Frost: Russian, Ukraine Welding Equipment Sector to Double by 2011
April 13, 2006
The growth of export-based industries, together with the obsolescence of existing equipment, is spurring demand for modern welding equipment and consumables in Russia and Ukraine, according to Frost & Sullivan. Boosted by these trends, analysts said the Russian welding equipment and consumables market will swell from $385.5M in 2004 to $874.4M in 2011, even as its complement in Ukraine expands from $84.9M to 210.8M over the same timeframe.
Rapidly-growing, export-oriented industries such as oil and gas in Russia and metallurgy in Ukraine, together with heavy engineering and automotive or aerospace sectors in both countries, are motivating higher uptake of welding equipment and consumables, said analysts. The development of these export-based industries in both countries is generating strong domestic demand for industries like heavy engineering, power, automotive and construction, which use more sophisticated welding equipment.
Yet even as export-based industries are powering economic growth in Russia and Ukraine, many domestic manufacturers are contending with obsolete welding equipment. In order to remain competitive in the global markets, companies are investing in modern, high quality welding equipment. The replacement cycle has already started in Russia and is expected to start in Ukraine in 2006-2007.
In the Russian welding equipment and consumables market, the arc welding equipment segment will be the main engine of growth until 2010, said analysts. Within this product segment, metal inert gas/metal active gas arc welding (MIG/MAG) will make particularly strong gains due to the enhanced quality of welding and higher productivity levels they support. However, during 2010-2011, major growth will come from the resistance welding equipment sector because of increased demand from automotive and consumer goods industries.
In the Ukrainian market, consumables accounted for nearly 66% of overall revenues, comprising the largest segment in 2004. According to Frost & Sullivan, among welding equipment segments, arc welding contributed the largest revenues to the overall market, followed by resistance welding and gas welding. Inevitably, heavy dependence on export industries is likely to be a double-edged sword as falling fuel demands, lower crude oil and natural gas prices and a slowdown in the global metallurgy sector will have a large-scale, dampening impact on welding equipment and consumables uptake.
"An apt strategic response to this challenge might be to diversify into supplying less export-dependent segments and to monitor global trends related to Russia and Ukraine’s main product exports," said Frost & Sullivan research analyst Titus Hocevar. "This approach may be necessary to lessen the revenue fluctuations of welding manufacturers in Russia and Ukraine related to the export dependency of these countries on commodities.“
While the welding equipment and consumables manufactured by local Russian and Ukrainian companies trails its foreign counterparts in terms of new technology, usability and quality, their low price offers a key competitive advantage in these price-sensitive markets.
As for new entrants and foreign companies, they will have to contend with a strong domestic welding equipment industry. In particular, local Ukrainian manufacturers are increasingly using imported components to keep their production competitive in the market. For example, Ukrainian welding equipment manufacturers use up to 70% of foreign components in their equipment. Recent KZESO welding machines are equipped with Siemens/Bosch components that double prices, but also provide better quality welding and higher productivity equipment.
"In order to gain competitive advantage over domestic incumbents, new market entrants and foreign companies could establish local production facilities in Russia and Ukraine, thereby reducing production costs of welding equipment and consumables," said Hocevar. "At the same time, leveraging local, skilled specialists together with Western-type management will ensure that high production standards are attained."
Source: Frost & Sullivan.