Tebodin General overview of Chemicals Market in Russia
Tebodin General overview of Chemicals Market in Russia in comparison with Global and Europe market trends Niek de Koning, Director Global Chemicals & Life Sciences Moscow | April 19, 2017
Agenda 1. Global & EU Chemical Markets: § § § 2. Mega Trends and Outlook Submarkets Trends CAPEX & R&D Trends Russian Chemical Market with regard to Global and EU Chemical Markets Trends : § Recent trends and market opportunities Tebodin | Chemical Event | Nd. K/OC April 19, 2017 page 2
Chemicals Market and Submarkets Fertilizers Agro Chemicals Industrial Gases Oil & Gas Pharma Inorganic Chemicals Specialty Chemicals Nutrition Consumer Products Petrochemicals Polymers & Plastics Bio. Plastics Tebodin | Chemical Event | Nd. K/OC April 19, 2017 page 3
General and Mega Trends and Challenges Chemicals General and Mega Trends Challenges Climate Change Challenging Business Environment Feed Stock Resource Scarcity Industry Responses Shift in Economic Power Tebodin | Chemical Event | Nd. K/OC April 19, 2017 Emerging Markets Oil Price and Business Growth More (complex) Regulations Chemical Market Mechanisms From Base Chemicals to Value Add Sub Sectors Road Map to maintain and grow in business Green Economy Industry 4. 0 Innovation page 4
Global Drivers for Chemicals Industry Population Growth Urbanisation Society Changes Tebodin | Chemical Event | Nd. K/OC April 19, 2017 Health Safety Environment Sustainability Biobased Growth towards End Customer Industries Consumer Products Growth in Chemicals + Allied Markets page 5
Global & EU Chemical Markets o o o Requirements by end-consumer markets Allied industries challenges Feedstock- and Resource Trends Climate Change Regulatory Requirements and Incentives. § World chemicals sales are expected to reach the level of € 6. 3 trillion in 2030 (almost double from today). The EU chemical industry is expected to rank third, growing at 1%/annum. Emerging markets driving chemical production growth above global GDP. § Sector development is characterized by long-term trend of moving of value chain (from manufacturing to R&D) eastward, following global shift of economic power. Emerging market players also are growing in global prominence, with companies rising to the top ranks of chemical producers!; and the emerging market players acquiring firms (M&A’s) in developed regions. Tebodin | Chemical Event | Nd. K/OC April 19, 2017 Mega Trends and Outlook § Chemicals remains a growth industry at global level, being “industry of industries” and benefiting from changing population and societies (new applications and new products), however, under transformation due to challenges on: page 6
Global & EU Chemical Markets § On the other hand current position of USA, with availability of Shale Gas, resulting in high availability of Methane and Ethane result in low cost feedstock and energy. This prosperous position, besides some stagnation in Chinese economy, might result in some “re-shoring” of industries back into USA again. § However, Shale Gas is produced with significant Foreign Direct Investment, also out of Russia! Is it possible for Russia to benefit in obtaining access to this technology, while also having large reserves of Shale Gas in their territory? Tebodin | Chemical Event | Nd. K/OC April 19, 2017 Mega Trends and Outlook § In general the chemicals market is following from base (petro)chemicals, domination towards added value and innovative sub-sectors (e. g. specialty chemicals, polymers, bio-chemicals) and diversification in markets. page 7
Global & EU Chemical Markets Feedstock - Other potential future Shale Gas developments § Tebodin | Chemical Event | Nd. K/OC April 19, 2017 FDI in US based Chemical projects is significant (> 60% outside USA); from strategic locations at the world. Can Shale Gas technology be easily transferred to the other countries in next coming years; and how long does USA benefit from it? Mega Trends and Outlook § page 8
Global & EU Chemical Markets § Chemical companies respond to market challenges with adapted strategies aimed at: § Chemical agglomerations (including clusters and parks) continue to be drivers of Chemical Industry competitiveness and investments. Chemical agglomerations have developed from closed single owned chemical sites through chemical parks concept to regional- and trans-regional interlinking of chemical sites towards the innovation and sustainability platforms playing important role in boosting chemicals innovation, sustainability and various Private-Public-Partnership initiatives. Recent trend is establishing and development of “environmental technologies”, “bio-based”, “sustainability” clusters. There a few examples of such “on-purpose” clusters which have been developed recently. § International and national industrial policies are supporting the viable clusters in their further development and improving the logistics and supply chain competitiveness in the global context. Industry-led, pan. European and government-funded regional bodies (including economic development agencies and industrial associations) promote local strengths, stimulate industry / academic interaction and facilitate investments. Tebodin | Chemical Event | Nd. K/OC April 19, 2017 Mega Trends and Outlook o Developing new business models, consolidating using M&A and strategic partnerships. o Going narrower and deeper in chemicals market selection that drives higher margins (e. g. specialties, polymers) and growing “beyond chemicals” (e. g. in nutrition). o Collaborative innovation (including own Venture Capital Funding). o Optimizing supply chain, manufacturing and geographical footprints (e. g. via “Verbund” and “New Verbund” concepts). o Digitalization of production and distribution. page 9
Global & EU Chemical Markets Status 2017 and Forecast 2020 § Petrochemicals: § Inorganic Chemicals: Base Chemicals - Inorganic Chemicals - growing at global level § Agrochemicals: Consolidation – Global growth >4%, however mainly outside Europe (NA, LA, Asia). § Fertilizers: Global growth; however EU market very limited growth; Growth in Russia. § Specialty Chemicals: Growth > 4 - 6% ; with above average on: Nutraceutical ingredients (functional foods and dietary supplements) Specialty polymers (high-performance and engineering thermoplastics) Electronic chemicals (process chemicals and packaging materials) Water Treatment Chemicals Ink additives § Polymers: Growth in average 4%, peaking for various new polymers and products. § Bio Plastics: Global production capacity of bioplastics quadruple in next 3 yrs o Asia will further expand its role as major production hub. o In 2019, >80% of bioplastics will be produced in Asia. o Europe will be left with less then 5 % of the production capacities. § Industrial Gases: Tebodin | Chemical Event | Nd. K/OC April 19, 2017 Sub-sectors trends o o o Oil stabilizes; Boom continues in US, growth in Asia, Europe focus upon costs+efficiency Growth 6%, particular growth in Hydrogen and Medical gases page 10
Global Chemicals Market – Forecast 2017 -2020 GLOBAL – Chemical Subsectors up to 2020 Relative Market Size € bn 750 Base Inorganic Chemicals 600 bn 600 200 100 Petrochemicals 750 bn Fertilizers 140 bn 3% Tebodin | Chemical Event | Nd. K/OC April 19, 2017 Polymers & Plastics 630 bn Specialty Chemicals 700 bn Agro Chemicals 215 bn Nutritional Products 250 bn Industrial Gases 76 bn 4% 5% 6% Bio. Plastics 7 bn Market Growth page 11
Global & EU Chemical Markets § Main investment opportunities are expected outside European market (e. g. North America, Latin America and India): o Shift in global economic power from G 7 - to E 7 - emerging countries is ongoing. CAPEX investments in fast growing Asian market still remain > factor 3 above Europe. o Natural Gas Prices in US and Canada are still about 1/4 of EU NG prices that created an enormous shift in CAPEX investments towards North America in last years. Longer term shale gas reserves in other countries, combined with future ownership of technology (obtained as FDI), might develop in next decennia significantly, potentially shifting the origin in feedstock market again. o For EU market investment opportunities are related to M&A, sustainable CAPEX, high valued add specialties and R&D, automation and digitalization. o According to European Chemical Site Promotion Platform there were 500 investments in chemical industry in EU over 2010 – 2016, including 125 greenfield projects. o Investments are prominent in diversified specialty chemicals and specialty polymers. CAPEX, R&D Trends § Projections indicate nearly $19 trillion will be spent globally through 2035 on capital projects. CAPEX of global chemical industry by 2020 is expected to grow with average annual growth rate 6% and represents a positive growth to $ 600 bn versus $ 470 bn in 2016. § Innovative nature of new chemical products and related (high tech) processes lead to fairly high engineering complexity of projects. Tebodin | Chemical Event | Nd. K/OC April 19, 2017 page 12
Global & EU Chemical Markets § Projects with a value of $50 million or less (and commonly less than $10 million) add up to a major portion of chemical-company spending. These typically account for 80% of all capital projects by number, and up to 50% of CAPEX. § Market players are increasing their budgets for R&D, use M&A to gain access to innovation, participate in governmental funded projects to drive R&D. § Further Digitalization and Industry 4. 0 will have significant impact on all industries, including Chemical Manufacturing. Additional revenue (+3. 1%/a) expected for Chemical MNC’s, Sales/Logistics Models and entire Supply Chain, while further cost reductions (4. 2%/a) will be obtained. R&D and smart products and -services will be interrelated. Tebodin | Chemical Event | Nd. K/OC April 19, 2017 CAPEX, R&D Trends § Main market players are forecasting CAPEX at the level slightly above depreciation and invest more in innovation, R&D, pilot plants and laboratory facilities, efficiency, HSE-compliance and “beyond chemistry”, including allied markets and infrastructure. page 13
Global & EU Chemical Markets CAPEX, R&D Trends § Chemicals sector is identified as one of Topsectors for biobased economy that became national priority (“taking biobased from promise to market”) and basis for integrated bioeconomy strategies worldwide. There is growing amount of centralized R&D and Science Parks to further enhance product development and synergy between strategic partners including bioeconomy initiatives. § UNFCC Climate change accord resulting in CAPEX investments at existing sites and facilities, however also increasing operational costs. Profitable growth will come from providing sustainable solutions, which meet real needs. http: //www. wur. nl/en/show/Biobased-economy-getting-more-out-of-biomass. htm Tebodin | Chemical Event | Nd. K/OC April 19, 2017 page 14
Global & EU Chemical Markets o With regard to China, the situation in 2015 was very spectacular, with Chinese chemical industry spending reaching € 95. 6 billion, representing >1/2 of the total amount invested by the eight largest countries in terms of chemical industry capital spending. o The United States continued to see a rise in capital spending as a result of the shale gas boom § Capital spending in the EU reached the level of € 20. 7 billion in 2015 This figure is very low compared to the one experienced 10 years ago, when EU chemicals investment represented > 33 % of the spent by the eight largest chemical investing countries § By investment projects in Europe of total production investments Germany scored top, UK was 4 th destination of FDI in chemicals, Belgium and the Netherlands occupied 7 th and 8 th places § The EU is in a better position compared with Japan, Korea, Russia, India and Brazil. However, EU capital intensity is far below emerging economies Tebodin | Chemical Event | Nd. K/OC April 19, 2017 Comparison 2005 over 2015 in € bn Comparison 2005 over 2015 in % sales CAPEX, R&D Trends § China dominates world chemicals investment, US capital spending surges ahead: Sources: Cefic ‘EU Chemical Industry Facts & figures 2016’ Capital Spending page 15
R&D expenditures § Wide variations in R&D efforts are observed across the world chemical industry. Analysing the ratio of R&D spending to sales of the chemical industry, the R&D intensity level in the EU was far below that of Japan and lower than in the US. US outspends industrial and emerging countries in chemicals R&D § China R&D intensity remained still far below US and EU levels during the years 2005 -2015. However, the world landscape of the chemical industry is changing rapidly. China is following ambitious industrial policy strategy to take its chemical industry to the next stage of development – a strategy outlined in the “ 13 th Five-Year Plan” - to move from “following the lead” to “taking the lead” and from a “big country” to a “great power” of the petroleum and chemical industry, leading on technology innovation and trade and prevailing in international markets Tebodin | Chemical Event | Nd. K/OC April 19, 2017 Comparison 2005 over 2015 in € bn CAPEX, R&D Trends § Innovation is becoming increasingly important for a region’s competitiveness Sources: Cefic ‘EU Chemical Industry Facts & figures 2016’ Global & EU Chemical Markets Comparison 2005 over 2015 in % sales page 16
Global & EU Chemical Markets Overview Chemicals Sector Risk Rating Russian Market in trend with global market http: //www. eulerhermes. com/economic-research/sector-risks/Global-Chemicals-Report/Pages/default. aspx Tebodin | Chemical Event | Nd. K/OC April 19, 2017 page 17
Russian Chemical Market Current Status Russia o In 2015, the production of the main products of the chemical industry in monetary terms increased by 24. 1% compared to 2014 and amounted to about 42. 1 billion dollars, exports in value terms decreased by 12. 7% to 19. 3 billion; import, by 26. 9% to $ 33. 9 billion. In 2015 the main reasons for the growth in chemical production were the devaluation of the ruble, which stimulates the growth of the physical volume of exports, and increased demand from Russian market (mainly, military sector). o In 2016, the chemical industry has become one of the leaders in the manufacturing sector in terms of production growth rates (+ 5. 3%, the second result among the manufacturing industries) with leading positions by the production of rubber and plastic products. In 2016 the high growth rate of the chemical industry was provided mainly by domestic demand, the export continues to fall. o The increase in output of chemical products was also supported by the active build-up of production capacities carried out in the industry in recent years (several new large plants for the production of polymers, mineral fertilizers and other chemicals). Tebodin | Chemical Event | Nd. K/OC April 19, 2017 Market Overview & Outlook § In 2015 -2016 years indicators of the chemical industry were ahead of other industries (including oil refining and food processing), despite the reduction in investment and consumer demand in the country and the worsening of the world market: page 18
Russian Chemical Market Outlook - Russia o the growth in chemical production amounted to 8. 5% compared to the same period last year, while the industry as a whole recorded a decline of 0. 3%. o According to experts, the growth in production in the chemical industry will be at least not lower than in 2016 (>5%) with the main growth factor to be a domestic demand, as the construction sector is expected to revive, which will lead to an increase in the consumption of plastics. o The Ministry of Agriculture foresee another increase in the purchase of agrarians mineral fertilizers and agro-chemicals. § It would be fair to assume that in the future the growth rates in the industry will gradually decline - at least due to the factor of high base and high level of capacity utilization. § Positive chemical industry developments will create more opportunities for chemical distributors in Russia. Tebodin | Chemical Event | Nd. K/OC April 19, 2017 Market Overview & Outlook § The results of the first two months 2017 show that running year for the chemical industry can be rather successful: page 19
Russian Chemical Market Import Substitution § Russian Government has announced Strategy-2030, focused on import substitution, enhanced labor productivity due to development of chemical clusters, support of value-added production. In the medium term, the policy of import substitution will have a positive effect on the indices of the chemical industry. § The target of Russian Ministry of Industry & Trade to decrease the import of specialty chemicals to 12% and develop the in-house production facility, to drive the Russian specialty chemicals market at the CAGR 5% till 2018, set some years ago. § The greatest potential of import substitution is demonstrated by the production of polymer products and rubber products. Meanwhile, an increase in production is observed in the production of chemical crop protection products, in the paint and varnish industry, in the production of chemical fibers and yarns, as well as in the production of household chemicals, again due to substitution of imported products. Tebodin | Chemical Event | Nd. K/OC April 19, 2017 Governmental support & import substitution Impact of Import Substitution: page 20
Russian Chemical Market Governmental Support Due to ruble devaluation fertilizers produced by Russian market leaders become competitive on external markets. In addition, the growth of chemical production was to a large extent stimulated by the state support of the agricultural sector of the country, due to which the demand for agro-chemicals and mineral fertilizers increased. Due to measures of state support to Russian farmers, domestic demand for agrochemical products (herbicides, fungicides, etc. ) and mineral fertilizers increased sharply. According to the Ministry of Agriculture, in 2016 agricultural producers purchased mineral fertilizers by almost 12% more. Russian companies that produce mineral fertilizers also show that their supplies to the domestic market have risen to record levels. § The lack of sustainable development of the economy and extensive use of oil & gas reserves, put Russia on forefront to decrease the carbon footprint. § The sustainable developments on both fronts i. e. ecosystem and economic scenario providing few sectors, such as specialty chemicals, on the vertical growth trajectory. Tebodin | Chemical Event | Nd. K/OC April 19, 2017 Governmental support & import substitution § Mineral and Chemical Fertilizers are main Russian submarkets in terms of volumes. page 21
Russian Chemical Market Fine and Specialty Chemicals § To meet the growing specialty chemicals demand, various MNCs have started their domestic production in the country. JV registration with local companies may enable foreign investors to avoid legal proceedings associated with the establishment of Russian chemical production. § Prior to 2014, the majority of Russian demand in specialty chemicals was met by imports. In recent years, the development of specialty chemicals has become a priority for the Russian government. o The increase of domestic production is planned to be mainly achieved through the design of a new legislative base for the industry with focus upon safety requirements for the production of specialty chemicals; focus on specialty chemicals of which domestic production will be especially important for state needs; attracting private capital to the industry; state benefits for producers of specialty chemicals. o As well as stimulating the establishment of new, national manufacturing plants to produce fine chemicals across Russia, the new legislative base is intended to attract foreign companies to establish production facilities in Russia by offering the special conditions to foreign investors to launch their production units as well as lifting a ban on the imports of some types of raw materials, which are used in the production of specialty chemicals (e. g. basic sulfuric acid, hydrochloric acid and acetic acid, acetone, manganese, methyl and methyl) from certain date or on request by chemical producers. Tebodin | Chemical Event | Nd. K/OC April 19, 2017 Governmental support & import substitution § The Russian government has already put forward an initiative for the establishment of new fine chemical plants, often funded by foreign capital, in existing special economic zones across Russia. page 22
Russian Chemical Market Fine and Specialty Chemicals § Along with real estate some of the allied sectors also witnessed the growth. § In 2012 The Russian government has planned to invest about USD 1 Trillion by 2020, to boost the infrastructure and has partnered with MNC’s to reduce the carbon footprint. Tebodin | Chemical Event | Nd. K/OC April 19, 2017 Governmental support & import substitution § The two major international sports events such as Winter Olympics in 2014 and FIFA World Cup 2018 respectively are boosting the infrastructure development in the country. page 23
Russian Chemical Market § After the unprofitable 2014, in 2015, a total of RUB 385 billion profit was received for the chemical industry as a whole; in 2016, the profit of chemicals was already 526. 8 billion rubles. More stable financial position provides a basis for investment planning. § Market opportunities are foreseen in the polymers and plastics incl. resins and coatings, for paint industry and specialty chemicals, industrial gases, consumer products. § According to the Ministry of Industry and Trade of Russia investments in chemicals will be growing up to 2020 and from 2025 to 2030 and in long-term average amounts annually to RUR 237 billion. Tebodin | Chemical Event | Nd. K/OC April 19, 2017 CAPEX Trends & Opportunities § While in the Russian economy the last three years there has been a decline in investment in fixed assets, in the chemical industry, investments have been growing for the second year in a row, and quite rapidly - in 2015 by 14. 0%, in 2016 - by 8. 3%. page 24
Recent trends and market opportunities (open discussion)
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Tebodin clientele in Chemicals
Selection of Tebodin clients in Chemicals Tebodin | Chemical Event | Nd. K/OC April 19, 2017 Tebodin is proud upon own reference base with 20 out of 50 Global Top Companies in chemicals industry page 28
Chemical Market players - Tebodin clientele and networking Buyers and Traders, Distributors (Inter-)National Industrial Associations Regional and Local Industrial Organizations Infrastructure Operators (including Chemical & Science Parks owners/ developers, pipeline operators, etc) Chemical Companies Research and Academia Consultancies Suppliers Tebodin | Chemical Event | Nd. K/OC April 19, 2017 E&C Companies Government and Private Investment Funds Regional & National Industry Regulatory Bodies page 29
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