Coatings World - April 2016

Russia

The estimated overall size of the Russia market for industrial coatings in 2015

was 350,000 tons, while capacities of recently announced and launched projects will reach 80,000

tons.

by Vladislav Vorotnikov

Russia Correspondent

The Russian market for industrial coat- ing may see a sharp increase in com- petition between domestic plants and foreign manufacturers, as a large part of them target local production capacities inside the country, according to a recent report from the Russian Association of Coating Manufacturers (Tsentrlak). The organization’s Gennady Averyanov estimated the overall size of the Russia market for industrial coatings in 2015 at 350,000 tons, while capacities of recently announced and launched projects will reach

80,000 tons.

In particular, last year Dutch-based Hempel Group has invested € 30 million in the annual production of 16,000 tons of coating at the plant in Ulyanovsk. A similar project within the coming several years targets to commission Turkish Kanat Boya, even thought its prospects can be largely complicated with the geopolitical factor. PPG Industries Group has plans to to invest $30 million in the production of 25,000 tons of coatings at its Lipetsk Oblast plant.

“Today, the size of the Russian market of in-
dustrial coating in monetary terms is estimated
at RUB 128 billion (US$1.76 billion), while
about 50 percent of all supplies so far has been
accounted for import,” Gennady Averyanov,
CEO of the Russian Association of Coating
Manufacturers. “The size of the market for
decorative coating today is about 792,000 tons,
while in monetary terms it is RUB 89 billion
($1.22 billion). Here the share of import in re-
cent years does not exceed 15 percent.”
Russian State Statistical Service Rosstat esti-
mated last year the overall size of the Russian
coating market at 1.26 million tons, noting
that on a year-to-year comparison it reduced
by 6 percent. At the same time, the situation
in industrial is rather complicated, accord-
ing to Averyanov, last year coating plants in
Russia had to operate only at 40 percent of
full production capacity, amid weak demand
and inability to develop export. Rosstat has a
different view on the situation, estimating this
figure at 60 percent.

However, both Tsentrlak and the Russian statistical agency agree that the launching of localized capacities of foreign brands in 2016 will make this figure even lower, especially giving the fact that overall demand for coatings will continue to decrease.

“In 2016 the Russian coating market at
least will experience stagnation,” said Valery
Abramov, CEO of Russian Paintings, one of
the major producers of coating in the country.
“Heavy competition this year continues to push
prices down, so largest market share will shift
to the sub-economy segment. Demand for in-
dustrial coating in general remains stable, while
for decorative coating is reducing.”
Market participants indicate that foreign
manufacturers have to invest in localization of
production capacities in Russia, as the collapse
of Russian currency over the past two years
made import too expensive. Management of
Tsentrlak said that despite overall parity among
domestic and foreign manufacturer, there are
number of industries where country’s depen-
dence on foreign coating materials reached 70-
80 percent.

“We may admit that economic performance in the country in general will reduce and we should expect strong economic slowdown. For this reason, the situation in the coatings market in 2016 year will repeat the scenario of 2015 with reduction in sales volumes as a whole, deterioration of payment discipline of customers and reduced profitability of businesses. The main demand in the decorative segment, organic coatings and water-dispersed materials will be shifted to the economy segment,” explained Natalia Tikhonova, commercial director of KVIL Paintings.

Import substitution declared as
the top priority

Following the introduction of sanctions from the U.S., European Union, Canada and a number of other countries the Russian government has declared the strategy of import substitution as the main driver for economy development for the next several years. Most market