According to Russian Automotive Market Research’s report the state of affairs in Russian battery industry leaves much to be desired. The main problem which impedes the development of business is considerable reduction in purchases of the products manufactured. It is quite obvious because according to the results of the six months of 2009 the output of vehicles in the Russian Federation decreased by 62% and worsening of macroeconomic situation affected the secondary market of automotive batteries.

The demand of Russian automotive industry for automotive batteries decreased by 62.2% and the import ratio in the total volume of this demand increased from 29.6% in the first half-year of 2008 up to 37.6% according to the results of the first half-year of 2009.

The global financial crisis very much affected the sales of batteries in the segment of commercial vehicles. According to the official statistics, the supply rate of high-output batteries to the production lines of Russian automotive plants decreased by 3.5 times.
The volume of output of automotive batteries in comparison with the indexes of the first half-year of 2008 decreased by unprecedented 44.5% or in terms of units by 1 242 000. On the whole, during 6 months of 2009 there were manufactured 1 550 285 automotive batteries against 2 792 119 units during the previous year.

Almost all domestic manufacturers of automotive batteries showed negative dynamics with regard to the first half-year of 2008. The Affiliate LLC “Tubor” was the only representative of the industry to preserve the volume of output on the same level as it was the last year (+1.5%). LLC ISTOK which reduced the volume of output of automotive batteries by 20.8% showed relatively good (within the crisis constituent) results.

At the same time, rise in the cost of loans in comparison with the last year brought about the reduction in working capital of many companies. All these factors affected the financial state of many market participants. As a result, by the end of the first half-year the number of battery production plants which appeared to be on the verge of bankruptcy considerably increased.

The problems in battery industry are of structural and system nature. They had begun long before the present economic slowdown and were accumulated for years and the financial crisis has just revealed them. The structural changes are connected with the number of unresolved issues which put the industry on the verge of survival. First of all this is permanent increase of tariffs for energy resources, rail traffic, etc. (of 10-22% per a year). In the second place there are unreasonably high loan interest rates. One more important problem of domestic manufacturers of chemical current sources is related to the mass understatement made by importers (with the use of fake package of shipping documents) of the declared price of imported automotive batteries which aims at minimizing the customs duty. At present, domestic manufacturers really left a considerable part of the territory of Russia because of the unprecedented opportunities to understate the customs value and also because of the extended “shadow” economy.

Almost 70% of the prime cost of every battery is the cost of the lead and therefore the changes in quotations for this metal on the world market directly affect the state of the battery industry. The present state of prices on the market can be characterized as relatively positive.

As predicted, in 2009 the demand for the lead in the world will increase by 4% and will make a total 8.99 million tonnes and the manufacture will increase by 3.8% up to 9 million tonnes. Thus, the demand will be still lagging behind the manufacture. Probably, this will help to avoid the rapid increase in prices up to the end of the current year. Though, only those battery production enterprises which have their own recycling production and their own furnaces for improving lead can feel secure in the present situation because they almost do not depend on the fluctuations of world prices for this metal.

One more important trend which is a characteristic feature of the current year is the considerable toughening of competitive environment. It is not a secret that the competitiveness on the market of batteries has always been very hard, but now, as a result of the break-neck reduction in consumption growth rate the struggle for customers became total redivision of the market. Those companies which have better human, intellectual, technological and innovative potentials, extend their share and those which are less powerful reduce the growth rate. Such companies are likely to be driven out of the business in the future.

It is evident that the ratio of sales volume between Russian and import batteries will change. The batteries which are supposed to substitute import ones have been manufactured in Russia for several years already. According to the specifications and operating characteristics, such batteries can be compared with import batteries. At the same time, the cost of Russian chemical current sources is lower in comparison with the import ones and, against the background of devaluation of Ruble, the gap in the cost between domestic and import batteries is still growing. As a result, the present balance can change for the benefit of Russian manufacturers.

At the same time, we must take into consideration the fact that in the assortment of some foreign suppliers there such types of batteries which are not produced on any of the domestic enterprises. That is why in some segments import products will prevail for a ling time.