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China eyeing Russian rubber industry

Russian Federal Anti-Monopoly Service Sinopec Krasnoyarsk Synthetic Rubber Plant

The Russian Federal Anti-Monopoly Service has allowed China Petroleum & Chemical Corporation, commonly known as Sinopec, to become a blocking minority owner (25% + 1 shares) in the Krasnoyarsk Synthetic Rubber Plant (KZSK). 

The plant is Russia's largest producer of nitrile butadiene rubber. It also controls about 6 per cent of the global market for synthetic rubber. 

Russia currently ranks 9th in the global league of nitrile butadiene rubber producers. This type of rubber is commonly used in various applications that require resistance to petrol and engine oil, as well as in the making of footwear, glues, and other rubber-based products. 

Two months ago the Anti-Monopoly Service made another important decision to allow Sibur Sinopec Rubber Holding Company, a joint venture between Sinopec and the Russian petrochemical giant SIBUR, to acquire 100 per cent of the KZSK voting stock. 

This means that the Russian authorities have approved two possible options for Sinopec to acquire a blocking equity stake in KZSK. 

Deepening SIBUR-Sinopec cooperation

The KZSK joint venture is one of several areas of cooperation between SIBUR and Sinopec. 

The two companies are also discussing plans for a joint rubber production facility in Shanghai. The facility will initially produce 42,500 tonnes of rubber every year; at some later stage the figure will increase to 56,000. 

SIBUR had a good reason to choose Sinopec as a joint venture partner. China is the destination of more than 10 per cent of synthetic rubber produced by KZSK. 

“We realize that this cooperation must continue, so we want to have a strong Chinese partner,” SIBUR has told RBTH Asia Pacific. 

Market outlook 

Given the difficult situation on the world market for rubber, the deal signed with the state-affiliated Chinese company looks very promising, says Grigory Birg, an expert with the market consultancy Investcafe. 

Owing to weak demand in 2012 and in the first quarter of 2013, prices charged under export contracts have been declining. 

SIBUR expects stronger demand in the medium-term (5 years), especially in India and China, as well as Europe. 

"The market will recover, helping SIBUR to achieve good results," Birg reckons. 

SIBUR itself says that it wants to pursue new projects in those foreign markets where there is growing demand from industries such as car-making. It also prefers to work with partners who have the necessary production capacity, access to raw materials, and the distribution networks, but lack the technology. 

Apart from China, SIBUR has cooperation programs with other Asian partners. 

One of them is India, where the company is building a butyl rubber facility in cooperation with energy conglomerate Reliance Industries LTD. 

Asian investment in Russia 

The KZSK deal is the latest example of Asian investment in Russia. In 2011 China's Shenhua Energy became the controlling stakeholder in a joint venture set up with Russia’s Rostopprom (Russian Fuel Company) to develop the Gerbikan-Ogodzhin coal basin in Amur Region. The basin has proven coal reserves of 170 million tonnes, and anticipated reserves of 1.6 billion. 

In 2012 Singapore’s Olam International Limited acquired a 75-per-cent stake in the Russian Milk Company for 75 million dollars. 

It now plans to set up four milk farms, and to acquire new land plots for cereals production in Penza Region. 

Last year Olam International’s subsidiary Outspan International acquired the physical assets of the Azov Grain Terminal, which can transship up to 1 million tonnes of grain every year.