Russia’s light industry has faced challenges in recent years due to the financial crisis, yet nonwovens are predicted to drive growth once more. By Eugene Gerden.
The Russian nonwovens industry may reach a historic high this year, thanks to the ongoing recovery of the national economy from the financial crisis and its consequences, and the ever-growing demand for nonwovens from major consuming industries, according to recent statements from Denis Manturov, Russia’s minister of Industry and Trade.
This year, the Russian nonwovens industry is expected to grow by 35% to a value of US$1.2bn from 2017, according to predictions from analysts at the Russian Ministry of Industry and Trade.
Currently, nonwovens remain the most promising segment of the Russian light industry (the name of the Russian textile and apparel industry), in terms of annual growth rates and the wide range of products and end uses.
The introduction of Western sanctions against Russia, which led to the economic crisis in the country, has resulted in the suspension of many investment projects in the industry during the period 2014-2017. This also affected projects which were implemented by foreign investors and resulted in the decline of imports to a historical low. However, at the beginning of 2018, these investment activities began to recover.
Still, the financial recession in Russia also resulted in an increase in the price of nonwovens for domestic consumers, which has led to the decline of consumer sales in the market.
This, in turn, has had a negative effect on profits for producers. However, thanks to the recent recovery of the market, many of them hope to restore their positions to pre-crisis figures of 2014 soon.
Growing demand from defence
In the meantime, the current growth of the industry could be explained by the recovery of major consumer segments of Russia’s industrial production, and by the significant increase in demand for nonwovens from the Russian military and defence industries.
It is predicted that the defence industry will become the major consumer of nonwovens in Russia, overtaking the likes of the construction and medical industry, according to state analysts. This will be mainly due to the ongoing militarisation of Russia and the increase in state funding for defence.
This prediction is supported by Manturov, who said recently that the number of orders placed by Russian defence enterprises for nonwovens has almost doubled.
Manturov also adds that the demand from the military is currently due to the innovative products being developed, which could be used in the manufacture of military uniforms and other types of ammunition for Russian troops.
Leading Russian nonwoven producers also believe that the Russian defence sector could become one of their major sources of income in the years ahead. Prior to 2017, the industry experienced a funding shortage caused by a decline in investment attractiveness, yet thanks to this growing demand, the situation is likely to significantly improve over the next few years.
In the meantime, the decision of the state to invest funds into the development of domestic nonwovens for the defence sector will be a response to the recent announcement from the US Pentagon to invest US$75m in the design of new technical textile and nonwoven materials for its military purposes, according to analysts from the Russian Association of Textile and Light Industry Producers – a public organisation that unites Russia’s leading technical textile and nonwoven producers.
Support and consolidation
In addition to the ever-growing number of defence orders, the growth of the Russian nonwovens industry will also depend on state support.
Last year, the nonwoven and technical textile industries were included in the list of industries that the Russian government had deemed a priority for development until 2025. This also resulted in the provision of a number of grants to some leading domestic nonwoven manufacturers. These grants were mainly used for the acceleration of research and development activities.
Yet, according to producers, several problems continue to prevent development in the industry; the most pressing issue being the high level of corruption and excessive administrative pressure that local nonwoven businesses are under from state regulators.
Additionally, the industry may face consolidation, according to predictions from some analysts. This process has already started, with one example being the recent acquisition of Regent NM – one of Russia’s major nonwoven producers – by Netkanika, a rival company based in Moscow. The deal is estimated to be worth RUB1.5bn (US$25m), probably the largest deal to have been made in the industry over the last few years.
Regent NM was operated by the Russian billionaire Ananiev brothers through their subsidiary business, Promsvyazbank. As a result of the deal, Netkanika aims to control nearly 20% of the Russian nonwovens market. Most of the funds for the deal were generated from Netkanika, and in addition to acquiring the production facilities, the company also became the owner of its buildings, land and equipment in Novaya Moscow, a region bordering the Kaluga region.
Currently, Netkanika specialises in the production of spunbond and spunmelt materials in the Troitsky administrative district of Moscow. The majority of the company’s products are supplied to the Russian agricultural and hygiene industries and for making disposable clothes, mattresses and protective membranes.
According to Netkanika, its total production capacity allows it to produce around 8,000 tonnes of product per year. At the same time, Regent NM has the capacity to produce up to 20,000 tonnes of products per year.
Netkanika plans to invest about RUB700m (US$10m) in Regent NM to modernise the company and to increase its capacity by 40%. This should help to achieve its recently announced plans to occupy 20% of the Russian nonwovens market.
Diapers and hygiene products
The Russian government is aware of the existing problems in the industry and it is considering potential solutions. According to Peskov, these solutions are currently being developed, though an announcement will be officially made at the end of 2018.
With this in mind, particular importance is being placed on creating better conditions to increase foreign investment into the industry, according to Peskov.
He also added that the diapers and hygiene products segment could be considered the most attractive area of the entire Russian nonwovens and technical textiles industry in terms of investment.
This sector has traditionally been dominated by large global players, such as Procter & Gamble (P&G) and Kimberly Clark. These two companies and others regularly invest millions in the development of their Russian businesses, and the Russian government hopes they will continue to do so in the following years.
Regarding diapers, the market is expected to grow by 15-20% in terms of both product volume and market value, according to analysts’ predictions. This growth may increase in the following years, too. This will likely be due to some investment projects that are scheduled to be implemented in the period 2019-2020.
For example, P&G has recently announced plans to invest up to RUB5bn (US$120m) in the expansion of its plant for the production of diapers and similar products, based on technical textiles and nonwovens in the Tula region.
Last year, the Russian diapers market amounted to RUB6.7bn (US$120m) in terms of sales. According to Manturov, this was a relatively small figure and he thinks that the market has the potential to grow by eight to 10 times already in the middle-term.
