
but it not such a big problem,” says Konov. However, the plastics market had a tough time in 2019. Demand for petrochemicals has been depressed as a lot of new capacity came
online last year.
Komyshan says the “shale revolution” cre-
ated a window of opportunity for petrochemical producers as shale oil and gas has a higher share of light hydrocarbons that is ideal for use as the feedstock for petrochemical production. That led to a rush to build new plants that have been coming online now.
“If you add the economic slowdown expected in Asia as a result of the coronavirus then you have something of a perfect storm at the moment,” says Komyshan.
However, as the demand for petrochemicals is running ahead of GDP growth Komyshan says the world needs to add new capacity equivalent to at least two ZapSibs every year just to keep up. As this new capacity is not being built Sibur thinks the pendulum will swing back to demand outstripping supply from about 2022 onwards.
And in Russia the market conditions are even more favourable. Russian domestic demand remains strong as the market is still not saturated and the ongoing economic growth and con- sumption is driving demand for construction materials and packaging among other products and will do for years to come.
On top of this organic growth, the Krem- lin’s 12 national projects that were launched last year are expected to give and extra fillip to the business as billions of dollars will be invested in infrastructure and urban redevelopment.
“I believe that civil investment will produce demand for more modern materials that we can supply,” says Komysshan highlighting the fact that for example urban water mains are still often
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w w w. N E W S B A S E . c o m Week 08 26•February•2020