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    Russian Report

    Russian Coatings Industry Holds Ground Against COVID-19

    Coatings producers in Russia appear to be hit less than those in the EU as a result of the COVID-19 crisis.

    Russian Coatings Industry Holds  Ground Against COVID-19
    Some companies in Russia may experience problems because of COVID-19.
    Russian Coatings Industry Holds  Ground Against COVID-19
    Demand for coatings in Russia is about to decrease.
    Russian Coatings Industry Holds  Ground Against COVID-19
    Russian coating consumption may slump this year.
    Vladislav Vorotnikov, Russia Correspondent05.13.20
    Coatings producers in Russia appear to be hit less hard as those in the EU as a result of the COVID-19 crisis. The country remains relatively spared from the ravages of the COVID-19 pandemic thanks to the timely actions the government introduced to protect the country from the disease
    Some coatings producers in Russia had to stop operation on March 28 when Russian President Vladimir Putin introduced “a non-working week” to slow down the spread of COVID-19.

    The holiday week was extended until April 30, but outside the hard-hit Moscow, a large portion of businesses was mostly allowed to return back to operation.

    During the week of April 6, 56 out of 85 Russian provinces had softened quarantine restrictions originally introduced because of COVID-19,  allowing some coatings plants to partly resume production.

    For example, the government of Yaroslavl Oblast allowed 55 industrial companies to return to operation; this included Russian Paints, one of the leaders of the Russian coating industry.

    As explained by Ella Vasileva, assistant of the general director of Russian Paints, to some extent the company had been allowed to return to operation because of its involvement in the execution of the state defense order.

    Russian Paints has also been recognized as a company with systemic importance for the Russian economy. The companies obtaining this status would be eligible for some special state support, the Russian government said, though it didn’t disclose any details regarding in what forms it should be provided.

    In a similar way, the government of Sverdlovsk Oblast included the coatings plant VMP Research and Production Holding in the list of companies allowed to continue production.

    The state-of-the-art plant was launched in February 2020 with six fully automated production lines. The investment cost of the project is RUB

    1 billion ($15 million) and the designed production capacity is 15,000 tons of coatings per year.

    The rather soft quarantine regime remains possible since the Russian government managed to keep the COVID-19 epidemic in the country in check. As of April 11, there were only approximately 12,000 confirmed cases of the virus in Russia. More than half of them were registered in Moscow and Moscow Oblast, and there are still regions without reports of COVID-19.

    Losses still inevitable

    Despite the comparably positive picture, the Russian coatings industry is still likely to be affected by the COVID-19 pandemic, primarily because of problems in related industries.

    Speaking to the Russian news outlet LKM Portal, Sergey Fedotov, president of the Russian Quality Paint Association, said that the production of decorative coatings in the country could slump by as much as a third in 2020 as compared to the previous year due to COVID-19.

    There are numerous factors behind that, including the closure of the major DIY networks in the country and building halts with the exceptions of the projects with national importance, Fedotov said.

    Basically, the current crisis could affect nearly half the building companies in Russia, with 25 percent of them having already ceased operations, and 20 percent more would have to do that among others because they are running out of some building materials, Fedorov said.

    Even if the quarantine measures are abandoned in May, it would be extremely difficult for the market to catch up with last year’s sales level, Fedorov said.

    This means that small companies are under a threat of closure, while big companies are likely to suffer losses, Fedotov added.

    Fedovor forecasts the industry returning back to normal in June or July. There are quite a few coatings producers in the form of small and medium-sized businesses who are “living on loans” and it is not fully clear how they are going to repay them, Fedotov said.

    Yet, small businesses appear to be more flexible in this situation – able to shut down operations and launch them again once the crisis is over, while big companies would need to pay wages to their employees throughout the entire quarantine time, Fedotov added.

    There are no problems with coatings production in Russia, with the exception of measures associated with the self-isolation regime introduced by the Russian president, the government and the regional authorities, according to Gennady Averyanov, director of the Russian association of paints and varnishes producers Centrlack. 

    The epidemic would negatively impact the demand for coatings in Russia, Averyanov said. The demand is set to drop and it is yet to be seen to what extent. It would take time to assess the impact of the epidemic on industries consuming coatings, Averyanov added.

    Raw materials issue

    Some problems on the market may also occur because of the fluctuations in the exchange rate of the Russian ruble because of COVID-19 and the fall of global oil prices.

    The weakening of the Russian ruble will negatively affect and increase the cost of imported products, as well as production costs of coatings containing raw materials manufactured outside Russia, Averyanov said. Customers in Russia are discouraged with the growth in price especially in the harsh conditions associated with the COVID-19 epidemic, and can expect to see stiffening completion for the customers and flexible pricing policy of the coatings manufacturers, Averyanov added.

    The current crisis once again attracts attention to the import-dependence on the Russian chemistry industry. On certain production categories, Russian raw materials would be able to push the imported products from the domestic market, said Ilishat Gafizov, executive director of the Russian coating company Rossilber. It would take anywhere from six months to two years for the Russian plants to replace the products imported from China, Gafizov said.

    China is one of the main suppliers of industrial chemistry products and Russian plants one way or another are using imported raw materials, Gafizov said.

    Russian companies are importing on average 70 percent of raw materials for coating production, he added. On some categories of coatings, import replacement is already seen.

    Coatings manufacturers in Russia have different levels of import-dependence on the imported components.

    AkzoNobel estimated that it was using 99 percent of imported raw materials at its production facilities in Russia.

    For comparison, Jotun Paints said that it was using 30 percent of raw materials of the Russian origin.

    Russian government earlier set the target to raise the localization in the Russian coating industry to 50 percent by 2020, but it is not known whether this figure has been actually achieved.

    According to Averyanov, raw materials supply to the Russian coating industry remains stable. On the other hand, the market is concerned by the statements made by major foreign manufacturers and suppliers of printing inks, petrochemical solvents and alcohols regarding their plans to raise prices for their products.

    State aid could be coming

    Just like other countries around the world, Russia is about to embark a comprehensive plan of supporting the national economy amid the COVID-19 pandemic and there are some actions coatings producers could also take advantage of.

    The government announced plans to allocate RUB 300 billion ($4.06 billion) to support the national economy.

    The government also said it was ready to give small and mid-sized businesses a one-quarter extension on paying their taxes, plus temporarily halt audits of small and mid-sized businesses.

    The government has also proposed an annual installment plan of tax payments for companies in respect of taxes deferred because of the pandemic. More state support measures are promised to be designed in the course of the coming weeks.

    The Russian coating industry, like other industries, can count for state support, Averyanov said.

    The government takes action and issues various regulations aimed at stabilization of consumption of goods and production as well as the restructuring of the maturity of loan obligations.

    If the paint industry needs assistance, then the heads of companies can independently or with support of the state and Centrlak resolve this issue with banks and authorities, he added.
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