Interlakokraska-2024 Provides Insights into Russian Coatings Industry

The Russian government’s efforts to forge stronger political and economic ties with emerging countries are seemingly paying off, as foreign companies flocked to a leading coatings industry event. However, the production plans might be in peril due to informational uncertainty and an unfolding labor crisis.

This year, Interlakokraska-2024 – the key international expo held between Feb. 27 and March 1 in Moscow – has tangibly grown in size and the number of attendants.

The official statistical figures indicate that 408 companies took part in the event, twice as many as in 2023. The difference between 2022, before the country was subject to the harshest sanctions the world has ever seen, is even more drastic. Then, the expo attracted only 126 companies.

One of the key features of Interlakokraska-2024 was the growing presence of BRICS countries. The event lured companies from Brazil, India, Iran, China, the UAE, and Saudi Arabia. In total, businesses from 12 countries set foot on Moscow’s Expocenter floor in 2024.

The event welcomed Turkey’s IBA Kimya, India’s Rapid Coat and Soujanya Color, China’s Peka Chemie and YCK, Korea’s FTC Korea, and Saudi Arabia’s Tinting Systems.

The European coatings industry was still presented at the event by a few companies from Germany and Estonia, though this is a far cry from 2022, when Western business comprised the lion’s share of foreign attendance.

Speaking during the event, Russian coatings industry officials boasted of the achieved figures.

Victor Ivanov, president of the Russian Union of Chemists, underscored that the “size of Interlakokraska-2024 and the number of attendants give hope that the Russian coatings industry will overcome the challenges it faces.”

Mikhail Yurin, deputy Russian industry and trade minister, in turn, noted, “It has become obvious that all efforts made by unfriendly countries, which imposed sanctions [against Russia], miss their target.”

Yurin emphasized that the Russian coatings industry enjoys excellent production performance. In 2023, output jumped by 11% and consumption by 10% compared with the previous year. With the Russian government’s support, business introduces new products needed in several economy segments.

A Kaleidoscope of Figures

Still, Interlakokraska-2024 also highlighted a painful problem in the Russian coatings industry – an informational uncertainty.

Valery Abramov, general director of the leading Russian coatings company Russian Paints, said that the market has undergone a profound transformation during the past few years, and even for the prominent players, it is challenging to follow the existing trends.

Olga Andrutskaya, chief editor of the leading Russian coatings industry publication “Industrial coatings and their application,” noted that the diversity of the attending companies, types of raw materials, coatings and technologies during Interlakokraska-2024 filled the Russian coatings industry with joy.

“It was felt that the industry is on a roll,” Andrutskaya said in a blog post on the publication’s website.

Market studies presented during the event indicated a solid growth in production performance, though the difference between the presented figures was staggering.

For example, the Russian state statistical service Rosstat, quoted by Yurin, calculated that Russian coatings production last year climbed by 11% to 2.2 million metric tons. In the meantime, a report presented by an industry analyst estimated the output at 1.12 million metric tons, with a growth rate of only 9.5% compared with 2022.

“The same leapfrog is seen with other market indicators. This is reminiscent of a kaleidoscope with its changing patterns at the slightest change in the angle of the mirrors,” Andrutskaya stated.

In addition, the Russian economy suffers from a partial informational blackout. In April 2022, the Russian government closed access to all foreign trade statistics. In 2023, a part of the data was made public again, while some output figures, like those pertaining to oil production, on the contrary, were made secret.

The rationale behind this step is clear: to make Russian foreign trade and various economic segments a hard target for Western sanctions. However, such a policy also makes business planning tricky for the top managers of Russian coatings manufacturers.

BRICS Rapprochement is in the Cards

When Western sanctions barred the way for raw materials to the Russian coatings industry, some analysts expected the supply chain to fall apart like the house of cards. However, a rise in deliveries from alternative destinations has largely compensated for this loss.

There are many reasons to believe the coatings industry will benefit from further rapprochement with emerging countries, specifically within the BRICS trade block.

Elvira Nabiullina, the head of the Russian central bank, has revealed that the share of transactions between Russia and BRICS member countries conducted in national currencies has tripled, reaching 85%.

Nabiullina further explained that Moscow is actively engaged in discussions regarding the potential integration of national payment infrastructures with other BRICS members to further facilitate trade between member states.

For Russian coatings companies, international trade is still burdened by Western sanctions. Clearing payments in dollars and euros is difficult, and using the SWIFT international banking system is also associated with risks for all parties involved.

For this reason, the Russian government has encouraged other BRICS countries to explore avenues for transitioning away from the US dollar and alternative settlement schemes.
It is yet to be seen whether these efforts will eventually succeed. The Russian government has run into problems trading crude oil for Indian rupees, ending up with a large stock of Indian currency and limited options for using it.

However, the general belief is that the trade between BRICS members will only grow in the coming years, and new tools will be introduced to facilitate it. The Russian coatings industry will clearly benefit from this trend.

Working Hands Needed

One of the key takeaways of the Interlakokraska-2024 is that the primary challenge the Russian coatings industry faces is no longer associated with a lack of raw materials but rather with a labor shortage.

The Russian labor crisis results from a weak 1990s demographic, worsened by an unprecedented emigration wave in the past two years triggered by the Ukrainian conflict and the mass mobilization in September 2022.

The Russian economy is hit with the worst labor shortage in 27 years, Gennady Averyanov, president of the Russian coatings industry association Soyuzkraska, said in an interview to the “Industrial coatings and their applications” published in the run-up to the Interlakokraska-2024.

During the previous industry gatherings in the last few months, the lack of workforce was dominating the discussions between both top managers and ordinary workers, Averyanov said.
The Russian coatings industry is particularly bothered by growing competition for workers with other chemical industry segments. The Russian chemical giants have embarked on ambitious growth programs aimed at doubling production performance in the coming several years, and to fill vacancies, they have launched big education programs.

According to Averyanov, coatings companies, most of which are small and medium-sized businesses, can’t afford to bear the same costs.

A survey conducted by Soyuzkraska showed that most top managers prefer to solve the labor shortage independently. Averyanov said that this basically means that they are going to pull workers from each other, unwinding the spiral of competition in the market even further. 

The problems pertaining to the labor shortage will “undoubtedly, take a toll on the production costs, profits and investments, meaning in the future on the Russian production’s competitiveness,” Averyanov noted.

To address the looming challenge, the Russian coatings industry needs to improve effectiveness and increase output per employee. Averyanov said automation could also help, adding that both processes still leave a lot to be desired.

An opinion poll conducted by the Russian Recruiting Association indicated that in 2023, nearly 90% of the Russian coatings companies expanded their staffs by up to 20%, Natella Kobulashvilii, president of the Russian Recruiting Association told the same publication.

In 2023, a majority of those surveyed said they raised wages by 5% to 20%. This year, a further 20% hike in salaries is anticipated.

In addition, to deal with the crisis, Russian coatings companies resort to creative solutions. For example, Kobulashvili said last year, a phenomenon of “striped collars” emerged in the Russian chemical industry, as some companies signed contracts with the Russian Federal Penitentiary Service to attract prisoners as workforce in some enterprises.

In general, the labor force crisis is unlikely to ease its grip on the Russian economy for the time being. According to Russian officials, the demographic situation will only worsen until 2030 to 2036, when it can stabilize. As other factors contributing to the crisis are also unlikely to wind down, the Russian coatings industry should be braced for even more challenging times.