Russia moves to support domestic technical textiles

Eugene Gerden reports from Moscow

The Russian Ministry of Industry and Trade has designed a package of measures, aimed at supporting the country’s technical textiles and nonwovens industries, according to Viktor Evtukhov, Russia’s Deputy Minister of Industry and Trade.

According to Mr Evtukhov the decision was taken after a recent meeting between members of the Russian government and representatives of the industry’s leading enterprises.

Evtukhov believes that the absence of urgent anti-crisis measures in the industry will result in massive closures of the industry’s plants and job cuts, taking into account the current economic crisis in Russia and devaluation of the rouble, caused by Western sanctions on Russia and Russia’s countersanctions.

It is expected that the provision of access to cheap lending for national producers will be at the heart of the planned support measures.

Rising interest rates

On 16 December 2014 the Russian Central Bank raised its key interest rate by 6.5% to 17% per annum, with the aim to limit the risk of inflation in the country and to compensate for the devaluation of the national currency.

Following this, the majority of banks have started to revise the terms of their loans, provided to the industry’s enterprises.

According to some of Russia’s leading nonwovens producers, lending rates for local producers have increased by 33-35% or more since 16 December. In addition, many Russian banks have started to demand early loan repayment.

According to Evtukhov, at present the Russian government subsidises 0.9% or 3.2% refinancing rate (8.25%) to the industry’s enterprises, depending on the production specialization.

At the same time Evtukhov has also commented on state plans to introduce concessional lending to the industry’s enterprises and change the rules for granting subsidies.

According to state plans, the refinancing rate should be replaced by a key rate, while the volume of subsidisation should be increased up to 100% of the key rate. The government also plans to provide funds for the coverage of part of the interest rates on the producers’ loans by the beginning of April this year.

In the meantime, representatives of leading Russian industry enterprises have already welcomed the latest state plans. According to some sources close to the Russian Association of Nonwovens Producers, these decisions will be implemented in the near future, as any delay may negatively affect the industry, as the current economic situation in Russia is deteriorating, which may result in a full-scale crisis in the industry and massive job cuts.

At the same time, despite the optimism of the state and some analysts, many producers remain more sceptical.

According to an official spokesperson of Roel, one of Russia’s largest producers of technical textiles from the Vladimir region, subsidisation of interest rates will not result in a significant improvement of a current situation in the industry in the short and middle term, as producers are still unable to obtain loans.

He has also added that, since the middle of December 2014, lending to the industry has been almost fully suspended, as banks cannot determine their risks and prefer not to provide loans to domestic producers of technical textiles.

The situation is aggravated by the high seasonality of Russia’s nonwovens and technical textiles industries, which means that loans have strategic importance for producers, who need the liquidity for existing cash gaps.

Wages subsidies

Among the other state initiatives are the subsidisation of wages for temporarily unemployed industry workers, similar to what happened in the times of global recession in 2008, the provision of priority access to domestic producers to large-scale state contracts, and the use of funds of the existing State Fund on the Development of Industry in the form of state grants for implementation of investment projects in the Russian nonwovens and technical textiles industries.

So far, the Ministry of Industry of Trade has already started talks with the Russian Ministry of Finance about the volume of funding that will be provided for the implementation of the new state initiatives. It is planned that the figures will be announced later this year. There is a possibility that part of the funds will be also invested in technical modernization of the industry’s enterprises and replacement of out-dated machinery.

Despite the current crisis, the Russian government believes that the domestic markets for technical textiles and nonwovens has big potential for further growth, as the share of domestic production is estimated at only 15% of the RUB 80 billion (US$2,5 billion) market.

According to their predictions, the share of domestic producers may significantly increase already this year, as, due to devaluation of the rouble, many importers have started to refuse further supplies to the Russian market. For example, several days ago Juta, one of the largest producers of technical textiles from the Czech Republic, announced the suspension of further supplies of its production to the Russian market.

According to the Jiří Glavatiy, head of the company, total exports of the company to Russia last year amounted to US$10 million, however, due to the devaluation of the Russian rouble, local partners of Juta are experiencing a shortage of funds.

One of the possible ways to solve the problem is the use of barter transactions, which may involve the supply of Russian polypropylene in exchange for finished production from the Czech Republic and other EU countries.

At the same time, despite the existing problems, the Russian government hopes that the current situation in the industry should start to improve in the coming months, which will also be due to the recent strengthening of cooperation with China and other Asian countries.

This is expected to result in the reduction of prices for the industry’s raw materials, which are mostly imported from these countries and may significantly decline, even despite the devaluation of the rouble.

At the same time, according to some sources in the Russian Ministry of Trade, due to the current crisis in the industry, implementation of some state plans will be suspended until 2025. One of the goals involves the increase of the share of the domestic production of technical textiles and nonwovens in the overall structure of the market up to 40% by 2020.

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