Russia ramping up domestic plastics production

Russia is ramping up domestic production of plastics thanks to recovering local demand and a significant drop of imports as the result of Western restrictions.

The unprecedented sanctions on Russia's plastics sector have not resulted in its collapse. Instead, after several months of decline — generally higher than in other segments of Russian economy — the industry has resumed its gradual growth.

That's mainly due to government support and the launch of new production facilities by some leading local players.

According to a recent report, "Analysis of the supply of plastics to the Russian market," published by experts at the Russian Higher School of Economics, the demand for plastics in the country will grow in years to come. While the industry has generally good prospects, much will depend on support that could be provided by the state.

The imposed Western sanctions led to serious turmoil in the Russian plastics market. In general, the cessation of polymer trade with countries that joined the sanctions against Russia cost the country's economy 0.5 percent of GDP.

Most of these sanctions came into force on July 10, 2022, as part of the eighth package of sanctions against Russia, when the European Union banned the import of primary polymers and products made from them: plates, sheet, film, tape, pipe, hose and other products, starting in 2023..

According to HSE experts, those so-called unfriendly countries accounted for about half of Russian plastic imports (1.4 million tons) and a third of Russian exports (830,000 tons). However the situation has radically changed, as sanctions affected most market segments.

In the case of large-tonnage polymers, linear low density polyethylene, PVC and ABS are considered the most import-dependent, where the share of foreign products is close to 70 percent. In contrast, Russia provides 80-90 percent of its own polypropylene, expanded polystyrene and PET.

The most complex situation is in small- and medium-tonnage chemistry, traditionally heavily dependent on imports. While in recent months the situation has generally stabilized, the share of imports remains high.

Still, most of Russian analysts believe the domestic plastics market has been generally able to adapt to the current realities. The biggest growth in plastics demand in the next five years will be in construction, automotive and packaging, which traditionally consume up to 70 percent of produced plastics in Russia. Analysts expect growth in those markets to exceed 40 percent by 2028.

After suspension of supplies from the European Union, many of Russian plastic processors faced product shortages. Most companies have turned instead to imports from China, Turkey and other friendly countries.

Overall, the industry withstood external sanctions' challenges, but a serious decline in individual segments led to a decline in overall performance.

According to experts at Russia's Rossiyskay Gazeta business paper, last year the production of plastics in Russia decreased 6.4 percent compared with 2021 with the biggest decline coming from nylon (down 16 percent), polyurethane resins (down 11 percent) and PVC (down 11 percent). Companies are seeing similar declines this year.

In the case of finished plastic products, the situation differs depending on the market segment. Domestic packaging producers generally meet up to 90 percent of local needs, but the same cannot be said about the automotive spare parts market, where the dependence on imports varies greatly. For example, in car bumpers, domestic manufacturers satisfy only 20 percent of market needs.

Finally, the situation in medical plastics is much more complex. Currently Russia produces less than a third of the required volume of finished medical products, although, according to experts from the Russian Ministry of Industry and Trade, the country has sufficient raw materials base to ensure large-scale domestic production. In particular, to meet the needs for disposable syringes by 2028, Russia's production needs to increase almost three times, which will require import substitution of up to 7,500 metric tonnes of polymers per year.

In 2023, Russian plastics manufacturers intensified efforts in import substitutions. They have been able to almost completely replace imports of polyethylene pipes, plastic windows and a large number of individual types of packaging materials.

In addition to domestic market, many of local producers are making efforts to enter new export markets, primarily Turkey, China and countries in the Asia-Pacific region. In addition, part of Russian plastics is still supplied to EU members such as Poland, which is conducted via various schemes, sparking concerns from local producers, many of them unable to compete with cheaper Russian imports.

According to Polish Interia business paper, citing the Polski Recycling association, Poland imports huge amounts of plastic, and a significant volume is currently delivered to the country from Russia.

According to experts of Interia, Russian raw materials are becoming a cheaper alternative to domestic plastics, especially as a result of recycling.

In the meantime, amid the gradually improving situation in the domestic market, leading local players consider the launch of some large-scale investment projects this year.

For example, Sibur, Russia's largest polymer producer, plans to invest $2.5 billion to $3 billion in its polypropylene production project in Tobolsk in the Tyumen region on the basis of its Zapsibneftekhim LLC plant. /this has been recently confirmed by the governor of the Tyumen region, Alexander Moor.

The new complex is scheduled for commissioning in 2027.

"They planned to start this project a year ago, but due to objective circumstances, it took time to replace the equipment of unfriendly countries with Russian analogues and equipment from our partner countries," Moor said.

Zapsibneftekhim ss the largest petrochemical complex in Russia, the total capacity of which allows the production of 2.5 million tons of base polymers per year (1.5 million tons of PE and 1 million tons of polypropylene). In 2020, the complex reached its capacity.

A significant part of the new capacity will be supplied for exports. In general, the Russian polymer producers have cumulatively increased exports to the Asia-Pacific region since the second half of 2022. In particular, Sibur's supplies to the Asian market exceeded the previous year's figures by 2.5 times. Of these, China accounted for up to 80 percent of total export sales. The company also considers Vietnam, Bangladesh, Malaysia, Cambodia, and Indonesia as potential markets for its export supplies.

According to earlier statements, made by representatives of Sibur in an interview with the Russian Kommersant business paper, the main consequences of the sanctions were neutralized. They said that after the boom in demand for petrochemical products in 2022, amid the sharp reduction in imports, customer demand was redistributed towards the development of the product portfolio and import substitution.

In general, the company estimates additional demand at 700,000-800,000 tons per year, of which 300,000 tons are PP and PE.