Russia Country Market
Insights and Opportunities
Chemicals Industrial & Machinery Sector
Overview: Despite the 23% decline in the Russian chemical market in 2009, U.S. exporters of industrial chemicals have good potential to increase their share of imports into Russia in 2010 for three key reasons: Experts predict the market will rebound and grow about 10% from last year; there is a continuing lack of domestically produced chemicals; and the difference between the U.S. dollar and Euro exchange rate makes U.S. products more competitive than those imported from Europe.
The U.S. share of Russia’s chemical imports has recently varied from 2 to 2.7%. In the plastics sector, according to the U.S. National Association of Manufacturers, Russia’s imports from the U.S. in 2008 were $102 million for resins and $53 million for plastic products.
Russia currently produces around one percent of the world’s chemical products. The Russian chemical products industry includes mineral fertilizers, synthetic plastics and resins, rubber products, synthetic fibers, paints and coatings, synthetic detergents and other chemical products. The Russian industry is fully privatized and is dominated by a number of very large companies, although medium and small companies play an active role. The major players include SIBUR Holding, Nizhnekamskneftekhim, Lukoil-Neftekhim, Eurokhim and many others.
In the past three years, demand for polymers has grown faster than local production, which led to imports’ 50% share of the polymer segment and a rise in polymer prices, especially polyethylene.
In 2008, about 60% of domestic production was represented by basic chemicals such as fertilizers, synthetic plastics and resins. During the same period, exports and imports shared about 50% of the total market; however, the product category structure of exports and imports is different. While the bulk of exports are primary chemicals, such as styrene, methanol, and synthetic rubbers, the range of imported product categories is broad and represented by high technological products such as PVC, polystyrene, paints and coatings and chemical fibers.
As a consequence of the global financial crisis impacting Russia at the end of 2008, there was a general drop in demand and local production of all chemicals by 20-25%, as the above table indicates. In 2009, the rate of decline in chemical exports from Russia was higher than that for imports. In the first quarter of 2009, local production of chemicals decreased by 27% compared to the same period in 2008, while exports decreased by 45.5% ($2.8 billion), and imports fell by 40.7% ($2.3 billion).
In the beginning of 2009, of all chemical imports, plastic products’ share decreased to 25.8%, painting materials to 3.9%, and rubber and rubber products to 3.8%; however, the share of plastics and resins increased to 12.9%. In 2009, imports of polymers and rubber represented about 4.5% of all Russia’s imports. In 2010, consumption of all polymers in Russia is estimated at 5,516,000 tons.
The Russian Ministry of Industry and Energy has developed a Strategic Development Plan for the chemical industry through 2015, which forecasts the chemical market to reach $153.2 billion (34% annual growth) by the end of this period. The government’s strategy foresees a decrease in imports to 12% (compared to almost 50% now) and the development of domestic production to replace imports of more complicated, secondary chemicals. However, it is unlikely that this import substitution plan will be completed by the target date just five years away.
Market statistics for chemical machinery are not available; however this sector is heavily skewed toward imports. For example, 100% of molding and extrusion equipment used by Russian chemical companies is imported.
The traditional leading exporters of extrusion machinery into Russia are China and Taiwan (that together take about 30% market share), Germany (12%), Italy (11%), and Austria (6%). Imports of injection molding machinery into Russia come from China (50%), Germany (13%), Taiwan (12%), South Korea (8%), Italy (7%), Austria (5%), Ukraine (2%), and Switzerland (1%).
Top suppliers of plastic processing equipment and, consequently, major competitors to U.S. manufacturers, include Demag (Germany), Chen Song (China), Ningbo Shuangma Plastic Machinery Manufacturing Co. (China), Krauss-Maffei (Germany), Battenfeld (Germany), Olmas (Italy), Husky (Canada), and Greiner Extrusion (Austria).
Opportunities: The competitive situation in the chemical market will force local producers to upgrade their technologies to meet growing demand for new materials and products. In the next five years, the best opportunities for U.S. exporters will be production equipment and materials that can enable local manufacturers to gain a higher market share in quality chemical secondary products, such as PVC, ABS, and polyethylene products.
Chemical Products in demand include: Polyethylene materials; PVC sheets; PVC films (furniture, posters); Polyolefin films; PET films; Polypropylene sheets and Geomembranes.
Domestic producers of chemical and plastic materials can currently meet only 50% of market demand. This dynamic provides good prospects for chemicals and plastics from U.S. suppliers, which can use a difference in the euro/dollar exchange rate to their pricing benefit.
Both Injection molding machines and Extrusion equipment are in demand. Investment in the development of the chemical sector is crucial for the Russian economy and provides U.S. machinery suppliers an opportunity to sell their chemical and plastic processing equipment. The Russian government’s plan for the development of the chemical industry, noted above, will be crucial for funding these purchases.