Russia’s Coatings Industry Regains Stride
After sharp falls in
coatings volume
and value during
the recession,
Russia’s paint
market is once
again poised to
become the largest
in the region.
by Sean Milmo
European Correspondent
milmocw@rodpub.com
Russia is once again one of the fastest growing coatings markets in Europe with the strong likelihood that it will
soon be the region’s largest by value.
However there are doubts about whether it
will be able to keep up the pace of expansion.
Another key question is how much Russian
coatings producers will be able to take full advantage of growth of their domestic market in
the face of intense competition from coatings
companies elsewhere in Europe, particularly the
European Union.
The country with a population of 142 million
has been vulnerable to global economic downturns
because of its reliance on massive gas reserves and
to a lesser extent oil production capacity.
Russia’s economy tends to do well at times
of rising oil and gas prices, but it struggles when
oil and gas demand is plunging.
When the world went into recession in 2008,
the Russian economy collapsed. Gross domestic
product (GDP) whose level is the main influence
on coatings demand dropped by almost eight percent in 2009, with industrial production diving by
11 percent and manufacturing by 16 percent.
However the impact on the coatings sector, currently worth around $4 billion, was even greater
than that on GDP levels. Coatings production went
down in 2009 by almost 15 percent and demand by
17 percent, according to official Russian statistics.
The economy has now bounced back. GDP
rose by 3. 7 percent in 2010 and is expected to
increase at around four percent in 2011 and the
following year. But with coatings the trends have
been reversed with production and demand rising well above GDP rates.
Coatings production soared by 22 percent in
response to a 27 percent rise in total consumption to 1.1 million tons, close to its pre-recession
levels. Paint imports went up by 25 percent while
exports dropped by 21. 5 percent as booming domestic demand sucked in coatings normally destined for foreign markets.
The market has continued to grow at a strong
pace in 2011 although not as rapidly as last year.
“ The main driving force behind the growth is the
growth of GDP and the stable rouble (the Russian
currency),” said Janno Jaju, senior vice-president
responsible for the Russian business of Tikkurila,
the Finnish coatings company, a third of whose
annual sales are now in Russia.
Imports made up around 25 percent of the
Russian coatings market last year, while in volume terms the share is around 20 percent. In addition a large amount of coatings raw materials
are imported because of the shortage of production capacity in resins, pigments, additives
and other speciality chemicals.
An increasing proportion of local coatings
are made in plants owned by foreign companies,
mainly from the EU from where investment in
coatings and related sectors has steadily been increasing in recent years.
This investment has given foreign producers
a strong position in the Russian market, particularly in sectors for added-value products.
Tikkurila, which has two plants in Russia
and a third in neighbouring Ukraine, is market
leader in decorative paints with an 18 percent
share, well ahead of the Russian producer Empils in second position with seven percent.
In addition to investing in production facilities,
the Finnish company has put money into marketing, distribution and training of staff to strengthen
its services backup. It is the most well known
brand in Russia with an awareness of 40 percent.
In decorative paints and industrial coatings, in
which it has a smaller presence, it is focusing like other
foreign companies on the premium end of the market
where growth is fastest. “(We) believe demand is grad-
