Vladislav Vorotnikov - Retreading Business, 28.02.2020

The retreading industry in Russia has been experiencing a strong inflow of investments during recent years but is far from fully materialising its potential. The share of used tyres ending up at retreading plants is still far below than that of Europe or North America, although the market is well-protected against cheap imports.

In the coming years, the Russian transport industry will struggle for cost optimisation and this could become an important driver of further growth in the number of retreading plants in the country. This was the view expressed by Nadezhda Churmeeva, executive director of the Russian Tyre Manufacturers Association (TMA) in a recent interview with our correspondent Vladislav Vorotnikov.

Retreading Business
Could you please tell us about TMA?

Nadezhda Churmeeva
TMA was established in October of 2012. The necessity of its foundation had been seen long before, when during several years experts from leading tyre companies had been discussing the issues important for the industry. An organization was needed that would reflect the joint opinion of the industry, and TMA has become the first professional entity uniting leading tyre manufacturers and importers operating on the territory of the
Russian Federation. Being a nonprofit organisation – a voluntary alliance of tyre companies - TMA does not function instead of them but complements and multiplies their resources and opportunities. TMA’s main objective is to represent and protect the interests of its members and to support their operations in Russia for the purpose of the sustainable and effective development of the Russian tyre industry.

RB
How would you assess the present state of the Russian tyre industry?

NC
As of today, we evidence a pretty much tense situation on the tyre market whereby the main trend is a fall in the purchasing power of the customers. When it comes to industry development the main trends are an increase in demand in both the premium and low-price segments, with a drop in sales in the medium-price segment. We see price wars with fleets focusing on cost optimisation as the background of the price increase for the main elements forming costs, with flat dynamics in regard of tariffs.

RB
What is happening in the Russian retreading industry now?

NC
Following an extended stagnation period provoked by extremely lowprice offers in the budget segment of the new tyre market, the retreading industry is growing now. Today, the main driver of development is an increasing demand for solutions associated with decreasing the cost per km for big fleets. Besides, the niche is influenced by the presence of infrastructure and production capacities in the regions where those fleets are based, as well as the presence of effective tyre retreading programmes offered by the major manufacturers of premium tyres.

RB
Is there a problem with import of cheap Chinese tyres on the Russian market?

NC
The availability of the cheap Chinese tyres in Russia has driven the industry in stagnation. A positive factor now is the growing demand of fleets for retreading with premium raw materials, which, compared to smallscale retreading materials manufacturers, are proving to be associated with reasonable costs per km for the fleet as well as the sustainable quality of the retreaded tyres.

RB
What are the main obstacles for the industry development in Russia?

NC
Compared to Europe, the truck tyre retreading market in Russia is characterised by an insufficient culture of tyre use in numerous fleets, and this factor negatively impacts the availability of casings appropriate for retreading. On the other hand, so far, the infrastructure for premium truck tyre retreading has also developed insufficiently. A constraining factor hampering the development in this direction is the strong sale of used tyres, which remains more profitable to tyre dealers serving the fleets.

RB
Are there any changes in the tyre recycling segment?

NC
With regard to the tyre recycling, on the contrary, in recent years we have been noticing major improvements. They are tied to the introduction of Extended Producer Responsibility in Russia in 2016. Some similar regulations are adopted in European countries. Extended Producer Responsibility means that both tyre manufacturers and importers commit to the government to secure the recycling of the constantly growing share of used tyres, which is determined as a utilisation threshold. That threshold for 2020 is set at 30%, and this is one of the highest figures among all goods subjected to recycling. In addition, the existing regulations encourage the tyre manufacturers and importers to execute that duty using their own resources, concluding an agreement with a recycling company, and only if they fail to do that, to pay an ecological fee to the federal budget. The Russian regulations also envisage the possibility of collective independent fulfillment of the obligations of tyre recycling by tyre companies through the establishment of a special non-profit association. Its members pass [their duty] to seek and conclude agreements for tyre collection and disposal with tyre recyclers. This practice is most widely used in European countries - similar organisations were established in France, Spain, Italy, Scandinavian countries, the Baltic countries, etc. Not surprisingly, in Russia, many tyre manufacturers decided to follow the same path: in 2017, the EcoShinSoyuz association was established.

RB
Is it working effectively?

NC
According to our assessments, for example, in the segment of passenger car, light truck and truck tyres, almost 93% of tyre manufacturers and importers opted to execute their duties under the Extended Producer Responsibility on their own over the past two years, collecting and disposing used tyres on the market, through direct agreements with recycling companies or through EcoShinSoyuz, acting as an intermediate. Such a responsible approach has real visible results: the market of the used tyre recycling has become ‘whitewashed’, since tyre manufacturers and importers are not interested in buying ‘faked’ recycling acts, some new tyre collection projects have been launched, sound recycling capacities have been modernised and scaled up, and the market for recycled products is expanding. Unfortunately, there is a disturbing factor in this area that
occurred in 2019 with a government initiative to revise the current legislation in the area of tyre recycling. The Russian Ministry of Natural Resources proposes to introduce a moratorium on the independent execution of duties under Extended Producer Responsibility and oblige everyone to pay an environmental fee to the federal budget. Tyre manufacturers strongly oppose this initiative, as this will mean the actual freezing of all positive changes in the field of tyre recycling.

RB
In some other countries tyre manufacturers have established their own tyre retreading capacities. Could that scheme become popular in Russia?

NC
There are already examples of tyre manufacturers launching tyre retreading capacities both at their own production sites and within various partnership projects. The biggest tyre manufacturers focus on developing tyre retreading on the production capacities of their partners, providing methodological assistance in maintaining high production standards and providing materials for tyre retreading. The next step is to cover territory with such partners’ production units in order to cut the logistics cost and concluding of fleet contracts to the maximum possible extent, thereby encouraging fleets to treat tyres with care and increase the share of retreaded tyres on the wheels of their trucks.

RB
In your opinion are the Russian laws comfortable for tyre retreaders?

NC
Russian federal law ‘On production and consumer waste’ as the main priorities of the government policy in this area set the following guidelines: maximum possible use of raw materials, prevention of waste formation, decrease of their volume, waste processing, their utilisation, and, in the end, their disposal. Tyre retreading falls within the second most important priority in this area - prevention of waste formation, as long as it is focused on extending tyre service life, which complies with the ecological principles and rational use of natural resources in the modern economy. On the other hand, with retreaded tyres we have only a declaration from the government of the priority of the prevention of waste formation – it is necessary to support this with economic stimulus. This would strongly influence the improvement of the ecological side of the transport business, as well as the fleets’ effectiveness. As of today, in most cases tyres are being retreaded only once. Yet, it is well-known that premium tyre manufacturers design their casings so that they could be retreaded multiple times. By moving into this direction, we could significantly cut emissions the into atmosphere, as well as significantly cutting the cost per km. This would also make possible an increase in tax revenues for the government, increase fleet profitability and additionally help cut transport costs.

RB
Are there any stereotypes with regard to retreaded tyres in Russia?

NC
The main stereotype with retreaded tyres is poor mileage and reliability. Taking down that stereotype now and in the future is an important factor, changing consumer behavior from purchasing low-price tyres to the more effective use of the available premium product. European practice has showed the great effectiveness of that approach.

RB
How do you expect the industry will develop in the coming years?

NC
Everything will depend on the economic situation in the country, both the new tyre industry and the retreaded tyre industry will develop together with an increase in GDP. We consider the future of the retreading industry with a careful optimism, since the basis of demand for that product on the Russian market has already emerged. The main issue now is changing attitudes towards the use of new and retreaded tyres and establishing the relevant infrastructure.