Moscow – The Russian PU market is faced with tough times as Western sanctions, and the ever-growing isolation of the country in the international arena, has resulted in an exodus of foreign investors from the country, and an overall decline in demand for PU in the local market.
Prior to February 24, 2022 – and Russia’s invasion of neighbouring Ukraine – the Russian PU sector had experienced steady growth, thanks to stable demand and consumption of PU within Russia and its industrial sector.
According to the recently published results of the 15th annual Polyurethanes conference – one of the most important industry events for the Russian PU sector – the production of PU in Russia grew significantly during the period of 2015-2020 and amounted to almost 330kt. At the same time, local demand reached almost 419kt, one of the largest figures in post-Soviet Russian history.
However, the beginning of the Russian-Ukranian military conflict has put an end to prospects of the industry returning to the same rates as in the past, and has revealed some of the industry’s vulnerabilities. The biggest problem is the absence of indigenously produced raw materials. Historically 100% of the post-Soviet Russian PU industry’s isocyanates have been imported from major global players including BASF, Covestro, Huntsman, Dow and Wanhua.
Currently the overall shortage of MDI and TDI in the Russian PU sector is estimated at 197kt. After the beginning of the Russian-Ukranian war imports from most of the major global players were suspended. Many of these players have refused to disclose whether they will be resuming operations in Russia once the conflict has ended.
Domestic polyisocyanate production began in 1971 by Korund in Dzerzhinsk, USSR (now Russia). Additional polyisocyanate production followed in Azot’s plant in Dneprodzerzhinsk, USSR (now Kamenskoye, Ukraine). And Azot had a further plant in Novomoskovsk, USSR (now Russia) which primarily serviced the country’s defence industry. Polyisocyanate production in the USSR tailed off in the late-1980s when cheaper, imported product was allowed under Mikhail Gorbachev and his policy of ‘perestroika’ (restructuring). After the collapse of the USSR in 1991, production of isocyanates in Russia was completely suspended.
Plans for a revival of domestic isocyanate production in Russia began in earnest in the late 2010s. According to Russian state plans, a revival of domestic isocyanate production was expected to accelerate development of the entire PU sector in the country, and reduce its dependence on imported raw materials. This was expected to bolster the state budget by up to 30bn roubles a year, with an increase in overall investment in the industry of up to 340bn roubles annually until 2035.
According to analysts’ estimates, the total annual consumption of isocyanates in the Russian Federation by 2030 was expected to reach 250kt.
Prior to the Ukraine conflict, there were serious plans to establish large-scale production of isocyanates within the Russia, however most of these initiatives have been scaled back in recent months.
One such project was considered by Russian petrochemical producer Sibur, which was involved in the building of an integrated isocyanate complex in the Nizhny Novgorod region. The company also had plans to develop its own technology for MDI production.
The commissioning of the Sibur isocyanate complex was scheduled for 2028, with plans to satisfy the majority of demand in the Russian market for isocyanates by 2030. It is currently unclear whether the company will continue implementation of the project amid the current conditions.
In this regard, as the supplies of raw materials from the West have been suspended, and amid the lack of domestic production, Russian foamers have looked to suppliers of isocyanates from the Asia-Pacific region.
Industry representatives speaking at the Polyurethanes conference said the current crisis in Russia – and its PU sector – will not result in a significant change of the existing structure of the industry along with the structure of consumption.
At present, more than 65% of all PU in the Russian Federation is consumed by three industries: mechanical engineering (24%), furniture production (23%) and construction (19%). According to forecasts, made by Russian analyst Creon Group before the conflict, the largest growth up to 2030 was expected in the OSB board and thermal insulation sectors (up 4.2% and 2% respectively). These forecasts will need to be seriously revised.
In addition to establishment of domestic isocyanate production, Russia plans to accelerate PU industry R&D to further reduce dependence on Western imports. A new research laboratory was opened recently opened in the city of Chelyabinsk by South Ural State University (SUSU) and its commercial partner, Modern Isolation Technologies.
According to the partners, the technology they have developed – a form of non-isocyanate PU (NIPU) – does not require the use of phosgene. While it has yet to be tested in real-world applications, it has already proven its effectiveness in laboratory conditions.
Vyacheslav Avdin, professor of ecology and chemical technology at SUSU, in an exclusive interview for Urethanes Technology International, said the project is currently in the development stage: “As part of the project, a very deep literature review, a patent review, and experimental samples, were obtained. A laboratory is being created to work out obtaining samples from various types of raw materials.”
According to Avdin, and other industry analysts, the new technology will be in high demand in Russia because, despite the unprecedented sanctions imposed on Russia and its PU sector, there are already good prospects for the resumption of growth in 2023, as the demand for PU from some major consuming industries in Russia remains strong.
Avdin added that the demand for PU from producers of heat-insulated pipes alone is estimated at 250kt per annum, which is a big figure for Russia: “All components for thermal insulation come from abroad (USA, Germany, China). China accounts for only a quarter of imported raw materials. Now the industry is working on old stocks although, after a while, they will run out and raw materials for thermal insulation will begin to rise in price.
In the meantime, despite the current difficulties, many leading Russian PU producers are starting to implement investment projects that were put on hold during the pandemic.
For example, St Petersburg-based Baltmash plans to build two facilities for the production of special polyurethane foam materials and systems in the Kamskiye Polyany industrial park in the Nizhnekamsk region of Tatarstan for $75 million. According to Baltmash’s head of LNG/LH2 projects, Ruslan Krylov, these materials are designed to create containers for the transportation and storage of liquefied natural gas. The new enterprises will occupy 10 hectares of land and require 2MW of power capacity.
At the same time, Egida Group, one of Russia’s largest PU producers, has launched a new plant for the production of flexible polyurethane foam in the Lipetsk special economic zone (SEZ).
The new enterprise is located on an area of 12.5 hectares of the Gryazinsky section of the SEZ. The volume of invested investments amounted to 4.3bn roubles. The design capacity is 24kt of PPU per year. The plant will produce more than 20 different grades of flexible PU foam for the furniture, clothing, automotive industries in the form of blocks, sheets, rolled fabric, figured products and profiled products. sheets.
Egida Group currently has a domestic market share of 35%. With the launch of the plant, the company expects to increase this share to 40%.
Timofey Kalinin, business development director of Egida, speaking to Russian business newspaper Kommersant, said the company – in partnership with an unnamed foreign company – is working on the development of a breakthrough technology for the use of recycled CO2 to produce PU foam. To date this work is at the R&D stage but, according to Kalinin, the new technology has great prospects in terms of saving natural resources, purifying air, and obtaining better quality foam.
Editor’s note: the author of this report is based outside the Russian Federation. None of the Russian industry figures interviewed for this report have received payment for their contribution.