Business Opportunities for Swiss Suppliers in Chemical Industry in Russia MARKET RESEARCH OFFICIAL PROGRAM PARTNER Contents 1. EXECUTIVE SUMMARY __________________ 3 2. INDUSTRY OVERVIEW ___________________ 3 3. INVESTMENT IN THE INDUSTRY __________ 10 4. PERSPECTIVES FOR THE SUPPLY OF GOODS AND EQUIPMENT FROM SWITZERLAND ________________________ 11 5. CONCLUSIONS AND RECOMMENDATIONS 16 MARKET RESEARCH 2 1. Executive summary The chemical industry is one of the sectors in focus of the import substitution plans of the Russian government and the Russian authorities put much effort into convincing domestic and foreign manufacturers to invest into the modernization and the expansion of local production. Their goal is to develop the manufacturing of Russian products that are to replace imports («import substitution») and as a consequence an increase in domestic production («production localization»). The present report by the Swiss Business Hub Russia shows that the ongoing investments in the modernization and expansion of local production in the chemical industry offers numerous opportunities for foreign suppliers, including Swiss companies. In total, the research done by the Swiss Bussiness Hub reveals that there are at least 47 major investment projects in preparation, which are of interest for Swiss suppliers. 2. Industry overview The Russian chemical industry market in 2017 is estimated at the level of 2,290 billion rubles or 34,682 million euros. Russian production amounted to 16,810 million euros, while imports accounted for about 17,870 million euros. Dynamics and structure of the Russian Federation’s chemical sector. Russian and foreign manufacturers, 2014-2017, mln EUR, bln RUB MARKET RESEARCH 3 About 52% of the total volume of chemical products consumed in the Russian market consists of imported products. This is a slight decrease in the share of imported products in monetary terms compared to 2015 (56%). In monetary terms, the main chemical substances (fertilizers, polymers in primary forms and rubbers) accounted for 54% of the total volume of Russia’s chemical market. The share of washing, polishing, perfumery and cosmetic products in the sector structure was 20%, paints and varnishes – 7%, plant protection products – 4%, artificial and synthetic fibers – 2%, and other chemicals – 15%. Dynamics and structure of the Russian chemical sector in terms of product types, 2014-2017, mln EUR The share of foreign production accounts for more than half of the volume in almost all sub-sectors of the chemical industry in Russia, including: 2017 Basic chemicals 50% Plant protection means 62% Paints and varnishes 50% Washing, cleaning, polishing, perfumery and cosmetic substances 45% Artificial and synthetic fibers 51% Other chemical products 65% In 2017, the share of Russian production in the total market volume exceeded 50% in only the synthetic detergents production segment. MARKET RESEARCH 4 In monetary terms (in rubles), the Russian chemical products market demonstrated positive dynamics over the period between 2013 and 2017, reaching 2,290 billion rubles by 2017, which is 49% higher than in 2013. The volume of domestic production on the market increased by 48% in 2013-2017 and import by 49% (in rubles). The market volume in euros, as in other sectors in the Russian Federation, decreased in the period of 2013-2016 due to a significant drop in the national currency value in 2014-2015. (A decrease of 24% was observed.) In 2017, the market showed a positive trend in European currency as well (up 24% to the level of 2016). The total share of imports in the chemical industry in Russia was 51% in 2013, but in 2014 and 2015 it increased to 55% and 56%, respectively. By 2017 it again decreased to around the 2013 level – 52%. In the context of selected sub-sectors, in 2013-2017 the following changes in the ratio of domestic to foreign products occurred: ▪ Main chemicals – an increase in the share of imports from 46% in 2013 to 52% in 2015 and then a reduction to 50% by 2017; ▪ Plant protection products – reduction of imports from 68% to 62%; ▪ Paints and varnishes – reduction of imports from 57% to 50%; ▪ Washing, cleaning, polishing, perfumery and cosmetics – reduction of imports from 57% to 45% ▪ Artificial and synthetic fibers – growth of imports from 46% to 51%; ▪ Other chemical products – growth of imports from 61% to 78% in 2013-2015 and a reduction to 65% by 2017. The structure of the Russian chemical market in terms of product types remained virtually unchanged during 2013-2017. The Russian chemical industry as a whole is characterized by a rather high share of exports – 51% of domestic production in 2017, or 17,750 million euros. (In 2013-2015, the share of exports in European currency increased from 52% to 60% respectively; in 2016 -2017 it was 51%.) Most of this volume is accounted for by the export of basic chemicals – 15,147 million euros worth in 2017, accounting for 85% of total Russian exports and 62% of Russian production in this sector. A relatively high share of exports also characterizes the market of other chemical products – about 36% of the total production in in 2017. Despite the growth in exports in absolute terms (from 847 million euros in 2015 to 1,000 million euros in 2017), there has been a decline in the share of exports in this segment – from 50% in 2015 to 36% in 2017. The export of washing, polishing, perfumery and cosmetic products amounted to about 1.2 billion euros in 2017, or 24% of Russian production (in 2013 – 744 million euros or 23%, in 2015 – 673 million euros or 21%). The export volumes of other types of chemical products are relatively small: • Paints and varnishes – 206 million euros (15% of Russian production); • Means of plant protection – 130 million euros (22% of Russian production); Artificial and synthetic fibers – 34 million euros (12% of Russian production). Industry issues The most problematic sub-sectors in the Russian chemical industry are chemical fibers and threads production as well as low- tonnage chemistry. Among the main reasons behind the backlog of the production of chemical fibers and threads in Russia is the lack of raw materials. A high level of supply of raw materials is observed only in the production of polyamide, polypropylene and polyacrylonitrile fibers and threads. The remaining segments are provided with raw materials, either partially or completely, using foreign raw materials. In particular, this applies to polyethylene terephthalate (base for the production of polyester fibers and threads), as well as polyamide 66 (base for the production of cellulose and anilic threads). The share of low-tonnage chemistry in the production of the chemical complex of Russia is no more than 5% (compared to 28- 33% in developed countries) with the share of imports in the consumption of such products at 70-100%. MARKET RESEARCH 5 Key players in the chemical industry Revenues, mln RUB Revenue, Company 2016, Main products Website 2013 2014 2015 2016 mln EUR Apatit 46,559 55,665 97,406 102,928 1,332 Extraction and dressing of apatite- Murmansk (PhosAgro) nepheline ores from the Khibiny region deposits; Production of apatite and www.phosagr nepheline concentrates, as well as o.ru/about/ho other mineral concentrates – syenite, lding/item49. sphenic and titanomagnetite; An php enterprise of the PhosAgro holding company Kazanorgsintez 46,134 54,483 68,599 75,411 976 Produces over 38% of all Russian Republic of polyethylene and its largest exporter; Tatarstan Production of gas-conducting www.kazanor polyethylene pipes, phenol, acetone, gsintez.ru cooling liquids, and chemical reagents for oil extraction and natural gas drying Bashkir Soda 24,203 27,321 33,459 39,141 507 Production of soda ash and baking Republic of Company soda, PVC and caustic soda, cable Bashkortostan plastic; Sole manufacturer of www.soda.ru terephthaloyl chloride, anodes with ruthenium-iridium coating and cationic polyelectrolyte flocculants KuibyshevAzot 28,045 30,873 38,092 37,911 491 Produces caprolactam and its Samara region processing products (polyamide-6, www.kuazot.r high-strength technical and textile u threads, cord fabric and engineering plastics), ammonia and nitrogen fertilizers, and technological gases Polyplastic 17,759 20,240 21,335 24,095 312 A leader in the development and www.polyplast Group production of polymer pipes and ic.ru engineering plastics in the CIS countries, this group consists of 16 enterprises in Russia and the CIS Avgust 10,160 11,743 15,772 20,909 271 Chemical means of plant protection for Moscow agricultural production www.avgust.c om/company/ Nefis Cosmetics 9,970 10,869 12,883 18,048 234 One of Russia's largest producers of Republic of (Part of Nefis everyday goods for mass consumption, Tatarstan Group) fat and oil products and household www.nefco.ru chemicals Metafrax 13,192 13,439 16,644 17,703 229 Group of companies. The largest Perm Krai producer of methanol and its www.metafrax derivatives .ru/ru/ Shchekino-azot 11,768 14,799 17,124 16,838 218 Produces industrial and household Tula region chemicals, linoleum, products from n-azot.ru polyamide threads and chemical equipment Kaustik 11,902 12,549 16,216 16,595 215 Production of synthetic hydrochloric Volgograd acid, commercial chlorine, liquid and www.kaustik.r MARKET RESEARCH 6 Revenues, mln RUB Revenue, Company 2016, Main products Website 2013 2014 2015 2016 mln EUR solid caustic soda u/rus/ Omsk Carbon 12,865 14,320 14,931 13,855 179 Group of companies producing carbon Omsk Group black www.omskcar bongroup.com Schelkovo 5,408 7,727 9,965 12,879 167 Production of pesticides for the Moscow Agrohim integrated protection of important region agricultural crops and agrochemicals www.betaren. with a high content of trace elements; ru More than 120 products Synthez- 11,378 11,952 13,885 12,860 166 Production of high-quality isoprene Republic of Kauchuk rubbers for general and special Bashkortostan purposes.