Vladislav Vorotnikov, Russia Correspondent10.11.21
An unprecedented price hike in the Russian coatings market has hampered the Russian building industry and even jeopardized some projects under government contracts.
Since the beginning of 2021, the average price of coatings in Russia jumped by 34.6%, Yuri Agafonov, president of the Russian road builders association ASDOR, said. The same estimation has been provided by the Russian Building Association, whose members are alarmed over a sharp rise in prices for the entire range of building materials since the beginning of the COVID-19 pandemic.
Since March 2020, coatings in Russia have become more expensive by 40% to 60% in different price categories. This is the strongest price hike seen ever.
Pavel Goryachkin, director of the pricing department of the Russian building association, estimated that, for instance, the price for emulsified bitumen jumped by 43%, while float glass added in price 22% since the beginning of 2021. Goryachkin described the price dynamics on the Russian building materials market as “sad,” adding that no price relief is expected for the Russian market in the foreseeable future.
The price increase appeared to be so strong and so fast that ASDOR even threatened to stop building roads under government contracts if the agreed costs are not adjusted by at least 15%. Agafonov explained that expensive raw materials, including coatings, suddenly turned building roads into a loss-making business in the country, and market participants are prepared to file
for bankruptcy.
Under the existing rules, the Russian Building Ministry approves a rise in fees under the state building contracts limited to 5.1%. ASDOR warned that this figure is miserable compared to the extra costs business has to endure.
The jump in prices for building materials is a global trend, said Marat Khusnulin, Russian deputy prime minister, adding that inflation on the global market is projected to stand at 15% in 2021. In this regard, the government is mulling plans to support building companies. Russian magazine Expert, citing market analysts, estimated that the government might spend up to 130 billion rubles ($1.8 billion) on this task.
Anton Solon, executive director of the Russian national association of manufacturers of building materials, products and structures, explained that last year China and the United States launched large infrastructure projects to support their economies. Solon claimed that they spurred the demand for all kinds of building materials, including coatings, across the globe. At the same time, not all producers had recovered from the lockdowns introduced to slow down the COVID-19 pandemic, hence the increase in prices.
However, the price for coatings in Russia is rising faster than on the global market. To some extent, this is attributed mainly to the Russian ruble’s depreciation. Even local companies have to raise prices due to heavy dependence on imported raw materials.
Coatings rise in price due to the increasing costs of raw materials and logistics, said Gennady Averyanov, director of Russia’s Coatings Producers Association Centrlak. Between October 2020 and March 2021, the price went up by 10% to 15% on average, even though this figure may differ when certain products or segments are compared, he added.
Slowing growth pace
The Russian coatings industry has been depressed by the COVID-19 pandemic, research conducted by the Russian marketing agency Mega Research showed. The pandemic is also expected to have long-term consequences for the industry, whose growth pace is now tightly linked to Russian GDP dynamics, the analysts added.
In 2021, the Russian GDP will grow by 2.8%, recovering from the 2020 slump. The recovery is expected to be completed in 2022 when the Russian economy could add 3.1% GDP, Mega Research citing forecast of the Russian Higher School of Economy.
“Still, some growth [of demand] remains, although many experts are very pessimistic and say that over the next two years, a negative dynamics may persist,” Mega Research said.
The pace of growth is expected to be quite similar to the Russian GDP changes in the coming few years, the analysts said. For instance, in the past few years, the Russian coating industry grew way faster, adding 10% to 15% of production volumes per year.
Averyanov said that he “almost agrees with the forecast” that the industry growth would be similar to the Russian GDP changes, adding that a similar picture took place in some of the previous years.
However, in the first six months of 2021, production rose by 9.9% over the same period of 2020, Averyanov said, citing data from the Russian State Statistical Service Rosstat.
However, given large construction projects in Russia, most forecasts remain rather optimistic. For instance, the Russian Research and Scientific Institute of Chemical Complex NIITEKHIM projected Russian coating imports to halve, with exports to jump by a factor of four times by 2030.
Again, the high dependence of the Russian coating industry on raw materials is said to be a problem. Mega Research estimated that Russia imports around 40% of raw materials for coatings production, and even though some particular projects have recently been launched in this field, overcoming the need for import seems like an unrealistic task.
A source in the Russian coating industry who wished not to be named described NIITEKHIM’s forecast as way too optimistic.
“Some progress in import-replacement and export-development indeed could be made, but I would be careful with the exact figures. On some products, you need large local demand to justify launching new localized production. In other words, most stuff that could be localized has already been localized. And there is nothing wrong about that – all countries import some coatings,” the source said.
“On the other hand, a sharp rise in export is unlikely. Global producers are not rushing to launch exports from Russia, while local companies do not have a lot to offer. Unless some tectonic changes in production costs or Russian currency’s exchange rate happen in the next few years, the export will grow at a relatively slow rate,” the source added.
Fears of competition
In the background of the price turbulence on the domestic coating market, concerns over the stability of the Russian coating industry seem to mount.
In early 2021, the Russian coatings producers association Centrlack issued a statement questioning approving PPG’s takeover of Tikkurila.
“The Americans are introducing new sanctions against Russia, and the Americans are asking Russia to approve a deal that would make it possible to receive even bigger profits from the Russian market and the Eurasia Economic Union countries for the leading U.S. company in the coating industry. The near future will show how and in whose interests the Russian government would act,” Centrlack said in a statement on its website.
The concerns of conquering the Russian coatings industry by foreign businesses have been recently voiced by Olga Andrutskaya, chief editor of Coatings and Their Application magazine.
“The arrival of global players in our market creates serious competition for national companies. The open-door policy of the Russian government attracted a lot of foreign companies, coatings producers. With the beginning of globalization, large companies began to absorb small ones, and we came to a situation where a domestic manufacturer could be squeezed out of the market, especially in the high-tech area of industrial coatings,” Andrutskaya wrote in her blog on the magazine’s website.
“This issue concerns ships, trains, petrochemical facilities and maybe even the sacral thing – the defense industry. There was already a precedent when a foreign company refused to supply paint to a helicopter plant due to sanctions. And again, we are stepping on the same rake. The Russian government could have banned the purchase of Russian factories Tikkurila, but it approved it,” she added.
Andrutskaya also cites Centrlack saying that the current government’s policy worsens the situation for Russian coatings producers, claiming that by all means, Russia should not follow the lead of some other countries where their national industry was wiped out by foreign companies.
Since the beginning of 2021, the average price of coatings in Russia jumped by 34.6%, Yuri Agafonov, president of the Russian road builders association ASDOR, said. The same estimation has been provided by the Russian Building Association, whose members are alarmed over a sharp rise in prices for the entire range of building materials since the beginning of the COVID-19 pandemic.
Since March 2020, coatings in Russia have become more expensive by 40% to 60% in different price categories. This is the strongest price hike seen ever.
Pavel Goryachkin, director of the pricing department of the Russian building association, estimated that, for instance, the price for emulsified bitumen jumped by 43%, while float glass added in price 22% since the beginning of 2021. Goryachkin described the price dynamics on the Russian building materials market as “sad,” adding that no price relief is expected for the Russian market in the foreseeable future.
The price increase appeared to be so strong and so fast that ASDOR even threatened to stop building roads under government contracts if the agreed costs are not adjusted by at least 15%. Agafonov explained that expensive raw materials, including coatings, suddenly turned building roads into a loss-making business in the country, and market participants are prepared to file
for bankruptcy.
Under the existing rules, the Russian Building Ministry approves a rise in fees under the state building contracts limited to 5.1%. ASDOR warned that this figure is miserable compared to the extra costs business has to endure.
The jump in prices for building materials is a global trend, said Marat Khusnulin, Russian deputy prime minister, adding that inflation on the global market is projected to stand at 15% in 2021. In this regard, the government is mulling plans to support building companies. Russian magazine Expert, citing market analysts, estimated that the government might spend up to 130 billion rubles ($1.8 billion) on this task.
Anton Solon, executive director of the Russian national association of manufacturers of building materials, products and structures, explained that last year China and the United States launched large infrastructure projects to support their economies. Solon claimed that they spurred the demand for all kinds of building materials, including coatings, across the globe. At the same time, not all producers had recovered from the lockdowns introduced to slow down the COVID-19 pandemic, hence the increase in prices.
However, the price for coatings in Russia is rising faster than on the global market. To some extent, this is attributed mainly to the Russian ruble’s depreciation. Even local companies have to raise prices due to heavy dependence on imported raw materials.
Coatings rise in price due to the increasing costs of raw materials and logistics, said Gennady Averyanov, director of Russia’s Coatings Producers Association Centrlak. Between October 2020 and March 2021, the price went up by 10% to 15% on average, even though this figure may differ when certain products or segments are compared, he added.
Slowing growth pace
The Russian coatings industry has been depressed by the COVID-19 pandemic, research conducted by the Russian marketing agency Mega Research showed. The pandemic is also expected to have long-term consequences for the industry, whose growth pace is now tightly linked to Russian GDP dynamics, the analysts added.
In 2021, the Russian GDP will grow by 2.8%, recovering from the 2020 slump. The recovery is expected to be completed in 2022 when the Russian economy could add 3.1% GDP, Mega Research citing forecast of the Russian Higher School of Economy.
“Still, some growth [of demand] remains, although many experts are very pessimistic and say that over the next two years, a negative dynamics may persist,” Mega Research said.
The pace of growth is expected to be quite similar to the Russian GDP changes in the coming few years, the analysts said. For instance, in the past few years, the Russian coating industry grew way faster, adding 10% to 15% of production volumes per year.
Averyanov said that he “almost agrees with the forecast” that the industry growth would be similar to the Russian GDP changes, adding that a similar picture took place in some of the previous years.
However, in the first six months of 2021, production rose by 9.9% over the same period of 2020, Averyanov said, citing data from the Russian State Statistical Service Rosstat.
However, given large construction projects in Russia, most forecasts remain rather optimistic. For instance, the Russian Research and Scientific Institute of Chemical Complex NIITEKHIM projected Russian coating imports to halve, with exports to jump by a factor of four times by 2030.
Again, the high dependence of the Russian coating industry on raw materials is said to be a problem. Mega Research estimated that Russia imports around 40% of raw materials for coatings production, and even though some particular projects have recently been launched in this field, overcoming the need for import seems like an unrealistic task.
A source in the Russian coating industry who wished not to be named described NIITEKHIM’s forecast as way too optimistic.
“Some progress in import-replacement and export-development indeed could be made, but I would be careful with the exact figures. On some products, you need large local demand to justify launching new localized production. In other words, most stuff that could be localized has already been localized. And there is nothing wrong about that – all countries import some coatings,” the source said.
“On the other hand, a sharp rise in export is unlikely. Global producers are not rushing to launch exports from Russia, while local companies do not have a lot to offer. Unless some tectonic changes in production costs or Russian currency’s exchange rate happen in the next few years, the export will grow at a relatively slow rate,” the source added.
Fears of competition
In the background of the price turbulence on the domestic coating market, concerns over the stability of the Russian coating industry seem to mount.
In early 2021, the Russian coatings producers association Centrlack issued a statement questioning approving PPG’s takeover of Tikkurila.
“The Americans are introducing new sanctions against Russia, and the Americans are asking Russia to approve a deal that would make it possible to receive even bigger profits from the Russian market and the Eurasia Economic Union countries for the leading U.S. company in the coating industry. The near future will show how and in whose interests the Russian government would act,” Centrlack said in a statement on its website.
The concerns of conquering the Russian coatings industry by foreign businesses have been recently voiced by Olga Andrutskaya, chief editor of Coatings and Their Application magazine.
“The arrival of global players in our market creates serious competition for national companies. The open-door policy of the Russian government attracted a lot of foreign companies, coatings producers. With the beginning of globalization, large companies began to absorb small ones, and we came to a situation where a domestic manufacturer could be squeezed out of the market, especially in the high-tech area of industrial coatings,” Andrutskaya wrote in her blog on the magazine’s website.
“This issue concerns ships, trains, petrochemical facilities and maybe even the sacral thing – the defense industry. There was already a precedent when a foreign company refused to supply paint to a helicopter plant due to sanctions. And again, we are stepping on the same rake. The Russian government could have banned the purchase of Russian factories Tikkurila, but it approved it,” she added.
Andrutskaya also cites Centrlack saying that the current government’s policy worsens the situation for Russian coatings producers, claiming that by all means, Russia should not follow the lead of some other countries where their national industry was wiped out by foreign companies.
