CEMENT PRODUCTION AND CONSTRUCTION BOOM IN UKRAINE

PAST

The producers of cement can’t say that the last ten years were very efficient for cement industry. From 1998 to 2002 the production of cement was lower then before (Ukrainian factories used to launch about 22 million tones of cement per year). But despite of difficult period, this area was always attractive for foreign investors. From 2000 the inflow of foreign investors in cement industry increased: CRH Group (Ireland), Lafarge (France), Dyckerhoff (Germany), international concern Heidelberg Cement. At the present time, the factories belonging to foreign companies are controlling more then 60% of Ukrainian cement market.

Last year the situation at the market of cement started to change in favor of Ukrainian producers. First of all the reason is an active development of construction industry sector. Secondly, after introduction of special tax of 41%, following by quotations and import of Portland cement, the Russian producers left the market. In 2007 the import of cement form Russia decreased in 3.75 times.

Last year the output of cement increased in 4 times (23.7%). The export of Ukrainian cement increased almost in twice. The main foreign countries consumers of Ukrainian cement are Hungary, Moldavia, Rumania, Poland, Byelorussia, Georgia. This year the enterprises of Ukrcement concern delivered its products even in African countries.

The import of cement from Russia has reached a minimum point for the last year and it doesn’t take a valuable place in Ukrainian market. Due to the first quarter of this year the deliveries came up till 1978 tones only, although the fixed quota for Russians reached 90 000 tones.

The output of cement for the last two years is given at the following scale

PRESENT

17 cement factories are functioning in Ukraine for now. 15 of them take part of the Ukrainian concern of enterprises and organizations of cement and asbestos cement industry called Ukrcement.

The government protected national producers by introducing special taxes and quotes for Russian cement enterprises in due time. Ukrainian producers were very worried that the Russians were trying to stuff the Ukrainian market with their own goods, using the advantage of tax free. In 2001 they imported 88.9 tones of cement but in 2003 the supplies increased almost in 6 times. So this point had all the preconditions for governmental interference.

The fact is that Ukrainian and Russian enterprises have different conditions when producing the cement: the price for gas for Russian factories is cheaper then for Ukrainian one in three times, so this fact definitely influenced on the price of final output (gas takes about 40% of all the expenses in net cost of cement).

After an evident reducing of total imports of cement from Russia, the competitive struggle has suddenly hardened. The Ukrainian enterprises started to displace that unit of cement market taken by Russia before. The main instrument is to reduce the prices on goods.

Nowadays it’s still early to talk about some defined structuring of the market. The development of cement industry depends on the development of construction complex of the country in total, and Ukraine is having construction boom at the moment. The more this complex will work the faster cement factories will increase the output. For the time being the enterprises power has been used only for 33%. Although the reserve of enterprises’ power is considerable at 20.5 million tones, but only 7 million tones have been launched every year. But considering that Ukraine is on the top of constructions, it’s becoming almost impossible to get a quota for cement to export it abroad.

FA ÇADE SYSTEMS - SITUAT ION AT THE MARKET

According to operators’ opinion the façade systems is a challenging and attractive business. It’s the real Eldora do. The market-share gain reached around 30-35% for the last year. But the real pot of gold is being developed in Kiev and biggest industrial regions of Ukraine (Dnepropetrovsk, Donetsk and Kharkov). The current situation is characterized by attempts of its constant members to make the conditions for healthy competition, to protect the market from the penetration of casual suppliers and producers offering un adapted and unchecked production in Ukraine.

THE PRICES

As soon as modern façade systems appeared in Ukrainian market, the dealers tried to get a good profit from it (as from any other new product), establishing high rates. But as far as the market is loading by new products, the membership is growing, so severe price competition was going down. Serious struggles between the companies to possess some tenders’ properties leaded to the dumping at the market. But now the market got a bit stable.

MARKET OUTLOOK

According to façade specialists, this segment of construction market will be developing very fast. We can mark out the market trends for the next 3 or 5 years as following:

• grow of output and selling of façade systems and reducing of their prices;
• popularization of new façade systems and enlargement of their stock, and changing of market structure as a result;
• division and precise market segmentation;
• structuring of low, middle and high class systems;
• offer increase for expensive and low price façade systems;
• no aerated (or wet) façade systems will be developing in a style of know-how or high technologies.

ROFING MATER IALS - MARKET OUTPUT

The market of roofing materials of Ukraine is one of the most agile developed. As per some specialists’ opinion, there was more then 300 million USD spent on different roofing materials in 2006. During the last three years the salesmen observe that annual sales gain is around 20%.

The number of companies-producers has increased as well. As a result – one could see an evident sales gain of national product (most of it is still producing with foreign raw materials). The import of ready-made raw materials to Ukraine is going down. Nowadays the import is not more then 10% of the total market size, though it was bringing 30 or 35 % of profit almost 4 years ago. Dividing the market into plane and ramp roofing, the specialists mark then 20% of market output is taken by ramp roofing and almost 80% is for plane one. It is known then to equip plane and ramp roofing the different materials are applied, but they have different demand in Ukrainian market.

Forecast

It is hard to predict some another strong sellers or raw materials’ producers in the nearest a couple of years. The quantity of small importers will reduce. Most of the dealers and business beginners decide to collaborate with Ukrainian companies (either or importers offering different range of raw materials). What the roofers are saying is that the market will go up in 6 times in the nearest 5 or 6 years!

DRY PACK MORTARS MARKET SIZE

According to blue chip companies, the total market size of Ukraine can be appraised in range from 170 000 to 220 000 tones. However, some operators evaluate the market size of 400 or even 500 000 tones. The reason of such a big difference in calculations owing to disaccord in statistical data and different operators’ analyses who sometimes include by mistake packed cement, mineral white and lime. At the same time the official import took only 33 000 tones for 11 months in 2007.

IMPORT

Import volume to Ukraine still didn’t reduce. However its structure got changed for the last years: the national product almost excluded the foreign one from the segment of simple compounds. Only dedicated and costly compounds are importing from abroad. Thus, there is a quite severe competition in a segment of difficult and special compounds between foreign brands.

FORECAST

The views of constructors to use the dry packs have totally changed in 2006 and 2007. Ukraine made a big progress in construction technologies, where dry packs served their main purpose. Last year the common Ukrainian consumption of raw materials increased in about a quarter. The development of residential building nowadays stimulates the demand on this product.

PAINT AND VARNISH - MARKET SIZE

According to Russian State Statistics Committee, Ukrainian market size of paint materials consisted 187 000 tones in 2007. The marketing specialists set a price at 250-270 million US dollars for the Ukrainian paint market.

FORECAST

This year the further growth of output, import and consuming of paint materials is expected. The predictable growth is about 10 or 15 %. The analysts believe that increase of import and output growth will be going parallel.

GYPSUM PLASTERBOARD - MARKET SIZE

Nowadays gypsum wall boards made in Ukraine and abroad are displayed at the market of building materials. In 2002 there was imported 7 million 18000 sq m. of gypsum plasterboard in Ukraine, and the level of local output took around 70%, leaving the third part of the total market for the importers.

FORECASTG

Gypsum pasteboard’s market growth rate took 20-30% in 2007. As per big market operators, the dynamics growth will remain this year. The predicting gypsum plasterboard market size is around 24-25 million sq. m. for 2008 in Ukraine.

FUTURE

The output growth of cement added some optimism for Ukrainian producers.

At present we can observe the situation to increase an output of cement. According to the concern Urkcement the output of cement will be increased in average for 5% in comparison with the same period of the last year. The specialists are saying that domestic sales of cement will increase for 5 or 6 % every year.

The most of Ukrainian factories are getting ready to launch new or delayed ovens.

For instance, if only 5 or 6 ovens were functioning before, now their number increased till 21.

According to the most of cement producers’ opinion, the Ukrainian enterprises are able to satisfy the demand of the market completely.