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    Russian Report

    Belarussian Coatings Industry Stays Strong Despite Pandemic, Political Unrest

    ...

    Belarussian Coatings Industry Stays Strong  Despite Pandemic, Political Unrest
    Lakokraska may be hit by sanctions
    Vladislav Vorotnikov, Russia Correspondent01.11.21
    Some new production facilities are slated to be launched in Belarus in the next few years, as both domestic demand and export sales proved to be strong, but the future remains vague as the political crisis, and international sanctions could hurt some coatings producers.

    The hiatus brought upon the global economy by the coronavirus pandemic seems to bypass Belarus, where no lockdown has been introduced to slow down the spread of the virus. Belarusian President Alexander Lukashenko has been consistently dismissing calls for a nationwide lockdown, describing fears about the pandemic as “psychosis” and “hysteria.”

    In this background, Belarus remained the country with some of the softest quarantine measures in Europe during 2020. The Belarusian economy is set to fall by only two percent this year, which is better than most neighbors.

    The pandemic has hampered the construction industry in Russia and Ukraine, but not in Belarus. In 2020, the government expected 4 million square meters of residential buildings to be launched, just as much as expected at the beginning of the year, Ruslan Parkhamovich, Belarussian Architecture, and Construction Minister told state-owned news channel Belarus-1.

    The government plans to ramp up the construction pace to 4.5 million square meters per year in the coming years, Parkhamovich said. This should secure strong demand for all construction materials, including coatings.

    Opposition to the ree-election of the current president has been more disruptive than the pandemic, some claim. The Belarussian economy suffered from four months of demonstrations, rallying on the streets against the re-election of President Alexander Lukashenko. Local analysts claimed that the protests have stripped the country of investments and send the Belarussian ruble’s exchange rate soaring, while that the negative impact of the political turmoil on the economy would be seen with a naked eye in 2021.

    Opposition co-leader Sviatlana Tsikhanouskaya called for a general strike on Oct. 26. However, so far, there are no reports that the strike has affected coatings plants’ operations. Moreover, some major coatings plants insisted that 2020 was quite successful for their businesses.

    MAV makes progress with import-replacement

    The pandemic and the strong Belarussian ruble’s depreciating paved the way for some import-replacement on the domestic coatings market.

    During the past few months, Belarussian major coatings producer MAV enjoyed rising demand for aerosol paints. The company runs a production line designed for 5 million cans of aerosol paints per year in Minsk Oblast.

    “We’ve got quite a few requests whether we could supply aerosols, previously imported from China. There are several trading companies in Russia, which had been working with China for many years but cannot continue doing that, since the [Chinese] plants were shut. We are talking about supplies to all major retail networks in Russia,” said Vladimir Minko, first deputy director of MAV.

    According to Minko, MAV is adhering to European quality standards, as the company eventually targets to emerge on some bigger and more promising market of the European Union and the U.S. MAV is selling coatings to customers in Baltic countries but has not pushed into other markets due to “bureaucratic issues.”

    “There are also Belarussian [customers] who were massively purchasing aerosol coatings in China for the automotive sector. There will be supplies to Europe and America under their brand. We try to work on these contracts and currently are in negotiations on the supply quantities and prices”.

    Minko went on saying that MAV had very strong positions in the Belarussian coatings market, accounting for roughly 20 percent of overall sales. MAV is also the only Belarussian producer of aerosol and powder coatings.

    “We have more than 15,000 clients, and the production volumes are above 10,000 tons of coatings per year. The profitability ratio is 10.4 percent. We managed to increased export last year by 21 percent compared to 2018. Today, export accounts for 30 percent of sales,” Minko said.

    The company is also known for an exceptionally strong R&D department.

    “We are proud of our science: this includes an accredited laboratory, which is included in the list of 16 laboratories of the Customs Union, which are entitled and competent to conduct certification tests,” the deputy head of the company said.

    Sanctions may jeopardize Lakokaska’s export

    The picture is different for the state-owned JSC Lakokraska. The company accounts for 30 percent of the Belarussian coatings market, selling nearly 50 percent of manufactured products to foreign customers. Lakokraska has been reportedly struggling against a strike, but executives insist they have never turned massive.

    “There are a few out of thousands of workers who either want to draw attention or dream of getting their thirty pieces of silver. However, the majority realizes that the policy remains a policy, and they have to earn their money. For many, the plant is the work of their lives, in which they invested a lot of effort and talent,” Igor Pozdnyak, spokesperson at Lakokraska, told the state-owned news channel STV.

    However, opposition media and Telegram channels claimed that the plant’s management was using some undemocratic methods to suppress the strike with some help from law enforcement agencies.

    Sviatlana Tsikhanouskaya has recently appealed to the U.S. Congress calling to swiftly pass the Belarus Democracy, Human Rights, and Sovereignty Act of 2020. If adopted, it could severely
    damage Lakokraska.

    This bill expands the U.S. President’s authority to impose sanctions related to Belarus to include activities surrounding the disputed 2020 Belarusian presidential election and subsequent government crackdown.

    On October 22, 2019, the Office of Foreign Assets Control (OFAC) issued general license No. 2G authorizing U.S. persons to engage in transactions with nine Belarussian state-owned companies, including Lakokraska. These companies remained under a threat of sanctions for several years, and if the bill is passed, nobody in Belarus doubts they will be the first to fall under the sanctions.

    “Lakokraska has made a lot of progress exporting not only coatings but also phthalic acid anhydride. The company sells its products to almost all post-Soviet countries, Africa, Asia, and Latin America. The Lakokraska’s management has been extremely successful in developing export, which makes the company a very attractive target for the economic sanctions,” according to a source in the Belarus coatings industry who requested anonymity.

    In the first half of 2020, Belarus exported 14,600 tons of phthalic anhydride for $9.98 million at an average price of $681 per metric ton. The supply dropped by 25% in physical terms and 43.4 percent in monetary terms and the average price was lower by 24.6 percent compared to the same period of the previous year. The three largest buyers are Russia, Poland, and Turkey.

    The sanctions could throw the company into a full-fledged crisis, as the dependence on the foreign markets is high, and most customers, except for Russian companies, would refrain from doing business with the plant, the source is confident. However, the company has never officially spoken about how the sanctions could impact its business.

    Besides, the Belarus opposition considers asking international community to disconnect the country from the SWIFT – a vast messaging network used by banks and other financial institutions to send and receive money. If this happens, virtually all foreign trade would be stopped nearly immediately.

    Investment continues

    In the meantime, the investment activity in the Belarus coatings industry continues, indicating that things are not so bad despite the current challenges. 

    Just recently, Flügger group A/S agreed to invest in Eskaro group, gaining 70 percent of the shares in Eskaro Group AB, an international paint group with operations in six Eastern European countries, the company said in a statement on its website.

    In Belarus, Eskaro operates Condor coatings plant located in the Brest special economic zone.

    “As part of Flügger group, we’ll have the opportunity to exploit synergies – in particular sales and solutions to large builders’ merchant chains – but also in the area of production and purchase of raw materials. We look forward to continuing our expansive growth journey with the backing of a strong group,” said Igor Chumakov, founder of Eskaro.

    Besides, the Belarussian coatings company Zaslavsky Paints has revealed plans to build a new coatings plant in the Minsk special economy zone for $10 million. The company plans to produce coatings for road surface marking. So far, no additional details on the project have been unveiled.

    In 2019, Discom, a subsidiary of DAW SE, launched its third plant in Belarus in the Brest special economic zone. With the investment cost of €2 million, the designed production performance is estimated at 3,000 tons of coatings per year. The plant, among others, produces coatings under Alpina and Caparol brands. 

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