Government drive to boost domestic production and substitute imports is changing the mix of products customers demand from chemical distributors in Russia.
Russia’s drive for industrial self-sufficiency, and the depreciating rouble, mean that distributors such as UTS are changing the product mix they offer to the domestic market. Government policy to boost the sophistication of the country’s manufacturing base is working, and many chemicals and polymers which used to be imported are now produced locally. Distributors have to understand these changes and be flexible in altering their portfolios to suit a market which is changing quite dramatically, according to Swedish/Russian distributor UTS. Managing director Lars Hjorth says that with a big programme under way for import substitution, distributors have to be on their toes to see where the market is going.
The state wants more to be produced inside Russia and the country has access to abundant petrochemical raw materials. The devaluation of the rouble is also boosting that driver as imported goods are now more expensive in roubles. “For example acrylic dispersants for paint used to be imported but now you can see a lot being produced locally. They are very costefficient compared to product which has to be transported across Europe and duties paid. A lot of surfactants, high-end paint, plasticizers for concrete are now domestically produced.”
UTS still sources around 90% of its portfolio from Europe, but the mix is changing. In the past the company used to import simple things such as styrene and acrylic dispersants. Now it supplies more additives to Russian producers who themselves are now making the products which were formerly imported. “It is a healthy development of the Russian economy. There is a big chemical industry in Russia and it is not standing still,” he says. For example Sibur is a UTS key account but now UTS supplies it with more specialties that it needs to produce its products. Lukoil and Gazprom have chemical projects under construction and BASF produces plasticizers locally. There are also some mid-sized companies with good technical knowledge which are taking advantage of Russia’s raw materials and investing in equipment. “Government policy is encouraging import substitution. Domestic production of food, nutrition, packaging, cosmetics and home care is developing and we can supply the raw materials for this.”
Ten years ago Russia was a big importer of plastics with Russia exporting oil which was converted in crackers in the West and then reexported as plastic. Now Russia is a net exporter of plastic. “As a distributor you have to adjust your business model. Today it would be very difficult to sell imported plastics, for example. But to sell plastic additives is another story. You have to be on your toes and I’m very pleased we have a team which is thinking ahead three to four years,” says Hjorth.
UTS aims to inform its suppliers about what is changing or ongoing in the Russian market, including legislation, and sees this as a core part of its value-added service. It’s also about legislation. It wants to act as the extended marketing arm of its suppliers in market. The company is always working to expand its supplier base in Europe as well as new territories in Asia, but without jeopardising longterm partnerships with principals. A sourcing office in Shanghai is helping to develop a lot of business among suppliers there. “We have a very good experience in Shanghai with the team there developing new business. Sometimes big clients like Sibur want to audit their approved suppliers and we can help them with this.”
THINKING LONG TERM
About 30% of UTS's imports today come from China and across all areas of business. Hjorth has noticed that the portfolio is more advanced today than it was even a couple of years ago. Although China is shifting from exports to more domestic consumption, he says his suppliers in China are thinking long term so want to maintain export markets. "China is not cheap any more. It's good material and it's competing with European product. Some of our suppliers are struggling because their downstream suppliers have closed down [due to the tougher environmental rules]," he adds.
Longer term there is an objective to open an office in India too because the country has very good products and knowledge of chemicals though it remains a challenging environment to do business. Meanwhile, UTS opened a new warehouse in Kazan, the capital city of Tatarstan, at the beginning of December. Hjorth says this region is the centre of the Russian chemical industry. "Now we have a local team and warehouse and our customers like that. They don't want to wait for two days for supplies from Moscow - now we are covering the CIS market very well."
There are no plans for further expansion of offices or warehouses this year but Hjorth is keeping a close eye on markets like Uzbekistan and Turkmenistan. UTS has direct accounts in these countries and if they develop the right way they could be the next step for expansion with Uzbekistan first in the queue. "There seems to be higher demand from producers such as the paint and laquer sector but I don't know why at the moment. We are getting a lot more requests from these countries - specific products and additives."
Will Beachem, Barcelona