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09.01.2013

The led lighting market: what will be next?

dadyka.jpgReduced prices for LED lights and LED lighting systems became the main commercial driver behind market growth. In 2010-2011, LED lighting system prices offered by the leading manufacturers remained at a relatively constant level, which was driven by a sharp growth in demand for LED lighting systems.

In 2011, the sign of price competition between the leading manufacturers manifested itself, and in 2012 this trend became pronounced. It should be stressed that some small-sized companies supply LED lighting systems at dumping prices (e.g. lighting systems for the housing and utilities sector priced at 800-900 rubles). Such lighting systems are manufactured from Chinese components, and their design does not ensure proper heat removal (very often they just have a body of a conventional lighting system), and the manufacturing quality is extremely low. A wide use of such lighting systems largely discredits the idea of LED lighting, which is one of the most important risk factors in terms of LED market development in 2012-2013.

The non-commercial growth drivers of the Russian market can be divided into three main areas: actions taken to support LED lighting systems at the legislative level (federal or local); development of standards and regulations that set forth technical requirements for LED lighting systems (GOSTs, SNiPs, SanPiNs); programmes for implementing energy-efficient lighting systems at the level of individual organizations.

It should be acknowledged that the development of standards and programmes for implementing energy efficient lighting systems is currently the most active non-commercial industry development driver.

Ten GOST standards in the field of LED lighting equipment became effective in 2012, with 3 more standards addressing the requirements for the illumination of buildings and structures to come into force in 2013. About 20 draft GOSTs are at different stages of development and some 30 standards are expected to be developed. The Federal Law On Standardization is being drafted currently, which is expected to take these considerations into account. The technical regulations of the Customs Union On Safety of Low-Voltage Equipment and Electromagnetic Compatibility of Technical Devices will enter into force on February 15, 2013, whereafter the requirements of national GOST R standards will apply only on a voluntary basis, while the requirements of Russian laws and other regulations will apply only to the extent not covered by the relevant technical regulations.

Some major players had their manufacturing facilities certified to be ISO 9001:2008 compliant. For instance, AtomSvet, in addition to having its manufacturing facility certified to be ISO 9001:2008 compliant, is also undergoing CE certification for its entire range of products.

What are the main results of 2012?

The market of LED lighting systems is promising, and in 2012 it grew several times greater, driven by the low base effect. In absolute figures, however, its size is still small; moreover, estimates differ widely: from USD 1.8 million to USD 10 million and even USD 35 million. Based on our estimations, growth rates in 2012 were approximately 80-90% in nominal values and about 70% in monetary terms.

4-5 leading Russian companies hold about 40% of the LED lighting system market. In 2012, the leading players in the LED market demonstrated sales growth of 20% to 50%. Imports account for approximately 30%, including about 10% going to the leading lighting brands and 20-25% held by China. The share of Chinese imports is especially large in business segments (LED lighting systems, decorative lighting systems and office lighting systems).

We estimate that the share of Chinese manufacturers in various LED lighting segments was as follows in 2012: LED lighting systems – approximately 95%; office lighting systems – about 30%; decorative lighting – Russian manufacturers "lost" this segment; in all other LED lighting segments Russian manufacturers dominate.

The estimates provided above demonstrate that:

the Russian market has a strong non-commercial nature.

as soon as a segment enters the "commercial" stage, China's share increases sharply;

consumers are becoming more educated, at least at the level of organizations. At the retail level, the position of cheap Chinese products is likely to remain stable for a long period of time.

It should be noted that in 2012 many Russian manufacturers announced the launch of new products and LED lighting solutions. This suggests that Russian LED industry is not standing still and that our companies are keeping pace with the global leaders, even though the energy saving industry in our country is still very young. Some leading manufacturers of LED lighting systems announced the launch of street lighting systems with a primary optical system (lens) that generates the required light intensity curve. Sales of highway LED lighting systems are likely to grow in 2013.

The development of LED lighting systems with a remote power supply unit has become rather popular; the sector of autonomous outdoor LED lighting systems (powered from solar panels or wind generators) is also developing rather actively. Manufacturers of explosion proof lighting systems are extending their ranges of products to include LED lighting systems. For example, in 2012 we announced the launch of new product ranges:

Our customers have shown considerable interest in the last two developments.

As far as our forecasts for 2013 are concerned, we expect that new players and startups will appear, which will open new poorly exploited niches to LED lighting. Newcomers should reinforce healthy competition and should further improve what is available. As in 2012, project-related sales will account for the main share of sales. The prevailing market trend of growing sales of lighting systems will be one of the growth drivers for the Russian market of LED lighting systems in 2012 and will remain such up until 2016.

This trend is driven by the need for a large-scale modernization of the Russian stock of lighting systems in the following sectors: industry, public utilities, street lighting, transport, administrative buildings and housing. Such modernization will be caused not so much by directive factors, but by a large-scale failure of lighting systems, with their average period of use exceeding 20-30 years by 2012-2013. This means that the expected modernization, in general, will be a necessity and only to a limited extent will be linked to the present economic situation.

Market growth will depend on investment programs of major companies. Market growth will mainly be driven by major projects with the retail segment accounting for only a small share of sales.

According to our data the most promising segments for lighting system sales in 2013 include (from the most promising to the least promising ones): street/road lighting systems, lighting systems for offices/organizations, industrial lighting systems, lighting systems for the housing & utilities sector; lighting systems for shopping centres and shops, architectural/decorative lighting systems, household lighting systems.

Vadim Valerievich Dadyka, General Director, LLC AtomSvet

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