Reliance Industries Ltd (RIL), India’s most valuable company, said on Tuesday it will set up the country’s first butyl rubber facility by the second half of fiscal 2014, pushing back its earlier projection of commissioning the facility in 2013.
The plant, to be built with an investment of $450 million, will come up at RIL’s integrated refining and petrochemical facility in Jamnagar.
RIL will have a 74.9% stake in the venture, while Russian petrochemical maker Sibur will hold the rest.
The company will be called Reliance Sibur Elastomers Pvt. Ltd. In addition to the equity brought in by RIL, it will also pay a fixed royalty to Sibur for utilizing its technology to produce butyl rubber. The facility, for which the joint venture (JV) agreement with Sibur was signed, will have a capacity of 100,000 tonnes a year. The proposed venture was announced in December 2010.
A company statement said the RIL-Sibur partnership will create the country’s first manufacturer of butyl rubber and the fourth-largest supplier in the world.
Butyl rubber is an essential raw material to make tyres for the automotive sector. “Around 75,000-80,000 tonnes of butyl rubber is imported into India at present and, depending upon the stage of the petrochemical cycle, each tonne may cost $4,000-7,000,” Nikhil Meswani, RIL’s executive director, said. “By producing this special type of rubber locally we can bring down costs, reduce the time in which the product is made available to tyre-makers, and make all grades of this rubber available in the country.”
“This will definitely help (tyre makers) in terms of easing price pressure, and availability (of butyl rubber),” said Neeraj Bhatia, head, strategy and OEM, JK Tyre and Industries Ltd. Improved domestic availability will also insulate tyre makers from currency fluctuations, which in recent times have bloated raw material costs, he said.
According to Dmitry Konov, president, Sibur, the day-to-day operation of the facility in Jamnagar will be handled by a team of Sibur professionals on deputation. Sibur is one of the five companies in the world that has the technology to manufacture this special kind of rubber.
Meswani said the new venture could report a revenue of around $500-700 million in its first full year of operations. Sibur already supplies its product to original equipment makers in India and once the joint venture is formed the existing supply chain will be utilized, Meswani said.
Konov said makers of butyl rubber typically enjoy a 15% profit margin.
RIL may look to expand the scope of the partnership forged with Sibur to other petrochemical products that the Russian company had in its portfolio and in other regions where the latter was present, according to Meswani.
The newest addition to RIL’s petrochemical portfolio comes at a time when the company is battling softening demand from China, capacity additions and rising feedstock prices.
According to RIL’s latest quarterly filing, RIL’s petrochemicals segment clocked a revenue of Rs. 59,213 crore, up 31.7% from a year earlier, for the nine months of the current fiscal. Operating profit margin during this period, however, narrowed to 11.5% from 14.9% in the year earlier.
On Tuesday, shares of RIL rose 2.92% to end trading at Rs. 841.80 on the Bombay Stock Exchange. The announcement was made after market hours. The bourse’s benchmark Sensex gained 0.76%.