Welcome to the rubber club

Riding high on the surging automobile market in India, Reliance Industries Limited, the Indian corporate behmoth and SIBUR, Russia’s petrochemical giant, have inked a pact for manufacturing synthetic rubber in Jamnagar, home to India’s largest refinery. It was a perfect blend of technology, resources, market and kindred expertise that led to the firming of this business arrangement in May. Sibur, according to the deal, will provide technology and Reliance will supply raw materials and infrastructure. At stake, is a share of the 2 bn euro global market in butyl rubber.

Dmitry Konov, the dynamic head of Sibur, is upbeat. He says the joint venture’s capacity could reach 50,000 tonnes per year and could go further upto 100,000 tonnes. The design work will start in 2011 and the plant is expected to become operational in 2013. It will cost around $200 mn to $300 mn to get this project going, says Konov. With a capacity of 40,000 to 50,000 tonnes, the company should generate revenues of $80 mn to $100 mn a year, bringing its global market share to 3.5-4 pc, according to Nord Capital.

SIBUR, in which Russian banking group Gazprombank owns a 95 pc stake, straddles the entire petrochemical value chain and produces 2000 products ranging from gas processing of monomers and plastics, synthetic rubbers, mineral fertilizers, tyres and industrial rubber goods, as well as the processing of plastics. The company manufactures around 48,000 tonnes of butyl rubber (Tolyattykauchuk) per year. Butyl rubber is produced by just five companies in the world, led by ExxonMobil Chemical, which accounts for a whopping 440,000 tonnes annually. Total production is estimated at 800,000 tonnes, worth $2,5 bn annually. “India’s butyl rubber market is not yet saturated with consumption rate being one fourth of Russia’s and one fourteenth of the European rate,” says Dmitry Aleksandrov, Head of Analysis at Univer Capital. Konov is excited at huge untapped potentialities that the joint venture seeks to harness. “The creation of new facilities so close to Asian markets opens up great growth opportunities for both companies. The region’s rubber consumption, buoyed by expanding tyre production, has been on the rise in recent years,” Sibur representative says. India’s proximity to the energy-rich Middle East tipped the scale in favour of local production. At the St.Petersburg International Economic Forum in June, Konov argued that the only opportunity to enter the Indian market was to initiate local production. The offer to locate the rubber facility in Jamnagar, an industrial hub in Gujarat bristling with highly qualified engineers, finally clinched the deal. It’s a win-win situation for India. The new rubber plant will generate jobs, export revenues and also hike production of rubber for car tyres, a much-needed boost for India’s booming auto market, with a new model debuting almost every month.

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