Sean Milmo08.16.05
Eastern Europe's coatings market is beginning to show signs of dividing into separate zones with their own distinct production and supply structures and trading patterns. The paint operations of Central and Eastern Europe (CEE), including the Eastern European states which joined the EU last year, are steadily becoming integrated with the Western European sector.
Emerging to the east of this new enlarged European market is Russia. It could be realizing sooner than expected its potential to become a major force in coatings. It is already sucking in a relatively large amount of imports from its western neighbors while some of its fast expanding paint producers are also starting to export coatings into adjacent markets.
Russia's 145 million population is expected to consume approximately one million metric tons of paint this year, equivalent to nearly seven kilograms per capita. This is well below the average in Western Europe and even much of the CEE. But its demand is still the second highest in greater Europe after Germany.
If Russia maintains its current growth rate of five to 10% in annual demand for coatings, its consumption could surpass that of Germany by the early part of the next decade. However, the growth of the country's coatings sector may have been even faster but for perceptions among both Russian and foreign investors of the country being politically unstable, financially risky and backward in terms of infrastructure.
Due to a continued lack of investment in modernized manufacturing capacity, the country's needs for quality paint and raw materials have to be met by imports from Western Europe. Germany is the biggest exporter of both coatings and some key raw materials into Russia. Also, only a few Western European paint makers, such as Tikkurila, Akzo Nobel and recently Miffert, have been establishing their own production and distribution activities there.
Nonetheless, Russian and foreign coatings operators are now demonstrating a greater willingness to finance increased production capacity in both raw materials and paint.
London-based Aricom plc has recently raised $20 million to invest in a 70,000-80,000 ton-a-year titanium dioxide plant and mineral supplies infrastructure in the Amur region of eastern Russia. The project, which will be vertically integrated into nearby ilemnite and iron ore mines, will serve both the Russian and Chinese markets. Russia, which currently has no industrial scale TiO2 capacity, relies mainly on imports from neighboring Ukraine.
For Tikkurila, Russia has now become a priority market, particularly because of its closeness to its home base in Finland. Recently it closed its industrial coatings operation in the UK to help it channel more resources into Russia and elsewhere in Eastern Europe.
Tikkurila, which has been active in Russia and other adjacent countries since the 1970s, has been building up a network of distributors throughout Russia which has given it access to a broad range of industrial sectors. Moscow-based Promkraska sells Tikkurila coatings for applications in the furniture and construction industries, oil, gas and chemicals complexes, telecommunications sector, utilities and the railways.
In the decorative paint sector, UK retailer Kingfisher, which has 45 DIY stores in China and 20 in Poland, plans to open its first store in Russia next year in Moscow or St. Petersburg.
Russia still has relatively few DIY specialist stores or chains able to satisfy pent-up desire for decorative paints to upgrade a poorly maintained housing stock.
"We plan to have three to four stores initially in Russia bearing our Castorama banner which has been a big success in Poland," said Nigel Cope, head of external communications at Kingfisher, which runs B&Q, the UK's biggest DIY chain. "Russia is the sort of market we want to be in because of its size, large cities and strong GDP growth. Like in Poland, it has a fragmented retail sector and a lot of houses which need improvements. The Russians want to spend money on their homes and they have a lot of respect for Western brands."
The relatively low level of direct foreign involvement in the Russian coatings market is helping the country's leading paint manufacturers take advantage of a lack of competitiveness to expand their activities both domestically and in neighboring markets.
Russian Coatings Corp. (Russkie Kraski) has been extending its operations automotive refinishing, OEM coatings and rail transport. It has been investing in a powder plant, a 1,500 ton-a-year plant for water-based coatings, a solvent recovery facility, a unit for acrylic auto refinishing enamels and new storage premises. The company has also started setting up a distribution network, both for itself and other paint manufacturers, in every region of Russia and in neighboring countries such as Ukraine and Belarus. It currently has more than 150 distributors covering its three main sectors of automotive, architectural and decorative paint and industrial coatings.
Empils, Russia's biggest paint producer, which is owned by Novoe Sodruzhestvo Holding, expects to raise output of coatings and varnishes by approximately 20% this year to 95,000 tons after upgrading its Elaks, Ukraine plant, which it took over last year.
In addition to the Ukraine, Empils is also aiming for fast growth in central Asia republics on Russia's southern borders. It has just opened a trade office in Almaty, Kazakhstan to promote its products in Kazakhstan, Uzebekistan, Kirghizia, Tadjikstan and Turkemenia.
"A market like Kazakhstan is where Russian paint producers like Empils are coming up against Chinese and Indian coatings exporters," explained Terry Knowles, an analyst at IRL, which has just published a report on coatings in China and is shortly issuing one on Russia. "Kazakhstan is China's second largest export market for paint, while Chinese producers have also been active, although on a small scale, in Russia itself," Knowles added.
As Russia's and its neighboring markets enlarge over the next several years, they will become a battle ground between Russian, European and Asian paint companies.
Emerging to the east of this new enlarged European market is Russia. It could be realizing sooner than expected its potential to become a major force in coatings. It is already sucking in a relatively large amount of imports from its western neighbors while some of its fast expanding paint producers are also starting to export coatings into adjacent markets.
Russia's 145 million population is expected to consume approximately one million metric tons of paint this year, equivalent to nearly seven kilograms per capita. This is well below the average in Western Europe and even much of the CEE. But its demand is still the second highest in greater Europe after Germany.
If Russia maintains its current growth rate of five to 10% in annual demand for coatings, its consumption could surpass that of Germany by the early part of the next decade. However, the growth of the country's coatings sector may have been even faster but for perceptions among both Russian and foreign investors of the country being politically unstable, financially risky and backward in terms of infrastructure.
Due to a continued lack of investment in modernized manufacturing capacity, the country's needs for quality paint and raw materials have to be met by imports from Western Europe. Germany is the biggest exporter of both coatings and some key raw materials into Russia. Also, only a few Western European paint makers, such as Tikkurila, Akzo Nobel and recently Miffert, have been establishing their own production and distribution activities there.
Nonetheless, Russian and foreign coatings operators are now demonstrating a greater willingness to finance increased production capacity in both raw materials and paint.
London-based Aricom plc has recently raised $20 million to invest in a 70,000-80,000 ton-a-year titanium dioxide plant and mineral supplies infrastructure in the Amur region of eastern Russia. The project, which will be vertically integrated into nearby ilemnite and iron ore mines, will serve both the Russian and Chinese markets. Russia, which currently has no industrial scale TiO2 capacity, relies mainly on imports from neighboring Ukraine.
For Tikkurila, Russia has now become a priority market, particularly because of its closeness to its home base in Finland. Recently it closed its industrial coatings operation in the UK to help it channel more resources into Russia and elsewhere in Eastern Europe.
Tikkurila, which has been active in Russia and other adjacent countries since the 1970s, has been building up a network of distributors throughout Russia which has given it access to a broad range of industrial sectors. Moscow-based Promkraska sells Tikkurila coatings for applications in the furniture and construction industries, oil, gas and chemicals complexes, telecommunications sector, utilities and the railways.
In the decorative paint sector, UK retailer Kingfisher, which has 45 DIY stores in China and 20 in Poland, plans to open its first store in Russia next year in Moscow or St. Petersburg.
Russia still has relatively few DIY specialist stores or chains able to satisfy pent-up desire for decorative paints to upgrade a poorly maintained housing stock.
"We plan to have three to four stores initially in Russia bearing our Castorama banner which has been a big success in Poland," said Nigel Cope, head of external communications at Kingfisher, which runs B&Q, the UK's biggest DIY chain. "Russia is the sort of market we want to be in because of its size, large cities and strong GDP growth. Like in Poland, it has a fragmented retail sector and a lot of houses which need improvements. The Russians want to spend money on their homes and they have a lot of respect for Western brands."
The relatively low level of direct foreign involvement in the Russian coatings market is helping the country's leading paint manufacturers take advantage of a lack of competitiveness to expand their activities both domestically and in neighboring markets.
Russian Coatings Corp. (Russkie Kraski) has been extending its operations automotive refinishing, OEM coatings and rail transport. It has been investing in a powder plant, a 1,500 ton-a-year plant for water-based coatings, a solvent recovery facility, a unit for acrylic auto refinishing enamels and new storage premises. The company has also started setting up a distribution network, both for itself and other paint manufacturers, in every region of Russia and in neighboring countries such as Ukraine and Belarus. It currently has more than 150 distributors covering its three main sectors of automotive, architectural and decorative paint and industrial coatings.
Empils, Russia's biggest paint producer, which is owned by Novoe Sodruzhestvo Holding, expects to raise output of coatings and varnishes by approximately 20% this year to 95,000 tons after upgrading its Elaks, Ukraine plant, which it took over last year.
In addition to the Ukraine, Empils is also aiming for fast growth in central Asia republics on Russia's southern borders. It has just opened a trade office in Almaty, Kazakhstan to promote its products in Kazakhstan, Uzebekistan, Kirghizia, Tadjikstan and Turkemenia.
"A market like Kazakhstan is where Russian paint producers like Empils are coming up against Chinese and Indian coatings exporters," explained Terry Knowles, an analyst at IRL, which has just published a report on coatings in China and is shortly issuing one on Russia. "Kazakhstan is China's second largest export market for paint, while Chinese producers have also been active, although on a small scale, in Russia itself," Knowles added.
As Russia's and its neighboring markets enlarge over the next several years, they will become a battle ground between Russian, European and Asian paint companies.