FEATURE: Russia eyes China as new outlet for polymers amid economic sanctions

Russian polymer producers are eyeing China as a new outlet as economic sanctions imposed in response to its invasion of Ukraine stem sales in Europe, market sources said March 9.

Cargoes could potentially move to China via land transport as sanctions restrict seaborne shipment, the sources said.

Polyvinyl chloride consumer and trader sources in Europe said supply availability had been restricted since the invasion was launched Feb. 24.

Ukrainian producer sources of PVC and window frames said they were being affected by the conflict as well as the sanctions on Russian production.

"Our Ukrainian plant is shut down. Our Russian plant suppliers have all set payment to cash in advance," a PVC consumer said March 7.

Russian producers are already offering polyethylene, polypropylene and styrene-butadiene rubber cargoes in Yuan. Market sources said Russia's PE could potentially be consumed locally, while the PP and SBR would be for re-export.

China's PE deficit in 2021 was calculated at 16 million mt/year, according to S&P Global Commodity Insights Analytics. Intake from Russia typically comprises only 3%-5% of China's PE imports, according to China customs data.

Russia's usual PP supply to China is even lower, comprising 0.4% or 13,442 mt of China's total PP homo imports of 3.2 million in 2021.

Asian PE prices are currently at a year-to-date high and market participants are bracing for further rises as the Ukraine conflict impacts global supply chains.

Expectations of rising PE prices were adding to concerns in the Asian polymers market over rising inflation and potentially higher interest rates, the sources said.

However, the upward pressure could be tempered by a wave of new Chinese PE plants coming on stream in 2022, traders said.

SBR to dry up

Russia has long supplied styrene-butadiene rubber to China on a regular basis but as with PE and PP, this comprises a small percentage of China's overall imports.

SBR imports from Russia comprised 8% or 20,676 mt of China's total 254,074 mt of SBR imports in 2021, China customs data showed. The major supplier was South Korea at 71,331 mt, equating to 28% of the total.

Russia's SBR exports were expected to dry up in the wake of its invasion of Ukraine, market sources said.

"Russian producers are selling excess supplies -- after such inventory is cleared, the producers would likely reduce their plant operations," a market source said. "Russia's tire demand will decline as automobile factories are closing."

Turkey supply short

PE and PVC supply disruptions have already emerged in Turkey. Russia is a major PE supplier to Turkey, particularly HDPE, and market sources expect PE supply tightness to intensify due to the loss of Russian material.

No new Russian offers have been heard in the market since the invasion was launched Feb. 24 and it was unclear if Russian offers would be coming back due to potential logistics and payment issues, one market source said.

Another trader said customers were also staying away from Russian material.

Shipments via the Black Sea seem unlikely in the near term as no shipping companies were willing to enter the region and most vessels originally destined for Russia or Ukraine were instead offloading elsewhere before becoming available again, market sources said.

The lower supply of PE and PVC to Turkey was being met by expectations of lower demand, as a trader estimated that around 20%-30% of end-user products had been exported to Russia and Ukraine before the conflict.

"After the closure of the factory in Ukraine and the SWIFT ban on Russian banks, supply began to tighten even more. At the same time, since some countries have canceled their orders; it is said that there is a possibility that those products will come to Turkey," a Turkish supplier source said March 7.

Asia demand rises

Asian PVC producers said they were receiving demand from Europe and Turkey in a bid to cover the supply shortfall from Russia.

PVC supply to Turkey has been curtailed and fewer offers for Russian cargoes have been seen since the invasion began, while some offers were available from the US, Europe and South Korea, with offer price levels seen to be increasing.

End-users in Turkey may not be able to accept higher offers as their financial situation remained fragile following a devaluation of the Turkish Lira several months ago.

In Africa, new PE price announcements from major suppliers have been delayed due to the Ukraine conflict, with some market participants saying the impact of higher freight rates and changing volume allocations into the region were contributing to the delay.