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UKRAINE
The conflict in the east of the Ukraine has destabilised the economy and damaged prospects for the retreading sector
The Ukraine had 22 retreaders before the conflict impacted upon the industry
Hard Times for Retreading in Ukraine
The retreading industry in the Ukraine is facing serious problems against the background of the continuing armed conflict in the eastern regions of the countr y and the general crisis within the automotive industry, say industry experts. As the result, the country is already experiencing a reduction in the domestic production of retreaded tyres and soon may also experience a fall in imports.
In the Ukraine today there are no large retreading facilities of any foreign tyre manufacturers, so the majority of retreaded tyres in the country are imported. According to various experts’ estimations, the total size of the market today is about 70,000 tyres per year, and over the past few years this figure has grown by 5-7 per cent per annum.
In total in the Ukraine today there are 22 retreading companies operating with a total production output in recent years of no more than 1,000 tyres per month. Peak production in the country took place in 2012, when there were about 13,500 retreaded tyres produced. Most of the producers use the cold method.
Until 2014 all producers considered the local market to be very promising, especially in the context of the potential signing of the Free Trade Zone Agreement (FTZA) with the European Union, which promised to cancel all duties on the import of automotive components and tyres into the country. Today, however, the situation has changed as the fall of the country’s currency and the continuing armed conflict in the east of the country has negatively affected development prospects.
According to information from the business communities in the country, as of the middle of August, seven retreading companies suspended their work - about one- third of their total number. Five of them were located in the areas
where the armed conflict between Ukrainian troops and pro-Russian rebels has been taking place. At the same time many manufacturers have reduced their activity, bringing average production in the month during the first half of 2014 to about 412 retreaded tyres per month which is more than 60 per cent lower compared with the level of 2012.
At the same time, the country’s main players predict that the total size of the market this year could fall by 15-20 per cent year on year, and possibly even more, as the situation today remains unpredictable.
"We are currently seeing a decline in sales in the segment of retreaded tyres" - says Yuri Vojko, director of tyre sales company “AutoMarket”. "The main supplier in our country during recent years is the French company Michelin, while Goodyear occupies second place. The number of orders for imported goods – both new and retreaded tyres – is falling today, as their value is tied to the exchange ratio of the Hryvnia against the Euro. As a result of the rapid fall of the Hryvnia’s exchange rate in recent months, the cost of retreaded tyres from Europe within the Ukraine has seriously increased, which has pushed down demand,” he added.
At the same time, market participants have also noted that the market faces some problems due to the worsening of trade relations with Russia that have taken place over recent months. Traditionally, part of the retreaded tyres imported to Ukraine come from this country - about 8 per cent of the total volume, but due the recent events any trade relationships between two countries will probably soon be stopped.
Of particular concern is the fact that in the midst of the fighting is the Donetsk tyre repair plant, one of the largest manufacturers of retreaded tyres in the country and the only
enterprise in Ukraine restoring tyres for autoloaders.
Officially, the company's management have refused to comment on the situation, but a representative of the plant, who wished to remain anonymous, said that the city, Avdiyivka, where the plant is based, has for a few weeks been kept without water, electricity and gas, which has forced the heads of the enterprise to almost completely stop production.
"For us, it currently makes no sense to produce anything, as we are located right on the front line. There are no orders, and physically to supply the tyre, or to collect the tyres for use is life threatening. So far, the plant itself has not been damaged in the fighting. However, it is taking place right near us. We hope to restore production after the normalisation of the situation, but so far we cannot say what will happen. The situation is rather unpredictable," he said.
At the same time, there are also some problems that are not directly connected to the armed conflict. The systemic problem that hinders the development of the market in Ukraine is the poor quality of the roads. In fact, this problem is common for all countries of the former Soviet republics, but in the Ukraine today it is particularly acute.
"In the Ukraine, there is a problem in the selection of casings. For instance, in Europe, you can select 100 casings for retreading out of 140 casings after the first “life” of
is conducted manually," commented Oleg Belogortsev, the owner of the Shinnaya Masterskaya retreading company.
Traditionally, the cost of retreaded tyres of Ukrainian production should be 30-40 per cent lower than new tyres. Imported tyres in the same categories were by 20-30 per cent cheaper, but the quality compared to the tyres of the Ukraine producers is obviously higher. However, currently, due to the fall of the Hryvnia, prices for retreaded tyres have seriously increased. For instance, since the beginning of the year the exchange rate of Hryvnia dropped by 60 per cent to the level of UAH 13.7 per one dollar. In opinion of the Yuri Vojko, this situation has resulted in the purchase of imported retreaded tyres losing much of their economic attractiveness.
However, he added, as the countr y has already signed the FTZA with the European Union and is ready to cancel import duties on tyres, the situation may be partially improved. However, domestic manufacturers are saying that they will probably not be able to gain any benefit from this situation as the pressure of rising prices for fuel and energy has also forced them to increase the prices of their production. "Currently we are seeing more expensive fuel, electricity and gas, as well as faster inflation. As we know, Russia stopped gas supplies to Ukraine because of debts, and therefore it is not clear what the situation is with prices and what
tyres. But in Ukraine it is impossible as we have really bad roads, in addition to the fact that there is often a problem with the qualifications of the people who remove the old tyres. The success of retreading is 80 per cent dependent on the staff. Each casing that has been used on our roads is unique, so the process of removing the tyre
will emerge with the beginning of the heating season in mid-October. In this situation, many companies are asking for support from the state, but our industry is too small to claim for any assistance from the budget," commented Alexey Perevalko, a senior manager at retreading-related company Alpha Tire.
20 Retreading Business