Western gains: Vladimir V. Verkholantsev looks at how Western paint manufacturers are...

The total of East European paint production (including Russia) reached approx. 1,750kts in 2004, and the overall market was at least 2,250kts. Out of the paints manufactured within this region, the majority of exported volumes was consumed within the other East European countries.

Paint production/total consumption for associated (but non-European) markets of the Caucasian and Central Asian Republics (plus Kazakhstan) of the former USSR accounts for 15/36 and 30/115kts respectively. So, grand totals are 1800 and 2400kts, while bold experts raise the last value to 3000kts (including Turkey).

Since 1994-95, this market has shown a steady positive development (adding estimated 4% annually as the average). Figures, however, are substantially different from country to country. The most dynamic growth is seen in the Ukraine, Kazakhstan, Russia, Turkey, Romania, Estonia, Bosnia and Lithuania, while for the next five years, according to Information Research (IRL), Ukraine and Turkey can expect growth rates of 10%, Russia 7%, Poland 6% and Hungary 5%.

However, some of the markets today have very low capacity--relatively poor countries, such as republics of Caucasus and Central Asia (where paint consumption per capita typically is still below 2kg), as well as the present day lesser wealthy Balkan States (Serbia-Montenegro, Bulgaria and Romania) also have very good potentials for growth in the near future.

For comparison, the total of West-European coatings market reached approx. 5300kts in 2004 (1320kts of various paints was manufactured in Germany alone), but it has remained flat for several years in a row in both volume and value terms (and the German market is in a slow decline).

According to CEPE, decorative sector (DIY and professional paints) occupies 62%, general industrial applications 10%, automotive and refinish 7%, wood coatings 7%, with thinner slices for powder coatings, coil and can coatings, marine paints etc. Small and medium-sized enterprises (SMEs) serve some 50% of the W-European paint and coatings market, producing both regular quality and premium materials, but mainly active in niche applications. In Russia and CIS countries, SMEs produce at least 55% of the nationally consumed paint, but it is mainly low cost/low quality materials. Besides, from 10 to 30% of their outputs is being producing illegally.

Typical for all countries of Eastern Europe, imported brands are at least two times more expensive than those locally manufactured, that forces international players to be active in this region. Finland based Tikkurila, which is a part of Kemira group, has been exporting paints to Russia and Ukraine since the 80's. In Russia, Tikkurila built a production plant near St. Petersburg at the end of the 90's (Finncolor), and recently acquired another production site in the Moscow region (Kraski Tikkurila). Several warehouses are scattered throughout European Russia.

Intending first to buy Lakma of Kiev, a significant local paint manufacturer, Tikkurila is trying to strengthen its position in Ukraine by acquiring a smaller company Kolorit Paints, also situated near Kiev which specialises in emulsion paints. In the Baltic States, Tikkurila has established production companies in Latvia and Estonia (Baltic Color), and a distribution company in Lithuania. In Poland, this company controls TBD and recently also Alcro-Becker (formerly Akzo Nobel) and Polifarb Pilawa (formerly ICI).

TEKS Company is in negotiation of selling its coating business. In March 2005, 55% stake of the TEKS Trading House was sold to Rautakesko (Kesko Corporation) for 8.3m [euro]. The coatings production department of TEKS is evaluated at 32-35m [euro]. Paints manufactured by TEKS account for about 13% of the Russian market; Tikkurila Paints (two plants)--for about 8%.

Akzo Nobel (Holland) has built a facility (Akzo Nobel Decor, in operation since 2002) in Balashikha (a close suburb of Moscow), to produce waterborne decorative paints--mainly to serve the needs of the Moscow Municipality. At present the company is planning to double its capacity (to reach 24m/Itrs). Akzo Nobel Coatings is N2 manufacturer in Hungary, and Sadolin (Akzo Nobel) is N2 in Estonia.

SigmaKalon (The Netherlands), a worldwide player in several sectors and Europe's N2 in the construction sector, represented in 40 different countries, is very active in Poland as (owner of Polyfarb Cieszyn-Wroclaw) and Hungary (owner of Trilak).

Meffert AG (Germany) recently set up a production company near Moscow (for emulsion paints, 2004), while two others production units were established by Meffert earlier in Ukraine and Romania. Affiliated distribution companies operate in Poland, the Czech Republic and Hungary. As the paints were continuing to move eastward, Sniezka of Poland has established in Ukraine the production of decorative paints (Sniezka Ukraine).

The Czech paint industry, manoeuvering by the formation and reformation of associations and alliances during the 90's, for a relatively long period managed to elude foreign takeovers. Recently, however, Primalex (the leader in the decorative waterborne sector) is owned by Riverside Investment (USA), and Balacam is an acquisition of Sefra (Austria).

Slovenia's market leader Helios has managed to establish joint venture with Odintsovo Paint Plant (Moscow Region) to form Odihel (1995), and then to acquire Chromos in Croatia and Zvezda near Beograd, Serbia-Montenegro.

Vladimir V. Verkholantsev

Ph.D., D.Sc., Professor (Chem. Engineering)

Consultant

Mail: POBox 20502

21996 Karmiel, Israel

Ph/fax: +972 4 908 2481

Email: vladverk@gmail.com