Polish proposed ban on Russian rubber may give the European tyre industry a flat

Polish proposed ban on Russian rubber may give the European tyre industry a flat
Poland is lobbying to have a ban on the imports to Europe of Russian synthetic rubber in the next round of sanctions, but experts worry that will cause the European tyre industry more pain than it will hurt Russia's economy. / bne IntelliNews
By bne IntelliNews February 6, 2023

Poland is lobbying for a ban on Russian synthetic rubber to become a part of the new EU sanctions, which are scheduled to be unveiled on the one-year anniversary of the military invasion of Ukraine, February 24. This proposal is facing opposition from Italy, Germany, Hungary, Romania and Czechia, which have traditionally relied on Russian rubber for tyre production.

Tyre manufacturers in these countries, including the plants of Pirelli, Michelin, Continental and Nokian, may become crippled by the potential ban, which would increase costs and make their products less competitive compared to tyres from the US, Japan and China, according to Interfax. Russia accounted for more than 50% of the EU’s synthetic rubber imports in 2021 and about 30% last year.

Poland’s Synthos Group, owned by billionaire Michal Solowow, is said to have lobbied for the Russian rubber ban. Synthos is planning to restart production of butadiene rubber at its facility in Schkopau, Germany in March, with an ambition to partially replace the Russian product. This is reminiscent of North American LNG replacing Russian natural gas, which brought higher prices to Europe and profit for the US.

Synthos’ entry onto the scene, however, is not guaranteed to solve the problem. The Polish company produces only certain grades of rubber, while tyre manufacturing involves more grades, many of which are produced mainly in Russia and will be difficult to replace.

Replacing Russian rubber was already attempted in 2022, when some European tyre manufacturers decided to boycott Russian rubber due to political reasons. These producers were able to replace two thirds of the synthetic rubber previously bought from Russia, but they often had to pay double the price of Russian rubber for products from the US or China, and they had to spend additional time and resources reconfiguring manufacturing equipment, according to estimates by the Russian Chemists Union. Together with energy inflation, these higher production costs also raised the price of their tyres.

In the second half of 2022 – after these self-imposed restrictions – sales of replacement consumer tyres fell by 10.1%, while sales of replacement truck and bus tyres declined by 8.2%, according to the European Tyre and Rubber Manufacturers’ Association (ETRMA). “There is no doubt the war in Ukraine, and the subsequent increase in energy prices and higher cost of living, have impacted the industry’s replacement tyre sales in 2022,” said ETRMA head, Adam McCarthy.

As a result, many European tyre manufacturers tried to avoid increasing the costs of production and continued purchasing synthetic rubber from Russia. Now, they may be prohibited from doing so.

The potential ban is unlikely to have a major impact on Russia. The experience of previous sanctions shows that the country’s producers have successfully redirected exports to Asia without being hit hard by EU restrictions. Ironically, the ban on Russian rubber may become a severe blow to European tyre manufacturers. It threatens to increase their costs, reduce tyre production in Europe and even lead to job cuts.

This comes on top of an already challenging environment for European tyre producers. The EU passenger car market contracted by 4.6% last year, while the commercial vehicle market shrank by 14.6%, according to the European Automobile Manufacturers’ Association (ACEA). This is putting pressure on demand and prices for tyres. A ban on Russian rubber may exacerbate these problems.

If events unfold in this way, it would be thanks to the Polish lobbyists and bureaucrats from Brussels overestimating Russia’s reliance on the European market for rubber and underestimating the dependence of European companies on Russian rubber.