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    Russian Report

    Russia Looks for New Impetuses for the Domestic Coatings Industry

    ...

    Russia Looks for New Impetuses for the  Domestic Coatings Industry
    Russia wants to take down import of coatings to below 15% by 2025.
    Russia Looks for New Impetuses for the  Domestic Coatings Industry
    The consumption of coatings in Russia is not growing in accordance with the government expectations.
    Russia Looks for New Impetuses for the  Domestic Coatings Industry
    New capacities for coatings production are being launched in Russia despite limited demand on the domestic market.
    Russia Looks for New Impetuses for the  Domestic Coatings Industry
    Russian Prime Minister starts war against the countrefeit products on the domestic market.
    Vladislav Vorotnikov, Russia Correspondent07.03.18
    From early 2018 the Russian government has been actively adopting new national regulations related to the domestic coatings industry in a bid to avoid stagnation in the years to come.

    The government seeks to achieve a twofold rise in domestic coatings production by 2025 through allocating state support under new projects, wiping out all illegal production from the domestic market and promoting coatings of Russian-origin on the overseas markets.

    All those measures must be brought together and detailed in the road map on the domestic coatings industry development by 2025, which is yet to be adopted. The government agencies in collaboration with some Russian scientific and research universities have been developing the road map since April 2017. The road map was originally slated to be adopted by January 2018, but the work on the document is still not finished.

    Daria Shevyakina, the spokeswoman for the Russian Trade and Industry Ministry, said that the roadmap was ready already in January 2017, but its final adoption was delayed, because “the [Russian] coatings producers have joined its discussions in the last minute.”

    The roadmap in its current version sees domestic coatings production growing by almost 100 percent and export by 70 percent in 2025, as compared to 2016, according Shevyakina. The share of import production on the domestic coatings market must be kept below 15 percent in all segments. This could be quite an issue in the industrial coating segment, where import today meets 50 percent of the demand at the Russian market.

    With the adoption of the road map the government wants to not only stipulate some targets, but also to design some means and ways how to achieve them. It is expected that the road map could include some broad lists of state support measures. In particular, the government could start actively signing the Special Investment Contracts (SPICs) with investors under new projects in the industry, granting them with a preferential tax regime in return of investments.

    With signing of the SPICs the Russian government is encouraging investors to start new projects in many different industries, but so far it has not been used so widely in the coatings industry. The terms of these contracts are always different and depend on certain parameters of each individual project.

    It is also expected that some block of measures within the road map would be aimed at the rise in export suppliers. Russian President Vladimir Putin set for the government the goal to promote export of all kind of non-oil and gas export, as the country needs to diversify its economy. In other industries the federal agencies already reimburse the logistics spends on export supplies of the Russian products and assist with their licensing and registration on the foreign markets.

    Late 2017 Russian government adopted a road map on the development of what in Russia is calling low-tonnage chemical substances. This definition includes some coatings, as well as some components used for their production. In particular, it includes adhesives, sealants, petroleum-polymer and synthetic resins, surfactants, catalysts and solvents.

    The government designed a broad list of measures aimed to increase the domestic production of these substances as well as the demand for them at the Russian market. The combined value of low-tonnage chemical substances produced in Russia in 2016 was estimated at Rub300 billion ($4.7 billion). By 2030 this figure is forecasted to grow by about $1.5 billion.

    Ceiling might be hit

    The support from the government within the new roadmaps might be very timely, as the coatings industry in Russia started facing some difficulties due to the limited size of the domestic market.

    Russian coatings industry was showing booming growth over the past five years, when the overall profit of the coatings producers jumped by 2.5 times and the investments in the industry increased four times, as compared to the previous five years, according to the official estimations released by Russian Association of Coating Manufacturers Centrlak early 2018 in Moscow during the international exhibition Interlakokraska-2018.

    As a result, domestic production increased by 10 percent between 2015 and 2017. This pace of growth, however, could not be maintained in the coming years. In particular, the forecast presented by the Russian Scientific Research Institute of the Chemical Complex during Interlakokraska-2018 saw the domestic production growing by only two percent by 2025.

    In the first quarter 2018, the coatings production in Russia was 8.4 percent down as compared to the same period of the previous year on the background of the surprisingly weak demand at the domestic market, according to the estimations made by the Russian State Statistical Service.

    Russian Industry and Trade Ministry earlier said that the coating consumption per capita in Russia would grow from the lowest level of 11.2 kg in 2015 to 17.8 kg in 2025, and 21.8 kg in 2030. This growth could be achieved on the background of the recovery of the Russian economy, so the demand for coatings in Russia could gradually rise to the European average.

    However, the weak sales in the first quarter 2018 could be evidence that the demand for coating is not growing in accordance with the government expectations. On some extent it could be associated with the fact that the Russian economy is still in not the best shape, and recovering from the economy crisis not as fast as the government wishes it to.

    Alexey Kalchev, an analyst of the Russian consulting agency AO Finam, forecasted the demand for coatings in Russia would grow by five percent per year in the coming years thanks to the various government programs aimed to support industrial production in Russia. At the same time, the competition at the domestic market would be getting tougher, with some companies would not be able to withstand this battle and would be forced to stop operation, he added.

    The competition at the Russian market could get fierce giving the limited demand and as the new capacities keep coming into operation. Kalchev, in particular, stressed that the new plant that Tikkurila plans to build in St. Petersburg would be producing 30 million liters of industrial coatings per year and this would make 10 percent from the total demand in this segment.

    War against counterfeit

    In addition Russian government has recently decided to intensify the struggle against the counterfeit, the so-called “garage,” smuggling and all kind of other illegal production on the domestic market. The strategy on fighting against the turnover of illegal industrial products in Russia was signed by Russian Prime Minister Dmitry Medvedev in April 2018.

    There is a clear task to get the counterfeit production out of the domestic market, Medvedev claimed. Those products are not always safe, and they pose a threat to the health of consumers, he added.

    On the other hand, the sound companies suffer from the faked products and in this regard the Russian government must improve legislative framework, develop certain schemes in order to prevent the turnover of the counterfeit products, Medvedev stressed.

    It is expected that several federal laws tightening the liability for producing and selling countrified production would be adopted by the end of the year, according to the Russian Gazette, the official publication of the Russian government.

    Every company that would be found producing or selling counterfeit production in Russia would be forced to pay for its proper utilization, the government announced earlier.

    The battle with counterfeit would not be limited only to the faked products of  Russian-origin, as some products with  unknown origin keep creeping through the country’s border from the other members of the Eurasia Economy Union, Medvedev said.

    In the coatings industry the counterfeit comes primarily from what is known – a garage segment. It consists of small-scale private businesspeople, who don’t have production facilities and simply mix up some components to produce the cheapest possible coatings in their own garages.

    As a rule, the manufacturers of garage paints are not registered officially, don’t pay any taxes and don’t see any point in complying with safety or quality requirements. In some Russian regions they may supply up to 20 percent of all coatings for the local market, according to various estimates.

    A spokesperson with a Russian coating producer who wished to not be named claimed that the recently announced measures were long-awaited by the coating industry.

    As a result of the very existence of the counterfeit products the price environment in the Russian market was “unhealthy,” with numerous companies suffering financial losses, and in some cases, for example the products under their brands were being faked, reputation losses as well, he said.

    In spite of numerous appeals from the business community the government turned away from this problem for a very long time, trying to avoid unpopular measures that could increase unemployment and so on. However, it seems the things are changing now, he added. 
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