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The report estimated that the total output of Russian chemicals in 2009 fell by 12% compared with 2008, while the output of plastics and resins decreased by 10% compared with 2008. At the same time, the rising prices of natural gas in Russia in the next few years will have a negative impact on the production of fertilizers, plastics and methanol in Russia. It is reported that in 2010, natural gas prices of domestic industrial users in Russia will increase by 15% to 20%, and will increase by 20% in 2011 and 15% in 2012. Nevertheless, by 2012, the domestic natural gas prices in Russia will still be lower than the export prices.
The relatively low natural gas prices in Russia have led to the over-consumption of natural gas. Gazprom, a Russian natural gas company, has pressured the government and plans to substantially raise the price of domestically regulated natural gas. In October last year, the company proposed that from 2011 onwards, Russia's domestic natural gas prices should be fully marketed to ensure that export sales and domestic supply are getting the same profits. To this end, Russia’s major fertilizer producers, including Acron and European Chemicals, have issued warnings that rising natural gas prices will weaken the export competitiveness of chemical fertilizers.
Affected by the financial crisis, most chemical companies in Russia cut production in 2009 and were forced to accept lower product sales prices. Most companies already owed huge debts. In this dilemma, many companies previously announced investment plans have been postponed. Lukoil’s plans to invest 3.5 billion U.S. dollars in natural gas in the southern part of Russia have been shelved. The project was originally planned for production this year. Kazanorgsintez, the main Russian polyethylene producer, is on the brink of bankruptcy and is seeking emergency assistance from the government. Uralkali, the main Russian potash producer, also cancelled its expansion plan. During the period from 2010 to 2011, the company's production capacity will remain at 5.5 million tons per year. However, Sibur, the petrochemical giant controlled by Gazprom, a Russian natural gas company, is still pushing ahead with a new 500,000-ton/year polypropylene (PP) project, which is expected to start production in 2012.
Russia's petrochemical industry remains worrying
The Russian chemical industry development department's latest report on Russia's chemical industry from 2010 to 2012 indicates that due to the increase in domestic natural gas prices, Russia's petrochemical industry will continue to slump in 2010. The situation of the company is still worrying. On the one hand, it is necessary to work hard to increase profitability to repay huge debts. On the other hand, rising raw material prices, especially domestic natural gas prices, will erode the profit margin of manufacturers.