Vladislav Vorotnikov, Russia Correspondent11.10.20
The domestic coatings industry remains attractive for investors, despite the effects of the coronavirus pandemic.
Russian businesses launched and expanded existing plants to produce more coatings and raw materials.
Against the virus
O3 Coatings recently began operating its JSC Rostov Paint Factory, investing Rub140 million ($2 million) into the project.
O3 Coatings acquired the assets of JSC Rostov Paint Factory in 2019.
The original factory, equipped with highly automated and productive Profarb production lines, became operational in 2013, with the designed production capacity of 30,000 tons per year of waterborne paint.
It went bankrupt in 2014, however.
O3 said the restored factory will focus on antiviral and antibacterial coatings currently in high demand on the market.
“As the demand for sanitizers along with antiviral and antibacterial coatings has increased dramatically due to COVID-19, in 2020, O3 will continue focusing on disinfectant production plus antiviral and antibacterial coatings formula development and further production launch,” the company said. “In April, the company started production of antiseptic materials TRIOCLEAN PRO 0090 with a monthly output of more than 200,000 liters.”
The production of coatings with antiviral and antibacterial properties will start in the third quarter of 2020, per O3. Import-replacement
JSC Metal Profile Company unveiled plans to invest Rub1 billion ($15 million) to build a new coatings plant in Lobnya, near Moscow, the Moscow Oblast Investment Ministry said in a statement.
The industrial and warehouse complex the company is constructing is designed for manufacturing and storing painted metal products: Steel roofing, sandwich panels, and profiled metal. The designed capacity of the new plant will be 6,000 tons of coatings per year.
The plant is set to become operational in November 2020. JSC Metal Profile Company obtained substantial state aid under the project since currently, the domestic production of metal coatings in Russia is insufficient.
“With the assistance of the Moscow Oblast Investment Ministry, the company twice received a subsidy to reimburse the costs of creating engineering and transport infrastructure facilities – in total Rub114 million ($1.5 million),” said Ekaterina Zinovieva, Moscow Oblast Investment Minister. The project’s goal is to create domestic production of coatings that are the same quality as foreign products, the Minister stressed.
New regions offer opportunities
Coatings production in Russia is developing in new regions.
VMP launched a new coatings plant in the city of Aramil, Sverdlovsk Oblast. The plant is located in the Urals and is unique for this part of the country.
According to Mikhail Vakhrushev, president of VMP, there is no coatings production of a similar scale in Sverdlovsk Oblast.
The investment cost of the project is Rub1 billion ($15 million). The facility houses two shops – one for the production of highly dispersed metal powders with a capacity of 2,000 tons per year, and another for coatings production of 15,000 tons per year. The range of the enterprise includes anti-corrosive coatings, polymer floors coatings, and fire retardant coatings.
“We have launched six production lines and two filling lines. Thanks to digitalization, the influence of the human factor is excluded in the entire production chain. Contact of people with harmful chemical components is eliminated,” Vakhrushev said.
VMP also received state aid under the project within the government-run program International Cooperation and Export.
This national project is intended to expand the presence of Russian goods and services on global markets with the help of state regulatory instruments and industry and corporate programs, including export financing, equity financing, leasing, and long-term support measures.
VMP is yet to reveal its export plans, but usually, Russian companies participating in this project promise the authorities to sell a part of their products to non-Russian customers.
Raw materials
There are signs that Russia may soon overcome a shortage of raw materials needed for coatings production.
Major oil producer Tatneft recently got the green light from the national technical regulator Glavgosexpertiza to build a maleic anhydride plant in the Tatarstan Republic for Rub6.5 billion ($90 million). Tatneft expects the plant, with a production capacity of 50,000 tons per year to become operational in 2023.
The maleic anhydride market is constantly growing in Russia, with a CAGR between three and six percent, according to Alexey Kalachev, an analyst at Finam Group.
Maleic anhydride is a multifunctional base chemical, and it is used as raw material for many chemical products, not only coatings. In the medium term, accelerated growth in demand for maleic anhydride both in Russia and abroad can be expected, he said.
“I believe that the project will be able to take advantage of certain benefits and preferences since it participates in solving two all-Russian strategic tasks,” Kalachev added.
Firstly, the project has already been included in the government plan of import substitution in the chemical industry, according to which the maleic anhydride import must be abandoned entirely. Currently, Russia and other Eurasian Economic Union members are not producing the maleic anhydride, only importing it. Secondly, the project fits into the state policy in the field of utilization of associated petroleum gas.
However, the total demand for the maleic anhydride in the Eurasia Union is estimated at 10,000 tons.
Tatneft would need to export most products. According to Kalachev, the company cannot manufacture less since, with production volumes less than 40,000 tons, it is impossible to ensure sufficient profitability of the project.
However, the entire Russian chemical industry is turning to export supplies now, Kalachev said.
Shrinking exports
During the first half of 2020, export supplies of the Russian coatings within the Eurasia Union – the main foreign market – left a lot to be desired.
Between January and June, Russian companies reduced the export of organic coatings by seven percent and water-dispersible coatings by 13.1 percent, the Eurasian Economic Commission estimated.
The export of water-dispersible coatings amounted to 6,274 tons with an overall value of $7.7 million tons – 13.1 percent lower in physical terms and 8.7 percent in monetary terms – than January-June 2019.
Similarly, organic coatings export dropped to 25,500 tons, with an overall value of $36.6 million – seven percent lower in physical terms and 9.5 percent lower in monetary terms compared to the previous year.
Historically, Kazakhstan has been the main sales market for Russian coating companies.
In the first half of 2020, Kazakhstan purchased 17,500 tons (a 5.9 percent decrease) of coatings in Russia for $21.9 million – 11 percent less, compared to the same period of the previous year. The supplies totaled 3,000 tons (a 21 percent drop) for $3.74 million in the water-dispersible segment, 9.5 percent lower than in the first half of 2019.
Export supplies to Belarus, Armenia, and Kyrgyzstan also dropped, driven primarily by low domestic demand, commonly attributed to the coronavirus pandemic.
Turning tables
The COVID-19 pandemic has put a heavy burden on the Russian economy. Russia’s 2020 GDP growth is projected to contract by six percent, an 11-year low, with a moderate recovery in 2021-2022, according to World Bank.
The decline of Russian economic growth is further exacerbated by plummeting crude oil prices that dropped 53 percent between January and May 2020.
The Russian ruble’s exchange rate has lost more than 20 percent in value since the beginning of the year, getting close to an all-time low. However, these are positive signs in these dynamics, as all Russian origin products have become more competitive in the Western markets. This, however, is not working for the Eurasia Union, where all local currencies follow the ups and downs of the Russian ruble.
Gennady Averyanov, director of the Russian Association of paints and varnishes manufacturers, commonly known as Centrlack, claimed that almost all of the Top 10 Russian manufacturing companies exported their products and harbored plans to increase exports. Averyanov added that Centrlack expected export growth to accelerate in the future, to some extent, thanks to efforts of foreign manufacturers launching their production capacities in Russia.
Russian businesses launched and expanded existing plants to produce more coatings and raw materials.
Against the virus
O3 Coatings recently began operating its JSC Rostov Paint Factory, investing Rub140 million ($2 million) into the project.
O3 Coatings acquired the assets of JSC Rostov Paint Factory in 2019.
The original factory, equipped with highly automated and productive Profarb production lines, became operational in 2013, with the designed production capacity of 30,000 tons per year of waterborne paint.
It went bankrupt in 2014, however.
O3 said the restored factory will focus on antiviral and antibacterial coatings currently in high demand on the market.
“As the demand for sanitizers along with antiviral and antibacterial coatings has increased dramatically due to COVID-19, in 2020, O3 will continue focusing on disinfectant production plus antiviral and antibacterial coatings formula development and further production launch,” the company said. “In April, the company started production of antiseptic materials TRIOCLEAN PRO 0090 with a monthly output of more than 200,000 liters.”
The production of coatings with antiviral and antibacterial properties will start in the third quarter of 2020, per O3. Import-replacement
JSC Metal Profile Company unveiled plans to invest Rub1 billion ($15 million) to build a new coatings plant in Lobnya, near Moscow, the Moscow Oblast Investment Ministry said in a statement.
The industrial and warehouse complex the company is constructing is designed for manufacturing and storing painted metal products: Steel roofing, sandwich panels, and profiled metal. The designed capacity of the new plant will be 6,000 tons of coatings per year.
The plant is set to become operational in November 2020. JSC Metal Profile Company obtained substantial state aid under the project since currently, the domestic production of metal coatings in Russia is insufficient.
“With the assistance of the Moscow Oblast Investment Ministry, the company twice received a subsidy to reimburse the costs of creating engineering and transport infrastructure facilities – in total Rub114 million ($1.5 million),” said Ekaterina Zinovieva, Moscow Oblast Investment Minister. The project’s goal is to create domestic production of coatings that are the same quality as foreign products, the Minister stressed.
New regions offer opportunities
Coatings production in Russia is developing in new regions.
VMP launched a new coatings plant in the city of Aramil, Sverdlovsk Oblast. The plant is located in the Urals and is unique for this part of the country.
According to Mikhail Vakhrushev, president of VMP, there is no coatings production of a similar scale in Sverdlovsk Oblast.
The investment cost of the project is Rub1 billion ($15 million). The facility houses two shops – one for the production of highly dispersed metal powders with a capacity of 2,000 tons per year, and another for coatings production of 15,000 tons per year. The range of the enterprise includes anti-corrosive coatings, polymer floors coatings, and fire retardant coatings.
“We have launched six production lines and two filling lines. Thanks to digitalization, the influence of the human factor is excluded in the entire production chain. Contact of people with harmful chemical components is eliminated,” Vakhrushev said.
VMP also received state aid under the project within the government-run program International Cooperation and Export.
This national project is intended to expand the presence of Russian goods and services on global markets with the help of state regulatory instruments and industry and corporate programs, including export financing, equity financing, leasing, and long-term support measures.
VMP is yet to reveal its export plans, but usually, Russian companies participating in this project promise the authorities to sell a part of their products to non-Russian customers.
Raw materials
There are signs that Russia may soon overcome a shortage of raw materials needed for coatings production.
Major oil producer Tatneft recently got the green light from the national technical regulator Glavgosexpertiza to build a maleic anhydride plant in the Tatarstan Republic for Rub6.5 billion ($90 million). Tatneft expects the plant, with a production capacity of 50,000 tons per year to become operational in 2023.
The maleic anhydride market is constantly growing in Russia, with a CAGR between three and six percent, according to Alexey Kalachev, an analyst at Finam Group.
Maleic anhydride is a multifunctional base chemical, and it is used as raw material for many chemical products, not only coatings. In the medium term, accelerated growth in demand for maleic anhydride both in Russia and abroad can be expected, he said.
“I believe that the project will be able to take advantage of certain benefits and preferences since it participates in solving two all-Russian strategic tasks,” Kalachev added.
Firstly, the project has already been included in the government plan of import substitution in the chemical industry, according to which the maleic anhydride import must be abandoned entirely. Currently, Russia and other Eurasian Economic Union members are not producing the maleic anhydride, only importing it. Secondly, the project fits into the state policy in the field of utilization of associated petroleum gas.
However, the total demand for the maleic anhydride in the Eurasia Union is estimated at 10,000 tons.
Tatneft would need to export most products. According to Kalachev, the company cannot manufacture less since, with production volumes less than 40,000 tons, it is impossible to ensure sufficient profitability of the project.
However, the entire Russian chemical industry is turning to export supplies now, Kalachev said.
Shrinking exports
During the first half of 2020, export supplies of the Russian coatings within the Eurasia Union – the main foreign market – left a lot to be desired.
Between January and June, Russian companies reduced the export of organic coatings by seven percent and water-dispersible coatings by 13.1 percent, the Eurasian Economic Commission estimated.
The export of water-dispersible coatings amounted to 6,274 tons with an overall value of $7.7 million tons – 13.1 percent lower in physical terms and 8.7 percent in monetary terms – than January-June 2019.
Similarly, organic coatings export dropped to 25,500 tons, with an overall value of $36.6 million – seven percent lower in physical terms and 9.5 percent lower in monetary terms compared to the previous year.
Historically, Kazakhstan has been the main sales market for Russian coating companies.
In the first half of 2020, Kazakhstan purchased 17,500 tons (a 5.9 percent decrease) of coatings in Russia for $21.9 million – 11 percent less, compared to the same period of the previous year. The supplies totaled 3,000 tons (a 21 percent drop) for $3.74 million in the water-dispersible segment, 9.5 percent lower than in the first half of 2019.
Export supplies to Belarus, Armenia, and Kyrgyzstan also dropped, driven primarily by low domestic demand, commonly attributed to the coronavirus pandemic.
Turning tables
The COVID-19 pandemic has put a heavy burden on the Russian economy. Russia’s 2020 GDP growth is projected to contract by six percent, an 11-year low, with a moderate recovery in 2021-2022, according to World Bank.
The decline of Russian economic growth is further exacerbated by plummeting crude oil prices that dropped 53 percent between January and May 2020.
The Russian ruble’s exchange rate has lost more than 20 percent in value since the beginning of the year, getting close to an all-time low. However, these are positive signs in these dynamics, as all Russian origin products have become more competitive in the Western markets. This, however, is not working for the Eurasia Union, where all local currencies follow the ups and downs of the Russian ruble.
Gennady Averyanov, director of the Russian Association of paints and varnishes manufacturers, commonly known as Centrlack, claimed that almost all of the Top 10 Russian manufacturing companies exported their products and harbored plans to increase exports. Averyanov added that Centrlack expected export growth to accelerate in the future, to some extent, thanks to efforts of foreign manufacturers launching their production capacities in Russia.
