Vladislav Vorotnikov, Russia Correspondent09.01.18
Both production and sales of coatings proved to be strong in Ukraine in 2018, driving the domestic industry to pre-crisis operational performance.
In total, Ukraine manufactured 240,000 tons of various coatings in 2017, up seven percent as compared to the previous year, estimated Taras Karavaev, associate professor at the commodity science and customs affairs department of the Kiev National Trade and Economic University.
Speaking at the Lakokraska-2018 conference in Kiev he also outlined that the demand for coatings at the domestic market was seen growing over the past three years to 274,600 tons in 2017. This was 23.4 percent higher than in 2014 when the sales of coatings in Ukraine hit the lowest levels ever of approximately 210,000 tons.
Giving the trends currently seen on the market, it is expected that in the complete 2018 the production will total from 250,000 to 264,000 tons, an increase to the previous year of four percent to ten percent. The domestic consumption may also add up to ten percent to last year’s volume, reaching 287,000 tons to 340,000 tons, Karavaev said. If that forecast comes true, Ukraine would see both production and sales exceeding the levels of the pre-crisis 2013, he added.
All forecasts made over the past several years mark an enormous potential for the Ukraine coatings market. Giving the low base effect, the local companies believe Ukraine has the strongest growth opportunities amongst all European markets.
The demand for coatings in Ukraine in 2017 was driven up by a 21 percent rise in the building industry, Ivan Salyi, president of All-Ukraine Union of Construction Material Producers. However, in monetary terms, even the recently achieved figures seem miserable for the country, especially if they are compared with those of neighbors Poland or Lithuania where the population is much lower, but the national economies have higher efficiency, he added.
In 2017, Ukraine was the only country in Europe where no infrastructure building was taking place, Salyi said. As soon as this picture is changed it would send the demand for coatings in certain segments of the domestic market soaring. At the same time, the development of the building industry, as well as the demand for decorative coatings in the coming years, would depend on the general situation in the national economy, which can hardly be predicted.
Business Environment Changed
Over the past several years the coatings industry in Ukraine was hampered by political and economic uncertainty. The continuing conflict with neighbor Russia coupled with the low purchasing power of the population in the country resulted in an investment environment in the industry with a lot to be desired. Things slightly improved in 2017 as optimism was slowly creeping back to the industry.
Igor Burakovsky, chairman of the Institute for Economy Research and Policy Consulting, said that in general, the business environment in the coating industry became a bit more comfortable in Ukraine, despite the problems with the supply of natural gas from Russia and the fluctuations of the national currency.
The main achievement of the past two years was that the business climate improved in the country, Burakovsky said. To some extent, the companies are simply tired of being scared by the threats they were constantly facing during the previous years. In addition, deregulation reform in the industry initiated by the government proved its value, he added.
It is believed that Ukraine coatings producers saw administrative pressure significantly eased over the past few years, plus a strong support came from the new rules of VAT reimbursement, according to Burakovsky. For instance, coatings production in Ukraine is listed among the industries the VAT reimbursement is applied as a measure of state aid. However, over the past year, some companies have been complaining that the reimbursement was rather long and complicated, with the money not always granted in the end.
Ukraine coatings manufacturer Zip said in a statement on its website that in general, according to its observations, the economic environment in the coatings industry slightly improved in 2017. Zip, however, claimed that some chronic problems had not faded. Amongst those problems the company named was the lack of high-quality raw materials, slow recovery in the main performance indicators of the Ukraine economy and as a result low investment attractiveness of the country’s coatings industry.
Solvents in Demand
In the meantime, Association of Ukrainian Coatings Producers keeps struggling with the government authorities to withdraw solvents from the list of goods subjected to the excise duty to be paid when the products are imported in the country. This is the biggest problem the coatings industry in the country has to face.
The demand for solvents in the Ukraine coatings industry is estimated at 60,000 tons per year, said Alexander Brichko, head of Association of Ukrainian Coatings Producers. Those volumes were fully imported to the country prior to 2015 when solvents were recognized by the Customs Service as a type of a motor fuel in Ukraine and subjected to a 25 percent excise rate.
As the result, for most coating producers in Ukraine, it became too expensive to import solvents, according to Brichko. Their import declined nearly by six times, to less than 10,000 tons in the previous year. The Customs Service forced the coatings industry “to muddle along” with this problem and most manufacturers were forced to replace solvents in the coatings’ receipts with some cheaper raw materials.
As a result, the quality of some coatings dramatically reduced in the country, Brichko claimed, adding that the companies have no idea how to deal with that challenge. In addition, the production of some coatings ceased to exist in Ukraine.
For example, Ukraine coatings companies stopped manufacturing industrial coatings, since they must be made using xylene, toluene and acetone, Brichko admitted. It could be safely said that at the moment Ukraine coatings plants are not competitive in this segment.
The problem with solvents is also especially relevant for the semi-finished varnishes manufacturers, amongst which the demand for solvents is especially high, Brichko said. As a rule, solvents, such as White Spirit, account for 30 percent of all raw materials used to produce paint and 50 percent raw materials used to fabricate varnishes.
Most coatings plants in Ukraine had no choice, but to replace solvents with some alternatives, but this obviously negatively affected the quality of the final products, he concluded.
Basically, the coating industry is aware that there are a lot of unfair businesses in Ukraine, those that are making money by adding White Spirit or toluene to the diesel winter fuel, Brichko said. Nevertheless, it is not right to combat with such kind of things by means that bring heavy financial burdens and negative impact upon fully legal and competitive companies.
Association of Ukrainian Coatings Producers has already appealed to the Finance Ministry, the Customs Service and the Parliament to withdraw solvents from the list of goods subjected to the excise duty. In 2017, some companies were even trying to appeal that practice in courts. However, so far no results have been achieved.
Titanium Dioxide Smuggling
It is not quite clear what is happening in the titanium dioxide market in Ukraine. Prior to 2014, almost all coatings plants in the country were purchasing it from the Crimean Titan Works – the largest manufacturer of titanium dioxide pigment in Eastern Europe, located on the Crimean peninsula.
Following the Russian annexation of Crimea in March 2014, all supplies from Crimean Titan to Ukraine were subjected to import duty and later were completely prohibited, as Ukraine government recognized all business at the temporarily occupied territory as illegal.
Some fears were raised that Ukraine’s coating industry may face a shortage of titanium dioxide. Nevertheless, no reports suggesting that this was the case followed.
The Ukraine Center of Journalist Investigations revealed that Crimean Titan managed to continue conducting business with Ukraine companies, avoiding sanctions.
Early 2018 a cargo ship Nefterudovoz-45M was arrested by Ukraine authorities on allegations of delivery ilmenite ore from several mines of Ukraine to Crimea.
Technically, Ukraine ships have no right to visit Crimean ports, but to deliver ilmenite they found a loophole, reloading ore from one ship to the other right in the open sea.
It is not clear whether or not titanium dioxide is supplied from Crimea to the mainland Ukraine by using the same scheme, but at the moment it is available at the national market. A spokesperson from the Ukraine coating industry who wished to remain anonymous explained that supplies of titanium dioxide from Crimean Titan had never been stopped.
The smuggling keeps taking place, and there are not a lot of changes, as compared to 2014 because given the price for titanium dioxide offered to Ukraine companies, it could be concluded that it is imported without paying any duties, the source said. At the same time, there are still some concerns that in the future all smuggling channels would be shut down by Ukraine authorities.
In total, Ukraine manufactured 240,000 tons of various coatings in 2017, up seven percent as compared to the previous year, estimated Taras Karavaev, associate professor at the commodity science and customs affairs department of the Kiev National Trade and Economic University.
Speaking at the Lakokraska-2018 conference in Kiev he also outlined that the demand for coatings at the domestic market was seen growing over the past three years to 274,600 tons in 2017. This was 23.4 percent higher than in 2014 when the sales of coatings in Ukraine hit the lowest levels ever of approximately 210,000 tons.
Giving the trends currently seen on the market, it is expected that in the complete 2018 the production will total from 250,000 to 264,000 tons, an increase to the previous year of four percent to ten percent. The domestic consumption may also add up to ten percent to last year’s volume, reaching 287,000 tons to 340,000 tons, Karavaev said. If that forecast comes true, Ukraine would see both production and sales exceeding the levels of the pre-crisis 2013, he added.
All forecasts made over the past several years mark an enormous potential for the Ukraine coatings market. Giving the low base effect, the local companies believe Ukraine has the strongest growth opportunities amongst all European markets.
The demand for coatings in Ukraine in 2017 was driven up by a 21 percent rise in the building industry, Ivan Salyi, president of All-Ukraine Union of Construction Material Producers. However, in monetary terms, even the recently achieved figures seem miserable for the country, especially if they are compared with those of neighbors Poland or Lithuania where the population is much lower, but the national economies have higher efficiency, he added.
In 2017, Ukraine was the only country in Europe where no infrastructure building was taking place, Salyi said. As soon as this picture is changed it would send the demand for coatings in certain segments of the domestic market soaring. At the same time, the development of the building industry, as well as the demand for decorative coatings in the coming years, would depend on the general situation in the national economy, which can hardly be predicted.
Business Environment Changed
Over the past several years the coatings industry in Ukraine was hampered by political and economic uncertainty. The continuing conflict with neighbor Russia coupled with the low purchasing power of the population in the country resulted in an investment environment in the industry with a lot to be desired. Things slightly improved in 2017 as optimism was slowly creeping back to the industry.
Igor Burakovsky, chairman of the Institute for Economy Research and Policy Consulting, said that in general, the business environment in the coating industry became a bit more comfortable in Ukraine, despite the problems with the supply of natural gas from Russia and the fluctuations of the national currency.
The main achievement of the past two years was that the business climate improved in the country, Burakovsky said. To some extent, the companies are simply tired of being scared by the threats they were constantly facing during the previous years. In addition, deregulation reform in the industry initiated by the government proved its value, he added.
It is believed that Ukraine coatings producers saw administrative pressure significantly eased over the past few years, plus a strong support came from the new rules of VAT reimbursement, according to Burakovsky. For instance, coatings production in Ukraine is listed among the industries the VAT reimbursement is applied as a measure of state aid. However, over the past year, some companies have been complaining that the reimbursement was rather long and complicated, with the money not always granted in the end.
Ukraine coatings manufacturer Zip said in a statement on its website that in general, according to its observations, the economic environment in the coatings industry slightly improved in 2017. Zip, however, claimed that some chronic problems had not faded. Amongst those problems the company named was the lack of high-quality raw materials, slow recovery in the main performance indicators of the Ukraine economy and as a result low investment attractiveness of the country’s coatings industry.
Solvents in Demand
In the meantime, Association of Ukrainian Coatings Producers keeps struggling with the government authorities to withdraw solvents from the list of goods subjected to the excise duty to be paid when the products are imported in the country. This is the biggest problem the coatings industry in the country has to face.
The demand for solvents in the Ukraine coatings industry is estimated at 60,000 tons per year, said Alexander Brichko, head of Association of Ukrainian Coatings Producers. Those volumes were fully imported to the country prior to 2015 when solvents were recognized by the Customs Service as a type of a motor fuel in Ukraine and subjected to a 25 percent excise rate.
As the result, for most coating producers in Ukraine, it became too expensive to import solvents, according to Brichko. Their import declined nearly by six times, to less than 10,000 tons in the previous year. The Customs Service forced the coatings industry “to muddle along” with this problem and most manufacturers were forced to replace solvents in the coatings’ receipts with some cheaper raw materials.
As a result, the quality of some coatings dramatically reduced in the country, Brichko claimed, adding that the companies have no idea how to deal with that challenge. In addition, the production of some coatings ceased to exist in Ukraine.
For example, Ukraine coatings companies stopped manufacturing industrial coatings, since they must be made using xylene, toluene and acetone, Brichko admitted. It could be safely said that at the moment Ukraine coatings plants are not competitive in this segment.
The problem with solvents is also especially relevant for the semi-finished varnishes manufacturers, amongst which the demand for solvents is especially high, Brichko said. As a rule, solvents, such as White Spirit, account for 30 percent of all raw materials used to produce paint and 50 percent raw materials used to fabricate varnishes.
Most coatings plants in Ukraine had no choice, but to replace solvents with some alternatives, but this obviously negatively affected the quality of the final products, he concluded.
Basically, the coating industry is aware that there are a lot of unfair businesses in Ukraine, those that are making money by adding White Spirit or toluene to the diesel winter fuel, Brichko said. Nevertheless, it is not right to combat with such kind of things by means that bring heavy financial burdens and negative impact upon fully legal and competitive companies.
Association of Ukrainian Coatings Producers has already appealed to the Finance Ministry, the Customs Service and the Parliament to withdraw solvents from the list of goods subjected to the excise duty. In 2017, some companies were even trying to appeal that practice in courts. However, so far no results have been achieved.
Titanium Dioxide Smuggling
It is not quite clear what is happening in the titanium dioxide market in Ukraine. Prior to 2014, almost all coatings plants in the country were purchasing it from the Crimean Titan Works – the largest manufacturer of titanium dioxide pigment in Eastern Europe, located on the Crimean peninsula.
Following the Russian annexation of Crimea in March 2014, all supplies from Crimean Titan to Ukraine were subjected to import duty and later were completely prohibited, as Ukraine government recognized all business at the temporarily occupied territory as illegal.
Some fears were raised that Ukraine’s coating industry may face a shortage of titanium dioxide. Nevertheless, no reports suggesting that this was the case followed.
The Ukraine Center of Journalist Investigations revealed that Crimean Titan managed to continue conducting business with Ukraine companies, avoiding sanctions.
Early 2018 a cargo ship Nefterudovoz-45M was arrested by Ukraine authorities on allegations of delivery ilmenite ore from several mines of Ukraine to Crimea.
Technically, Ukraine ships have no right to visit Crimean ports, but to deliver ilmenite they found a loophole, reloading ore from one ship to the other right in the open sea.
It is not clear whether or not titanium dioxide is supplied from Crimea to the mainland Ukraine by using the same scheme, but at the moment it is available at the national market. A spokesperson from the Ukraine coating industry who wished to remain anonymous explained that supplies of titanium dioxide from Crimean Titan had never been stopped.
The smuggling keeps taking place, and there are not a lot of changes, as compared to 2014 because given the price for titanium dioxide offered to Ukraine companies, it could be concluded that it is imported without paying any duties, the source said. At the same time, there are still some concerns that in the future all smuggling channels would be shut down by Ukraine authorities.
