Page 48 - RB-83-17-4

RUSSIA
Casings above all
The good casings are the most important thing for any retreading plant in Russia, and King-Crown is taking advantage of being a part of the Petromaster Group of Companies, one of the largest players at the Russian tyre market with nearly 85 partners located across the country.
“We have a very broad system of tyre fitting facilities, where casings are collected, and our plant itself within Petromaster originally was designed to complete its service division. So, we see ourselves as a kind of a star in our group of companies,” Tolyarenko indicated.
At the moment, King-Crown is retreading 25-30 per cent on the casings of its clients, while the rest amount is from its own casings. The company has to import some casings from Europe, even despite the strong devaluation of the Russian Rouble against the euro in the past three years, which has significantly undermined the profitability of such trade operations.
“Our company emerged in 2006 by importing retreaded tyres from Europe, specifically from Germany, and our partners suggested that we open a retreading plant in Russia almost from the very beginning of our operation,” Tolyarenko recalled. “However, our management decided to wait until the flow of good tyres from Europe to Russia would grow, so we would have a basis for enough good quality casings in future”.
As the result, the plant was established only in 2011, when the market’s landscape was recognised as good enough to enter retreading business. King-Crown purchased a Bandag retreading line through its partner in Finland with the capacity of 1,000 – 1,200 tyres per month.
At the moment, however, it produces monthly only 500-600 retreaded tyres, or half of its designed production performance, but even this amount allows the company to
be ranked the second largest truck tyre retreader in Russia, Tolyarenko estimated.
In 2018 King-Crown plans to transfer the plant to a new factory, where it will be able to produce 2-3 times more retreaded tyre. At the moment, the company is in negotiations with its partners in Europe to perform the planned expansion in the right way.
Within the upcoming expansion King-Crown also plans to start retreading new sizes of truck tyres, including 17.5 and 19.5, while previously it has only been working with 22.5.
Struggle against the stereotypes
Since the launching of the plant, King-Crown had to cope with the multiple stereotypes among the customers, associated with retreading plants and retreaded tyres. It seems that most of them trace its roots towards the Soviet times, when truck cooperatives, as well as public yards of buses and trolley coaches in big cities were obligated to remove tyres and send them for retreading. Although the people engaged into transport industry are well-aware of what retreading is, it is hard to say that this fact helps modern retreaders, because in the Soviet Union in almost all cases the hot retreading method was used, and the quality of the finished tyres was very poor. As the result, in its operation, Tolyarenko comments that company has to struggle against the “heavy Soviet heritage”.
At the same time, the lack of faith in retreaded tyres among the customers is associated not only with some problems from the far past, but also with the current state of affairs in the industry. There are many unregistered and uncertified retreading lines in Russia, often operating on some hand-made equipment, which cast a shadow on the entire industry, Tolyarenko warned.
“When we’re approaching some
clients we have to prove that we are certified within the Customs Union, in accordance to the Technical Regulations. However, there are quite a lot of so-called ‘garage’ retreading lines, which as the rule operate for the short period of time and offering production which is undermining the reputation of the retreading business in general,” he added.
For instance, in Russia the definition ‘garage business’ is applied to the various facilities, which are operating without necessary authorisation documents. It is called this because the production lines are being set up underground, literally within one or more garages.
China is not reducing its pressure
Tolyarenko admitted that the situation in Russia’s retreading industry is tough. In a way, the industry has been caught in a perfect storm, as on the one hand, the economic crisis in Russia forced the customers to save money on tyres and, on the other, the Chinese tyres keep pressure on the profitability of the business, even despite some efforts to tackle this problem with the introduction of the special protective duties in early 2017.
“We were expecting that the complicated economic situation in Russia would force customers to opt for retreading tyres, as the useful tool to save money, but they instead, in many cases, decided to squeeze everything possible out the tyre, using it for as long as possible. So, in the end, the retreaders have nothing to work with,” Tolyarenko said.
“The exchange rate of the European currency also doesn’t help. We import not only casings, but also raw materials for retreading from Europe, so the devaluation gave us higher costs”.
“And last but not least, there is the factor of Chinese tyres. In early 2017 we were encouraged that the price for the cheapest products originated from China would go up, due to the introduction of protective duties, but that hasn’t happened yet” Tolyarenko noted.
“So, the price competition forces us to keep the price for retreading tyres very low, by at least 20 per cent lower, compared to the cheap Chinese tyre,” he added.
The price gap between retreaded tyres and new Chinese tyres has been determined by the market and it is necessary to motivate customers to keep purchasing retreaded tyres. According to Tolyarenko, the tyres of King-Crown are able to serve for longer, compared to the new cheap Chinese tyres, but this is where stereotypes come to play again, because as a rule it is extremely hard to prove this fact to the customer.
It is actually unclear, how the
Chinese suppliers are managing to keep the prices so low on the domestic market, when they are subjected to protective duties of up to 25 per cent of the product’s declared cost. One way or another, according to Tolyarenko, it pushes the company’s profitability down, and this is why the retreading business nowadays is very complicated in Russia.
When all factors come together
Just like many other retreaders in Russia, King-Crown has been trying to work with Chinese casings. The task is very complicated, when it comes to the cheap tyres, but what is even more complicated, is to sell this tyre to the customer, when it is ready.
“There are premium Chinese brands with good quality and we have no problems with them. In the cheaper segment, however, the problem is not only that the tyre itself was made of cheap materials with poor quality, but also that the driver will care very little about it. If the driver has new Michelin tyres on its truck, he would test pressure regularly. When these are retreaded tyres, or Chinese tyres, which are 2-3 times cheaper, he simply doesn’t care,” Tolyarenko suggested.
“You can imagine, what the driver would think about the tyre, which is retreaded on the Chinese casings. We believe that almost every tyre could be retreaded, unless there are some structural defects, but in our practice customers were simply refusing to take retreaded Chinese tyres”.
At the same time, Tolyarenko noted, even the retreaded Chinese tyres could not be “cheaper than the cheapest”, as long as there are still some costs that you cannot avoid. As the result, it is virtually impossible to make a retreaded tyre cheaper than Rub 5,000 (US$80), while if you try to go beyond this price on the market you will shortly discover that you are operating with losses. King-Crown, however, retreads Chinese tyres, including in the middle-price and low-price segments on the customers casings. In these cases, the company even provides a complete warranty on the retreaded tyre, just like on the new one.
As the bottomline, Tolyarenko said that he, in general, remains optimistic about the future of the retreading industry in Russia. Russian retreaders are accustomed to understanding the culture of use of truck tyres; the customers’ faith in retreaders and the market’s suspicions, do have a long way to improve in the future, and the only question is whether this future is short or long term.
48 Retreading Business