Future uncertain for Russian oil filter market

Sales in the Russian car market are declining rapidly. According to the State Static Service, an accelerated fall co-incided with the escalation of the conflict in Ukraine. In the first eight months of 2014 the market dropped by 12.1% year-on-year, while in August it reached 25.8%.


Avtoagregat is the largest producer of oil filters in Russia and CIS.

 

A study by Roland Berger Strategy Consultants claimed the current situation could force many small car producers to abandon development plans in Russia. Some have already announced a drop in capacity which promises to hit component makers in the near future.

At the same time it seems producers are not going to panic. In particular, the Rollman Group, one of the leading producers of automotive oil filters in Russia, reports the market still has great prospects as the market for private and commercial transport has doubled over the last 15 years. It is estimated that over the next 10 years it will reach the average per capita ratio of European countries.

Fears unfounded

The Association of European Businesses also says fears of decline are unfounded due primarily to the fact that the Russian government has taken steps to support the country’s production of car and automotive components.

According to estimates by the Moscow-based analytical agency AS Marketing, the size of the Russian market for automotive oil filters has been growing on average by 1% per year since 2008. In 2014, the total size of the market was estimated to be 34.3 million units, about 2% higher than in 2012.

The agency adds that the interval for changing oil filters in Russia is approximately equal to the average annual mileage of the car which is 16,700 km per year. As a result, with 32 million cars, the market is significant with the Russian Ministry of Economic Development predicting this figure will grow to 50 million cars by 2025.

The Russian market is characterised by a high level of monopolisation, as up to 80% of the total market share is accounted by the two largest producers, Fleetguard and TM Livny.

Imports have been decreasing recently due to a manufacturers opening up local operations in Russia and that is a trend set to grow with the government looking to implement trade restrictions on the import of cars and spare parts due to sanctions being imposed as a result of the Ukrainian crisis.

According to the Russian analyst of the car filters market, Andrew Polzkov, if sanctions were implemented it may affect up to 92% of oil filters exported to Russia.

“Russia imports about 11 million oil filters from European Union. The dependence on imports is very high, but theoretically it is possibly this volume can be replaced by domestic producers. But in the short-term such restrictions will disrupt the whole supply chain,” he said.

“Market participants don’t believe the threat to ban the import of spare parts really would be turned into reality, as it will mostly hurt the domestic automotive producers. Most likely the promised sanctions in the automotive industry will affect supplies of cars in the premium segment.”

Domestic producers of oil filters continue to develop with contracts not only from Russian, but also foreign car makers. The three largest producers are BelMag, Avtoagregat and BIG Filter.

Three years ago BelMag expanded the range of products and resumed production of oil filters for key models. Avtoagregat, based in Livny, is the country’s largest producer of oil, air and fuel filters with more than 400 products available and contracts from dozens of producers including Kamaz, AvtoVAZ, and the Ural Automotive Plant as well as Ford’s assembly plant in Vsevolozhsk.

There are 32 million cars in Russia; a figure set to grow significantly.

 

Domestic producers

BIG Filter based in St Petersburg also produces filters both for domestic producers and for assembly plants of foreign car brands with more than 1,300 different lines. It uses foreign equipment in its production, particularly German and Austrian injection molding machines, Israeli refrigeration systems, U.S. laser welding and Italian, Korean and Finnish semi-automatic machines.

The company also received probably the most valuable contract among Russian filters producers when, in 2010, the Kaluga Volkswagen plant chose it as a supplier of oil filters. Soon it will also supply the PSA Peugeot Citroen plant, also in Kaluga.

Russia may soon become major exporters of oil filters. For instance in 2013 the total volume of export supplies amounted to 1.4 million units – a rise of about 42% year-on-year. Most of that went to former Soviet countries but export growth is expected to continue despite the Ukrainian situation which accounts for 23% oil filter exports.

According to Maksim Lukashevich, CEO of Russian distributor TechnoFilter, the country’s producers are actually not interested in supplying filters outside the Commonwealth of Independent States.

“There is no point conquering a foreign market, when your own market can offer you good prices and have good growth prospects. As a result, Russian producers mostly supply oil filters to countries which have the Free Trade Zone Agreement with Russia, so they do not suffer import duties,” he said.