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RUSSIA
Crisis Brings Uncertainty to Russian Retreading Industry
In the view of analysts, the economic crisis which is currently taking place in Russia amid low global oil prices and international sanctions, may negatively affect the investment plans of retreading businesses currently operating in the country. This year will probably see a fall in the size of the Russian market for retreaded tyres, which until recently was considered as the fastest growing market in Europe.
The main problem for the manufacturers has been the currency crisis. Since the beginning of 2014 the value of the ruble has halved against the dollar and the euro. The currency rate at the beginning of 2014 was RUB 32 per USD, while in January of 2015 it stood at RUB 65 per USD. Furthermore, the trend of the first months of 2015 indicates that the decline will continue and a number of the new forecasts say that the dollar, in the medium term, may reach RUB 100 per USD, which would plunge the countr y into an especially difficult financial situation.
Increasing cost of imported casings and raw materials
Market experts say that the crisis has, in fact, not brought any new challenges to the Russian retreading industry - it has just seriously aggravated the ones that
that the increased of cost of casings will negatively affect their profitability. In particular, the CEO of the "Dominant" plant, owned by LLC Goodyear Rus, Andrew Funk, stated that the availability of casings is the major risk for retreading businesses in Russia due to the fact that within the countr y the culture of retreading is still undeveloped.
According to various estimates, imported casings account for 60- 80 per cent of all supplies. At the same time, about 75 per cent of total imports have been falling from the countries of the European Union (EU). It therefore seems obvious that in 2015 the currency crisis will bring serious problems for Russian retreading plants, as well as localised producers.
"Russia is now experiencing a decline in imports in almost all product categories, which is a consequence of the severe currency crisis. For many [foreign] companies the supplies of their products to the Russian market has become simply unprofitable, and the retreading industr y here is not an exception" – says ARB spokesperson Anton Kalmakov.
Projected fall in market size
Representatives of the Russian Association of Retreading Businesses (ARB) predict that in the near future the market will not
the pressure of the high key interest rate – which was raised nearly threefold in response to the crisis – from 5.5 per cent as of the beginning of 2014 to 15 per cent per cent from 2 February 2015. However, despite all the problems, the Russian retreading market still showed some growth last year. According preliminar y data from the Russian statistical services, in 2014 the market totaled 710,000 units – 3 per cent more than in 2013, when production was equal to approximately 681,000 units. However, experts predict that this year the market size could drop by about a quarter, with a halving of imports. Domestic production in 2013 was about 350,000 tyres, while in the period from Januar y- November 2014 it totaled 334,000 units, reflecting a 5per cent growth year-on-year.
"According to preliminary estimations only 6,300 units of
retreaded tyres were imported in January in Russia, which is 60 per cent lower than in January 2014. Even with the stabilisation of the situation in the currency market, we expect that the volume of imports this year will be lower by 30-40 per cent compared to 2014,” added Kalmakov.
Faced with such a situation, the total volume of the Russian market may drop to 510,000 units, while its long-term prospects remain absolutely unclear. Earlier ARB forecasts suggest that market growth will be about 15 per cent per year in the period from 2014- 2018, fuelled by major investments, including some by foreign companies. However, today it is obvious that the investment attractiveness of the retreading industry in Russia has dropped even further than that of the overall Russian economy.
Head of Tatneft-Neftehim, Anwar Vahitov believes that further development of the retreading sector will require considerable investment as a result of the economic crisis in Russia
Russian companies rely on imported materials and equipment, the current economic crisis and trade embargo has impacted heavily on retreading
Badretinov, Exec Director of Kama believes that it will be difficult to predict the benefits of retreading due to the fluctuations of the Ruble
already existed. Perhaps the most important of these is the lack of casings and raw materials inside the country, which forces almost all Russian plants to import from abroad.
Russian plants, in general, confirm
see new investment projects, while existing projects may be frozen, especially if the overall economic situation in the countr y continues to deteriorate. At the same time, new projects in the retreading sector will, in the short term, feel
56 Retreading Business