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COVID-19: Russian Coatings Market ‘Rolling with the Punches’

Release date:2020-07-09 Author: Click:

Russian coating manufacturers were unable to avoid the negative impact of the COVID-19 pandemic, but it seems some were hit harder than others.

Per an April Ernst & Young opinion poll – 230 Russian companies were interviewed – the Russian chemical industry is one of the least affected by COVID-19.

However, respondents said the nationwide quarantine put in place in the country late March had taken a high toll on operations.

Approximately 80 percent of those surveyed described their industries as crisis-ridden, and 51 percent claimed their business would last no longer than three months under the quarantine restrictions.

Chemical, pharmaceutical and FMCG companies are doing relatively better than the others these days, Ernst & Young said, though not every company would agree with that.

The demand for coatings on the Russian market has plummeted; Ufa’s sales were down 50 percent, the company said in a June 2 statement.

Its coatings factory was launched in 1941 and had never suspended operation before, even during World War II, but had no choice but to do that in April. The company praised the government for supporting business in hard times like these.

“It is impossible to move on without state support. Reduced taxation is one of its [possible] forms. This is very much helping small companies,” said Lilia Shamsutdinova, director of the Ufa coating factory’s sales department.

There is still no clarity whether any substantial state aid would be allocated to the Russian coating industry, according to an industry source who requested anonymity.

Quite a few companies have got a status of backbone business from the government with a promise that this would come with some support, but so far, nobody could figure out how this status could be used, the source added.

The crisis has not caused any price fluctuations on the Russian coatings market. As of early May, the average price of coatings in Russia was Rub201 ($3.2) per kg, 1.2 percent up as compared to the previous month, and 5.6 percent up as compared to last year, the Russian federal statistical service Rosstat estimated. The price increase is in line with the country’s inflation rate.

The country is waiting for the details of a Rub 5 trillion ($73 billion) recovery plan Prime Minister Mikhail Mishustin promised to reveal in July. Its main target is to offset economic damage from the coronavirus pandemic, and reportedly the program should provide some financial aid to some companies, which suffered losses from the COVID-19 fallout.

The Russian Chamber of Commerce and Industry has also recently appealed to the government asking to introduce a moratorium on an increase in electricity and gas tariffs and to subsidize up to 55 percent of logistics costs associated with the export of chemical, metallurgical and some other products. As of early June, no decision on those proposals has been made.

Limited impact 

Some companies confirmed that their business had been partly disrupted by the COVID-19 pandemic, according to research conducted by the Russian Coatings Journal.

Some customers suspended payments for supplied coatings, which prompted Russian Coatings company to suspend payments to its suppliers, Valery Abramov, general director of the Russian Coatings, told the Russian Coatings Journal. Unlike many other industries, the production cost in the coating industry has not been significantly affected, he added.

“So far, we see no serious changes in the pricing policies of the raw materials suppliers. Firstly, the price of oil is going down, and oil is one of the basic resources for the coatings companies’ suppliers. Secondly, everyone understands that there is a crisis, and the market is not going to grow. The companies are cautious with their actions,” Abramov said. “But the price for some alcohols due to the current market environment indeed is growing. They should fall back to the pre-crisis level as soon as the acute shortage of disinfection agents on the market is over.”

There were some problems both on the Chinese and European borders because of the pandemic, but they have not caused a real disruption in components supplies, according to Abramov.

The turmoil brought on by COVID-19 has shocked traders around the world and resulted in sharp volatility on the Russian stock markets and swings in the value of the ruble. At one point, the ruble was standing at around Rub75 per U.S. dollar, which was the lowest exchange rate for the past five years. Russian coatings companies still import a broad range of raw materials, so the ruble depreciation appeared to be upsetting news for the entire industry.

The pandemic could open a window of opportunities for the Russian raw materials suppliers. On specific production categories, Russian raw materials would be able to push the imported products from the domestic market, Ilishat Gafizov, executive director of the Russian coating company Rossilber said in April.

There are some companies warning that market conditions are nasty. Konstantin Kovalev, general director of the Belgorod-based coating company Kvil Paints, described the market situation as a “freefall.” The main problem was that nobody knew when the pandemic could end, he noted.

“Technically, the payable demand on the market disappeared because of the introduced restrictions,” Kovalev said. “All scenarios are possible. The slump in consumer demand was catastrophic. Even once the restrictions are removed - it would be a mistake to expect a gradual recovery. I personally believe this is going to be the hardest time for most coatings companies.”

There was also a hike in price for raw materials, but it was associated not with the logistic problems, but with the depreciation of the Russian ruble. The government must support not only small companies but all businesses, according to Kovalev.

“The government’s responsibility is significantly increased now. It [the government] is the only one that can save the day and become the driver of the economy’s growth,” Kovalev said.

Ink manufacturers affected

The absence of solvents could become a big problem for the Russian ink manufacturers, who could even suspend their production, Anatoly Carpunin, general director of the Russian printed ink supplier Gangut told to the Russian Coatings Journal.

“The reason is the disruptions in the import of n-propanol, a substitute for ethyl alcohol, because of the preventive measures taken in the European Union against COVID-19,” Carpunin said.

The price of n-propanol skyrocketed in Russia due to short supply.

“There is no problem with logistics [of n-propanol] because there are simply no products to be transported,” Carpunin said.

Another side of the problem is that denatured ethanol, which is three times cheaper than imported solvents, remains prohibited for use in the Russian coatings industry. 

Russian coatings manufacturers have to use n-propanol and isopropanol as solvents since the use of ethanol in Russia is subjected to stringent control. Russian companies have repeatedly been complaining that inks produced with ethanol could be imported to Russia, but the same products are not allowed to be manufactured in the country.

There are reported problems with some other raw materials. Russian ink manufacturers import 99 percent of raw materials required in production – and, on most items, import is subjected to a 10 percent import duty. Most of these raw materials are not manufactured in Russia at all.

“The industrial community doesn’t understand what the reasons are of dragging with the decision to allow using denatured ethanol without paying an excise fee in the production of coatings,” Carpunin said.

The Russian Ministry of Industry and Trade and Finance Ministry gave its approval to the use of denatured ethanol, but some government agencies have yet to greenlight this practice.

According to Carpunin, in April of 2020, Russian coatings manufacturers have even appealed to Russian President Vladimir Putin to solve that issue.

It could be an excellent time to support the Russian ink industry since importers experience difficulties accessing the country’s market. The overall sales of printed inks of all types in the country ranged between 50,000 tons and 60,000 tons in previous years. Gangut was producing around 1,500 of ink per year although it’s installed production capacity is at 12,500 tons. 

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