Since the fall of the Soviet Union, Russia’s ink market was almost fully dominated by foreign companies. This situation is about to change, as since 2014, domestic manufacturers are steadily perking up, taking advantage of the new economic environment.

In late December 2016, LLC Gangut Industrial and Trade Company has commissioned a large factory for production of printing inks in Moscow Oblast, stating that with this project it was going to claim a third of the domestic market. Gangut already runs a facility for the production of printing inks in the same region, with the declared production capacity of 1,200 metric tons (mt); this new facility should raise the total company’s production performance to nearly 6,600 mt per year, making it the largest manufacturer of printing inks in Russia.

Anatoly Karpunin, Gangut’s general director, reveals that the company in the future can boost the output even further, at least in case of good demand for new products. The price tag of the new facility was approximately Rub 170 million (US$2.8 million), and it should spur the Gangut annual turnover from Rub 25-30 million (US$450,000 – $500,000) in past years to Rub 150 million (US$2.5 million), Karpunin estimates.

The key thing, he says, is that Gangut manages to establish a full production cycle in Russia, from processing of domestic pigments to the manufacturing of ready-to-use inks. As long as this is quite rare for the Russian market, Gangut sets marked prices by 8%-10% lower than the main company’s competitors are able to do.

In 2010, Russia produced 2,686 mt of inks, but doubled this figure in 2015, bringing it to 5,055 mt, data from the country’s State Statistical Service showed.

At full production capacity, Gangut would increase this figure to 10,000 mt, but even with such strong growth, the domestic printing ink industry failed to meet the demand of the Russian market, as it is estimated at nearly 40,000 mt to 42,000 mt per year.

Russia’s Federal Customs Service says imports over past years ranged between 33,000 mt to 37,000 mt per year, and was coming primarily from Europe. In one report, the country’s Ministry of Economy Development has listed the ink market among the areas where it was expecting some import-replacement trends, not specifying, however, how it could be achieved or how the market situation in general may look within the coming years.

In 2015, there were some speculation that the federal government possibly could issue aid to support at least one project for the production of printing inks in the country, in order to help the Central Bank get rid of the complete import-dependence on inks for printing the paper currency units of the ruble.

It turned out that in the absence of quality Russian-origin products from the domestic market, the Central Bank was forced to purchase inks in Germany and Switzerland, and this sounded quite ridiculous to the officials on the background of the large-scale import-replacement strategy declared by President Vladimir Putin for the Russian economy. There were some reports that Central Bank last year was going to start using a mix of imported and domestic inks, but no certain details on the steps made by financial regulators have been revealed yet.

Financial Situation in the Industry

Although Gangut is not the only example of Russian ink manufacturers targeting expansion, the general situation in the industry remains rather complicated, and this in particular is evidenced by the bad financial performance of the rest of the market players.

For instance, a couple of the other large ink producers,Torzhok Printing Ink Plant in Tver Oblast and Nord Ink Company located near St. Petersburg, were operating at a loss at least in some of the past years, according to information from the Spark Electronic System that collects data about all financial indicators for entities operating in the country. For instance, Torzhok Plant suffered losses of about Rub 51.5 million (US$900,000) back in 2013, while Nord Ink was balancing right on the edge of profitability, reporting losses of only several thousands dollars in some of previous years.

These companies were not available for comment, but as previously stated by Karpunin, one of the key problems of Torzhok Plant was associated with the fact that it was operating the old production line that was established back in the times of the Soviet Union. It is also believed that some problems for the industry could be associated with the inconsistent tariff policy of the country’s government, as over the past years the government was considering reducing the import duties on both black and color inks, but this idea was put on halt for a while.

Still, in 2015 due to the devaluation of the ruble, the country’s printing industry found itself in the state of short supply of inks, so in April 2015 the federal government decided to cancel import duties on the black inks and significantly reduce duties on the color inks.

In May 2015, the executives of Torzhok Plant filed a letter to the country’s Ministry of Industry and Trade and Federal Antimonopoly Service demanding them to reinstate import duties on inks, bringing them back to 10%.

In the letter, the heads of the facility emphasized that the move to lower duties in fact contradicted the governmental import-replacement strategy and undermined the efforts of domestic producers to compete with importers.

The manufacturers, however, were arguing that the collapse of the ruble has made imported inks almost two times more expensive than before, so the reduction of tariffs in fact would only partly offset the effect of the devaluation. In addition, as the manufacturers of printing ink production were reportedly stating during the governmental meetings, the domestic industry was still too weak to offer reasonable alternatives to the imported inks.

As the result, it was decided that the duties remained lower, but the reduction was not permanent and this measure should expire in 2018 if the government does not decide to extend it.

At the same time, several ink workshops with a smaller scale of production were reporting that they were operating quite well over the past few years in various regions of the country. In particular, LLC Raguda was emerging in Krasnodar Krai in the south of Russia and several facilities were also established in Siberia. In each case, the production output was not exceeding several hundreds metric tons, but as a rule, this amount was quite enough to meet regional demand and challenge importers, though bigger market players say that the quality of products is an important issue in cooperating with the small ink workshops.

Foreigners are Not Going to Give Up

Nevertheless, foreign companies still account for nearly 90% of Russia’s market and nobody can guarantee that this figure will fall in the coming years.

Moreover, since 2011, Sun Chemical is building a new plant for the production of printing inks in the Naro-Fominsk District of Moscow Oblast that can add some localized capacities to the foreign business in Russia.

The company has not revealed too many details on the project, but since 2012, the construction work was put on hold due to the protests of local inhabitants who were unhappy about the possible operation of the chemical plant near their settlements.

It is known that the Russia’s sanitary watchdog Rospotrebnadzor, in the letter to the regional environmental protecting activists, said that it was not issuing permission to build the factory in the region, though this permission is necessary for such a facility.

According to the Russia’s Urban Planning Code, the plant for the production of inks is considered as a potentially dangerous object and it should not be placed nearby households. At the moment, the future of the facility remains unclear, although the construction has never been officially cancelled.

At the moment, Russia already has several ink plants of foreign producers, including Siegwerk’s plant in Moscow, Hostmann-Steinberg Huber Group’s plant in Moscow Oblast, and a plant of Flint Group in Moscow. In additional, Chemipeks Company in Krasnodar Krai is producing inks under the DYO brand since 2010. These facilities were operating well over past years, although according to Russia’s consulting agency Index Box, they were fully dependent on imported raw materials and probably faced challenges in this regard due to the devaluation of the Russian ruble against the euro in past years.