Sanctions stunt global synthetic rubber sector, says former Sibur CEO

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- This article was first published in Rubber News on 10 August, 2022.

The European Tyre and Rubber Manufacturers' Association said it recently had observed "signs of declining demand" and expressed concerns that challenges linked to the rising cost of gas and supply of raw materials would keep the industry "under pressure."

These concerns are justified. European Union sanctions against Russia have already driven up natural gas prices, making European tyres and other goods more expensive. Due to political tensions, European manufacturers such as Michelin and Nokian Tyres quit Russia, which has been not only a large market for them but also a low-cost production location for selling tyres to other countries.

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Speaking of raw materials coming under pressure, one of them is synthetic rubber, the bulk of which—up to 50% for some types of rubber—has been supplied to Europe from Russia. These supplies are facing a tricky situation. On the one hand, shipments of Russian synthetic rubbers haven't been banned by EU sanctions. On the other hand, there is a risk that such a ban could be announced at any moment. European customers have started slashing purchases from Russia and looking for alternative suppliers because of political considerations.

Based on our analysis in the Russian Chemists Union, European tyre manufacturers already have found alternative suppliers in other geographies to replace nearly 60% of the synthetic rubber that previously was shipped from Russia. Sometimes they pay double the price of Russian rubber, which will increase the cost of tyres. However, politics appears to be more important than common sense for some European companies.

In turn, Russian petrochemical companies have redirected synthetic rubber exports to China and other Asian markets, which are less profitable sales destinations for them than Europe due to higher logistics costs. The Russian Chemists Union is confident that high-quality rubbers produced in Russia will be in demand in international markets even as sales to Europe have declined due to political tensions.

Russia's largest petrochemical producer, Sibur, which I had headed for 15 years before leaving in March 2022, has been relying on synthetic rubber, among other products, for exports. Last year Sibur increased its share of the synthetic rubber market through the acquisition of a major Russian rival, TAIF, which was completed under my leadership. While natural and synthetic rubbers have different properties and aren't direct substitutes, I believe our industry has a better ESG impact—it processes the residuals of oil and gas production into rubber, while natural rubber production often causes problems such as deforestation and damage to local communities.

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Sibur has invested $21 billion over the last decade in upgrading existing factories and building new production facilities. When my team was developing a strategy for Sibur in the late 2000s, we looked with equal interest to both the West and the East. We were selling commodity chemicals, including rubbers, to Europe and buying state-of- the-art technological equipment there. We were expanding plastics sales from our new facilities to China. We set up a joint venture with Reliance Group to produce synthetic rubber in India.

We wanted to have two pillars for Sibur's business and exports—one in Europe and the other in Asia. Our competitive advantages and demand from growing Asian economies surely would enable Russian companies, including Sibur, to maintain a sustainable business. Still, both Russian and European Crms could have achieved more and developed faster if we had maintained trade relations and technological cooperation.

- The author, Dmitry Konov is a board member of the Russian Chemists Union and former CEO of Russia's Sibur Holdings.

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