MRC: Current Balance in Russia, Ukraine & Central Asia, Istanbul, CMT’s 6th Global Chlor-Vinyl Market - 2011

Current Balance in Russia, Ukraine & Central Asia

Sergey YaremenkoManaging Director, MRC

CMT’s 6th Global Chlor-Vinyl MarketIstanbul, June 09-10, 2011

MARKETR E P O R T C O M P A N Y

Agenda

Impact of Lukoil

About us

Future market analytics

Current data of PVC market

We make market reports.

We focus on Russia and FSU countries.

We are specialists in PE, PP, PS, PVC and PET markets.

About MRC

Price reports – for pricing data Monthly reports – for balance of supply & demand

ScanPlast – stocks analysis DataScope – prompt Export-Import data

Forecast – price forecasting Annual reports – everything

We produce 1500 reports annually

November, 2006

We provided data to Harriman Chemsult

ICIS-MRC covers data for FSU countries

MARKETR E P O R T C O M P A N Y

ICIS’ content:Asia

Europe

USA

MRC’ content:Russia

Ukraine

Kazakhstan

Uzbekistan

Belarus’

Today we have a joint-venture with ICIS

ICIS-MRC reports today

Converters that used ICIS-MRC reports

consume 60% of PVC in Russia

MARKETR E P O R T C O M P A N Y

… and many others

ICIS-MRC attracts big experts for co-operation

Separately MRC publishes the forecasting reports

All world experts make mistakes asoften as they make forecast.

Anyway we developed Price Forecaststhat include factors affecting prices.

Wheighting these factors at your solediscretion you make your ownforecast.

Agenda

Impact of Lukoil

About us

Future market analytics

Current data of PVC market

when you don’t use any analitycs…

today

… you should go ahead but you don’t see anything

when you don’t use any analitycs…

todaywhen you don’t use any analytics…

today

… you should go ahead but you don’t see anything

when use good analitycs…today

today

… you should go ahead but you have to see to rearview mirror

when use good analitycs…today

today

when you use good analytics…today

… you should go ahead but you have to see to rearview mirror

tomorrowtoday

… you see to rearview mirror

when use good analitycs…you will use a lot of smart navigation tools…tomorrow

…but not pdf reports

Our future analytics

MRC mobile MRC scan MRC news MRC alert MRC strategy MRC help MRC post MRC reports MRC account

LogicallyImmediately

MRC Mobile

Online expert discussion

MRC Alert

Agenda

Impact of Lukoil

About us

Future market analytics

Current data of PVC market

UkraineKazakhstan

Uzbekistan

Belarus’

FSU PVC market

Oil prices return Russian Economy to “New Normal”

New normal is when consumption grows faster than enthusiasm among businessmen.

Consumption of PVC in Russia in 2010 reached historical peak

1 mln. MT-

Russia: unexpected growth

The President of SIBUR: 2010 was a year between crisis and future, in 2010 the growthwas "unexpected even for us".

+34%

+48%

Russia is a big net importer of PVC

Net Import of PVC in 2010 exceeded 500 KT.

Import of PVC for profile extrusion is a key driver of 2010

Investments into PVC processing increased by 4% in 2010 .

Consumption by sectors

New converters’ capacities

TOP-15 investors into PVC processing

New capacities of profile extrusion in 2010 exceed162 КТа.

Main equipment suppliers

For the last two years converters have prefered Turkish extruders from Mikrosan Makina.

Market grew by 29% - 2011 (Jan-Apr)

Import of PVC resin increased by 122%. Share of import is 62% in April, 2011.

Russian production of PVC decreased by 7% in Jan-Apr, 2011.

USA is the biggest current PVC supplier

Russian traders and converters today prefer Oxyvinyls compared to Xinjiang Tianye in 2010.

Production dropped because of ethylene conflict

Salavat ethylene conflict

Structure of polymers consumption in Russia by regions, %

To know about Russia

About half of PVC is consumed in Moscow region.

Sometimes distance between producer and customer exceeds 5’000 km.

Source: MRC

PVC market of Moscow region is

equal to Polish market

4 times bigger then Ukrainian market

6 times bigger then Hungarian market

Source: MRC

Something about Russian converter

П

PETPETPVCPVCPPPPPEPEPSPS

Size of PVC converter is 4 times bigger than PE converter.

If you want to sell even 200 KT of PVC you could have only 30 annual contracts.

Market is ready to use the contract system

Top-5 is 24% of market.

Top-10: 37%.

Top-20: 53%.

Top-40: 65%.

Domestic producers follow the prices of imported PVC

Source: ICIS-MRC

Local price PP-homo, CPT, Moscow, VAT incl, April 2008

0 300 600 900 1200 1500

S. Arabia, Al-Jubail

Poland, Plock

Russia, Nizhnekamsk

Costs Price, FCA, export Duty Logistics to S Pb port Logistics to Moscow VAT

LogisticsShield

Source: MRC

Usually this logistics shield is 50-150 USD/MT. Russian producers want to control high customs duties and high indicative prices.

Sibur’s President D. Konov introduced a new term “logistics shield” (duties and tarrifs should help industry).

Current duty for PVC-S is 10%, but also there are the indicative prices.

.

Again about “Logistic shield”

Energy saving – main driver of PVC market during the next decade

Heat consumption on 1 m2 of living area in Russia is 50% bigger than in the Scandinavian countries.

Russian housing energy consumption is 230 kilowatt-hour per m2 annually, while in EU is 77 kilowatt –hour.

In water consumption - 350 litres per person in Russia against 114 litres per person in Denmark.

Source: MRC

Azerbaijan, KT

0

2

4

6

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan

Kazahstan, KT

0

1

2

3

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan

Other PVC markets of CIS

Ukraine, KT

0

5

10

15

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Belarus' KT

0

0,1

0,2

0,3

0,4

0,5

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan

Ukrainian market is 3 times bigger than Azeri, Kazakh and Belorussian market together (data of 2008). Unfortunately we don’t have good data about PVC market in Belarus’.

0 1 500 3 000 4 500 6 000

Xinjiang Tianye

Xinjiang Zhongtai

Vladimir Chemical Plant

LG Chem

Sayanskchemplast

Polygran

Kerem Plastik

Caustic, Sterlitamak

Spolana

Ekmen Plastik

Sintas Plastic 2009 2010

Source: MRC

Kazahstan, KT

0

1

2

3

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan

Ukraine, KT

0

8

16

24

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

0 8 000 16 000 24 000 32 000 40 000

Formosa

Vinnolit

Anwil

BorsodChem

Oxyvinyls

Spolana

Veka

Ineos ChlorVinyls

Georgia Gulf

Vestolit 2009 2010 2011

UA & KZ markets in 2010

Import of PVC in Jan-Mar, 2011 increased by 42%.

Source: MRC

Ukraine still increases

Before the launch of Kalush Ukraine orients on spot prices

US producers are the current leaders in import of PVC into Ukraine.

Agenda

Impact of Lukoil

About us

Future market analytics

Current data of PVC market

May 27, 2011: new PVC plant in Kalush oficially lounched

+160

Moscow

Budennovsk

Ufa

Salavat

Omsk

Tomsk

Berezniki

KstovoKazan

NizhnekamskDzerzhinsk

Volgograd

Novomoscowsk

Chapaevsk

Sterlitamack

Angarsk

Bratsk

UsoleSayansk

Aliaga

Shurtan

Sumgait

Navoi

Vozlavsk

Kalush

Declared production capacities growth up to 2015:

1015 KTa

+300

+160

+150

+120

+300

PVC, VCM, Ethylene

Necessary investments:

PVC, VCM, caustic, salt

Short chain Caustic/PVC

own ethylene/VCM

Ethylene, PVC, VCM

PVC, VCM, Ethylene

??

Lukoil had better visible reasons to produce PVC

Source: MRC

Product Export before maintenance, MT

VCM 222 958

Propylene 106 992

HDPE 94 963

Benzene 39 895

Ethylene 25 776

Caustic 23 602

Ethylene, KT

208227 234

200

100

200

300

2002 2003 2004 2005

VCM, KT

120173

236195

0

150

300

2002 2003 2004 2005

Caustic, KT

7082

11894

0

75

150

2002 2003 2004 2005

Chlorine, KT

62 73

10491

0

75

150

2002 2003 2004 2005

+180+200

PVC +300 KTa

Kalush will export PVC not VCM

Source: MRC

Model of Russian PVC market, 2009-2010, KT

40

250

102

150

70

88

0

200

400

600

800

45,0 45,5 46,0 46,5 47,0 47,5 48,0 48,5

Price RUB, СРТ, Moscow, VAT incl., Sep. 2010

Average Converter, monthly, MT

Russian PVC market before Lukoil

90% of sales are contracts

70% of sales are contracts

Mainly spot

Only spot

Mainly spot Others

Source: MRC

Russian PVC market with Lukoil

Model of Russian PVC market, 2011-2012, KT, est.

170

0

200

400

600

800

45,0 45,5 46,0 46,5 47,0 47,5 48,0 48,5

Price, RUB, CPT, Moscow, VAT, incl, sep. 2010

Average Converter, monthly, MT

Source: MRC

Two Chinese plants from Xinjiang will have long-term strategic advantage compared to current spot supplies from USA. Because of good logistics and custom clearance in Dostyk.

Some conclusions

Russian PVC market could be equal the German market soon.

The is only one big driver. It’s a window market.

Presidential election in 2012: we expect additional investments into Russian construction.

Shortage of TiO2 is key limitation of the market.

Cable compounds are replaced by PE-X (40 KT).

Lukoil will change the shares of all market players.

Because of low profitability in Kalush, we expect an increase UA custom duty from 0% to 5-6.5%.

Sergey YaremenkoManaging Director

Market Report Company

sergey.yaremenko@mrcplast.com; www.mrcplast.comMoscow +7 495 543 91 94; Kiev +38 044 240 82 35

Many thanks