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December 14, 2018 www.intellinews.com I Page 3
Sibur’s business is based on basic organic chemistry. The plant may be hugely complex
but the fractional distillation and the reactions needed to make the new compounds are fairly straightforward. In essence what the company does is receive a soup of carbon compounds — polymer chains of different lengths — and separates them out into their consistent parts. Then the different chains are cooked up to make a variety of products that can be used as the feedstock for making
more complex chemicals or turned into fuels and plastics granules that are used by “converters”,
as Konov refers to the manufacturers that are his customers. Elastomers ( that includes synthetic rubber) is another important product that Russia has been making since Soviet times.
To simplify: Sibur makes three main product groups: olefins and polyolefins (carbon chains with at least one double carbon bond) such as polypropylene and polyethylene, which are used to make packaging, hygiene products and other chemicals; Plastics, Elastomers and Intermediates such as the widely used synthetic rubbers or PET; and Midstream products such as liquid petroleum gases (LPGs), regular natural gas, raw natural gas liquids (NGLs) and naphtha (a flammable liquid which is used in lighter fuel for example).
The regular natural gas that Sibur produces and sells is sourced from the Company’s suppliers mixed up with a soup of chemicals and is extracted as part of the clean-up of the soup. The natural gas is then sent back into Gazprom’s pipelines and earns a significant amount of revenue on its own.
Sibur makes the most money from external sales of LPG, natural gas, naphtha and raw NGL – the so-called “midstream” products – (RUB184bln, or $2.8bn), slightly less from external sales
of Plastics, Elastomers and Intermediates (RUB147bn in 2017, or $2.2bn), while the Olefins and Polyolefins make a bit more than half that amount (RUB88bn, $1.3bn).
However, where it starts to get interesting is looking at the margins on sales of these three groups of
products. The most profitable segment, with a 40% Ebitda margin, is the Olefins and Polyolefins, but they also make up the smallest share of the company’s group revenues, 19% in 2017.
The least profitable products are the Plastics, elastomers and intermediates which have a still healthy 20% Ebitda margin and accounted for almost a third (32%) of the group’s revenue in 2017.
The midstream segment is almost as profitable as the olefins and polyolefins with a 39% margin but account for the largest part of group’s revenue (41%).
What the new ZapSib plant will do is dramatically change this mix. Instead of selling the significant volumes of midstream products to customers, they will be used as feedstock for the new plant and be used to make more olefins and polyolefins — the group’s most profitable product.
The amount of polyolefin production will almost treble as a result and that should lead to a doubling in revenues in the medium term as well as increase the average profit margin of the business as a whole.
“We take products from midstream and use them as feedstock for the olefins and polyolefin production, which are both about a 40% Ebitda margin business. But it is not as if we were taking away this mid- stream business margin. The margins actually add up as the midstream products are sold internally; on top of the lower margin business we add another margin,” says Konov.
Sibur is already a very profitable concern, turning in an average 35% Ebitda margin over the last three years. That is about 10-15% higher than its peer group, says Konov, thanks to its unique location in the heart of Siberia in proximity to feedstock base.
ZapSib adds value to the chain, but it also comes with some major savings. One of the problems Tobolsk faces is it is in the middle of nowhere and getting its products to its customers is a major logistical exercise.