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RUSSIA
of them bought cheap Chinese machinery and production lines and often treated technological processes with disdain. The market flooded with a large number of low-grade non-certified retreaded tyres produced in all regions of Russia. This situation undermined the credibility of retreaded products in the country in general. Some manufacturers did not even admit that they conducted the retreading of tyres and stated that they were importing them from Europe, primarily from Germany,” Konstantin Pavlov explains.
However, this situation did not last for long, as after the fall in demand some of the producers have improved their technological process, whilst others have left the market. It is hard to say how the market may have looked had the economy crisis not broken out in the country. At the beginning of 2014, Russia faced the first sanctions from the Western countries. Following the drop in global oil prices there have been several waves of devaluation of the Russian ruble since the middle of 2014.
"On the one hand, all retreaded companies benefited from this devaluation of the ruble, as the currency devaluation resulted in retreads being only half the price of new Chinese products, but Chinese factories in response reduced the prices for its production in Russia by almost 30 per cent. By the middle of 2015 there was not any noticeable increase in demand for retreaded tyres as Chinese manufacturers continued to dump in the Russian market,” said Pavlov.
Eventually, the situation was resolved to the detriment of the Chinese factories, when at the end of 2015 the Russian government increased import tariffs for Chinese-made tyres. Also the retreading business has been helped with the new wave of weakening of the ruble, which dropped by about 30 per cent against the Euro in the last months of 2015. Currently, the price difference between Chinese tyres and
Russian retreaded analogues is about 50 per cent, so retreading companies in Russia are experiencing a strong rise in demand.
“This allows us to look with optimism about the future and to expand the geographic scope of our sales. A year ago, we worked only in the North-West [Federal District], whilst previously we had small customers in the Central and Ural regions. We now have three major buyers in Rostov Oblast, Krasnodar Krai and Krasnoyarsk Oblast,” says Anatoly Agashin.
Representatives of the company believe that amid the current crisis in the country almost all sectors of economy are looking to cut spending, opting for more budget products, and this tendency has also been observed in the tyre market. GTP in response to the crisis has not only expanded production capacity, but also expanded its range, introducing some new products primarily in the budget or economy segment.
“Now consumers are searching for the cheapest deals in the tyre market. The crisis is the time, when everyone has to economise. Anticipating this situation, we have introduced a range of tread strips,
offering to customers, in addition to the premium brand Marangoni, the more budget range of HB Bandamatic. This is an absolutely new brand on the Russian market, and we had to spend about six months on its promotion. But now, in terms of the price / quality ratio, it is probably the best product on the market. And this is not only our opinion, it is the opinion of our customers and other retreading businesses from Moscow, Rostov and Voronezh Oblasts,” commented Pavlov.
Large-scale plans
The future expansion plans of the company will be connected primarily with the market situation and will largely depend on currency fluctuations in 2016. In general, representatives of the company explain that in the near future they do not expect any serious changes in demand in the tyre market. It is suggested that the market will face two key trends: a reduction in the overall demand for tyres related to the reduction of the traffic in the country in general, and a decrease in the share of premium and Chinese tyres in the market.
“Premium tyres will be replaced by domestic brands such as KAMA and Cordiant, while the Chinese tyres will be replaced with retreads. This trend is already being observed in the make-up of the casings that are going for retreading. So for example, three years ago the main positions were approximately the following: Michelin with a share of 25 per cent, Bridgestone - 23 per cent, Goodyear - 22 per cent, Continental - 19 per cent, the rest - 12 per cent. At the end of last year it had changed so Michelin had only 21 per cent, Bridgestone - 20 per cent, Goodyear - 20 per cent, Continental - 15 per cent, KAMA – 14 per cent, while all the remaining - 10 per cent,” says
Konstantin Pavlov.
In 2016 the company is preparing for an IPO and a listing on MICEX MII (Market for Innovations and Investments). Last year the company became an official representative in Russia for the Italian company Salvadori. GTP states that it currently supplies products which have no comparison in the post Soviet Union area for about 40 different companies in Russia, Armenia, Belarus and Kazakhstan.
“Also now, thanks to the depreciation of the national currency we have a great opportunity to enter the market of retreaded tyres in Europe. Fifteen years ago, we were taking into Russia retreaded tyres from Europe at the price of 160 Euro per unit, now we are ready to deliver to Europe our own retreaded tyres of the same quality at a price in the region of 80- 85 Euro,” Anatoly Agashin states. The company believes it has a real advantage as it is not dependent on the import of casings from Europe, as are many other Russian retreaders. The representatives of GTP admit that the company feels the lack of casings, but not as strongly as other market players.
“Other retreading companies have to stop production due to the shortage of casings or are purchasing our retreaded tyres for subsequent resale. The main reason for the deficit is connected with the illiteracy of the majority of people using tyres,” concludes Konstantin Pavlov. “It is amazing that some people have not even heard about these (retreading) technologies. But we believe that the situation is evolving and the share of retreaded tyres in Russia will eventually be as it is in the most developed countries where it is at least 50 per cent out of the whole market, instead of the 4 per cent it currently is in Russia.”
20 Retreading Business