However, things started changing in recent years, as some new production capacities were established in the country, while some others were “included” into the Russian territory.
The country’s government has caught that trend and decided to give it additional momentum with the special decree that starting in 2018 it will for the first time make the use of domestic raw materials mandatory for both Russian manufacturers and the localized plants of foreign companies.
A story of the titan
In terms of titanium dioxide (TiO2), Russia was a net importer prior to 2014, purchasing from 67,000 tons to 82,000 tons per year, primarily from plants in the U.S., Germany and China.
However, when in 2014 Russia annexed the Crimean Peninsula from Ukraine, it among other things, gained control over Crimean Titan – the largest manufacturer of TiO2 in the post Soviet space.
Vladimir Fatuev, the senior technologist of the Russian company Industry LKM, explained that back in 2014 the domestic coatings industry was trying to abandon the import from the traditional foreign suppliers shifting to purchases of the cheaper TiO2 in China.
In 2016 Crimean Titan has manufactured 75,000 tons of TiO2, according to the company’s information. It also plans to commence a major expansion program for Rub31.2 billion ($500 million) in 2020, bringing production capacities to nearly 155,000 tons of TiO2 per year.
Vladimir Soloviev, the purchasing manager of Russian coatings manufacturer, Russian Paints, estimated that despite the huge production volumes Crimean Titan meets the needs of the domestic coatings industry in TiO2 only for some 20 percent.
This is primarily associated with the quality of its products, as according to Soloviev it is lower, as compared to the imported TiO2. Russian Paints is importing 62 tons of TiO2 per month from Chemours Titanium Technologies for the production of premium coatings, also purchasing 55 tons from Crimean Titan, to produce paints for road marking and industrial coatings.
Nevertheless, Crimean Titan in a press release from early December 2017 said within the upcoming expansion it plans to master three new types of TiO2 for the domestic coatings industry, including some high-quality products. The currently operating production line is old, while the new one should have modern equipment, so it will be able to release some premium products.
On the other hand, Crimean Titan itself is suffering problems with raw materials. Prior to 2014 it was purchasing ilmenite ore from the Irshansky mine in Ukraine. However, the Kiev’s authorities today consider any trade operations with Crimea as completely illegal, and the trade between ilmenite mines and Crimean Titan is not an exception.
Ukraine’s news media reported that Crimean Titan keeps importing ilmenite ore from Ukraine unofficially, through some circuitous routes, as the products first are exported from Ukraine to the mainland Russia, than went back and finally got to the port of Kerch, in Crimea. At the same time, to cut the risks Crimean Titan has recently started importing ilmenite ore from Sri Lanka.
In addition, Russia has already achieved, or is about to achieve, strong progress on the other raw materials, which are in demand in the Russian coatings industry.
In particular, early December 2017 Russian company Gazprom has opened a plant for the production of acrylic acid and butyl acrylate in the Republic of Bashkiria. At the investment cost of Rub40 billion ($650 million) the facility will release 80,000 tons of acrylic acid, 35,000 tons of ice acrylic acid and 80,000 tons of butyl acrylate per year.
Rustem Mardanov, the governor of Bashkiria, expressed confidence that the commissioning of the plant is “a serious step towards the import substitution of highly demanded goods.”
Valery Golubev, the spokesman of Gazprom, at the same time informed that the plant, named Acryl Salavat, will sell up to 80 percent of its products at the foreign markets, also delivering the remaining 20 percent to the domestic manufacturers of paints, latexes and superabsorbents.
In general, the import replacement on acrylic and acrylic styrene latexes for the production of water-dispersible paints in Russia is completely achieved, due to the launching of this facility, plus similar plants in the Moscow, St. Petersburg and Vladimir Oblast, Fatuev said.
Additionally, October 2017 Russian company Uralmramor JSC has put into operation a plant for the production of microcalcite in Chelyabinsk Oblast. Yuri Abdurahimov, the general director of the facility, said domestic companies today meet the needs of the Russian coatings industry on this mineral only for 30 percent, but when the plant reaches the designed capacity this figure should grow.
The cost of the plant is Rub 12 million ($200,000), although the management of Uralmramor JSC has not disclosed its production capacity yet.
Russia can completely abandon import of microcalcite with the commissioning of the new plant for production of dry mortars of Lasselsberger Ceramics in Chelyabinsk Oblast. It has designed capacity of around 400,000 tons of various products per year, including 100,000 tons of microcalcite. At the same time, its fate remains unknown, as the construction of the plant faced resistance of the local inhabitants, who put a lot of efforts to cancel the project.
In 2016 Omya has pumped money to increase the capacity of its plant in Chelyabinsk Oblast from 150,000 tons to nearly 225,000 tons, according to the company’s information.
According to Fatuev, Omya was the largest importer of microcalcite into Russia in the past, but almost stopped import supplies in recent years, to some extent as a result of localization projects.
In the segment of epoxide resin, most of the Russian plants have been steadily expanding the production capacities in recent years, so their combined output jumped from 479,000 tons in 2013 to 622,000 tons in 2015 and is projected to grow even further on the back of the rising demand from the coatings industry, a study of the Russian analytical agency Indexbox showed.
In 2018 several new projects are expected to be launched, which will be releasing epoxide resin with ultimately new consumer properties. This will lay down the basis for the further import-substitution of the raw materials in the Russian coatings industry, Indexbox has outlined.
Russian coatings manufacturers so far speak carefully about domestic raw materials, although admitting that the improvement in the quality of the local products is obvious.
Vladimir Kravtsov, the spokesman for the Russian branch of Jotun Paints, said that for the needs of its new plant in Russia that was opened in July 2017 the company was planning to import 100 percent of its raw materials. He indicated that, in general, there were two main problems with the domestic raw materials the company have seen, namely the quality of the products and the stability of the quality.
However, during some tests in its laboratory in Norway during 2016, the company has discovered that some of the local raw materials can actually match its quality requirements.
According to Kravtsov, the experience of Jotun Paints is evidence that just three years ago it was virtually impossible to find high-quality epoxy resins for the production of paints in the Russian market. However, today things have changed and there are numerous companies, which are manufacturing and distributing epoxy and polyurethane resins with quite good quality.
In general, he said, out of 250 raw materials Jotun Paints is using at its plant in Russia, nearly 30 percent have Russian origin, Kravtsov estimated.
At the same time, Russian office of AkzoNobel wrote in its blog in 2015 that the company was using 99 percent imported raw materials at its production facilities in Russia. It emphasized that was kind of its competitive advantage, because the coatings distributed in Russia, has just the same quality as the company’s products offered to the customers at the other markets of the world.
In mid-2017 Russian Paints Quality Association has estimated that on average Russian coatings manufacturers have the share of domestic raw materials between 30 and 40 percent. On the other hand, the coatings in the economy segment of the market are manufactured out of the domestic coatings almost completely.
One way or another, even those manufacturers who were using only imported raw materials, have no choice but to adjust the supply chain, as earlier this year Russian government has adopted a package of localization requirements to the coatings plants.
As of January 1, 2018 the share of raw materials of Russian origin used in the production of coatings should not be lower than 30 percent, the government stipulated. The target will be raised to 40 percent in 2019 and to 50 percent in 2020. In this regard, it seems that the new facilities for the production of various raw materials in Russia are being commissioned at the perfect time.