What helps the TechnoNIKOL company increase its exports of slag wool and open new plants in spite of the crisis?
Ryazan is the main production center of TechnoNIKOL, one of the leading domestic producers of heat-insulating materials. The company’s largest plant, which, in spite of the crisis, is increasing its export deliveries, is situated in this ancient Russian city. In 2015 the exported share of its manufactured products grew from 7% to 20%, having compensated for the decrease on the home market.
What strategy has the company chosen over recent years? The Director General of Mineral Insulation for TechnoNIKOL, Irek ALLAYAROV, answers this and other questions.
— Mr. Allayarov, what is the situation on the market for heat-insulating materials (HIM) on the whole and slag wool in particular?
— Compared with last year, the condition of the domestic market has grown worse. This is connected with the decrease in the number of construction objects in the country. According to our assessments, in 2015 the heat insulation market (and correspondingly, that of slag wool) shrank by 10%.
However, the production volumes at our Riazan enterprise have stayed at the same level. This was achieved at expense of significant sales area expansion and the increase of export deliveries. Currently, 10% of manufactured product is exported.
In connection with the dollar rate fluctuation, it has become profitable for us to deliver our products to European markets where heat-insulation materials are in great demand. Thus, we have started to sell HIM in Italy, Bulgaria and other countries. One of our enterprises producing rolled materials is situated in Europe. It has been operating for more than 10 years, and for the growth of our European expansion we actively use both smoothly-running sales channels and management.
Speaking of CIS countries, we are expanding deliveries of slag wool to Kazakhstan, and we are increasing deliveries to Kirgizia and Tajikistan. We have great plans for the Asian countries. In particular we are going to enter the Chinese market, but I’ll tell you about it a bit later.
— How actively does the company construct new and update existing enterprises?
— TechnoNIKOL has 6 plants producing heat-insulation materials: five in Russia and one in Ukraine, which produces basaltic heater material to order. The production volume in 2015 totaled about 10m m3.
Our plants are distributed all over the territory of Russia. For example, the Ryazan plant covers the central, north-western and southern regions of the country, and exports materials there.
Our second plant is situated in Zainsk (in the Republic of Tatarstan) and its products are delivered mainly to the Volga Federal District. The third one is in Chelyabinsk and delivers materials to the Ural region. Last summer, large-scale updating which had taken 2 years was completed. The investment in the construction of a new line producing slag wool was 1.7 bln rubles. The plant has now achieved its projected capacity – 1.3m m3 of product a year.
Our fourth production plant is located in Yurga (in the Kemerovo district) and covers the Siberian region.
In the south, near Rostov-on-Don, we are currently constructing another plant. The crisis does not seem to be a good time for investments, but our shareholders supported the enterprise construction project. Next spring we plan to start pre-commissioning. The new plant will allow us to increase production volumes by 1.3 m3, and the project investment has surpassed 3 bln rubles.
— Big money! May I ask if you are constructing at your own expense or using bank credit?
— All investments in expansion and the updating of production are being made with our own finance, from the TechnoNIKOL company. Besides this, we have a presence in the Far East. In 2007 the company bought the Bazalit DV plant producing basalt heat-insulation in Khabarovsk. However, these capacities are not enough to meet the requirements of the HIM market in our segment, so we took a decision to construct a new plant, especially as it coincided with the federal authorities’ appeal to move to the East.
I must admit, we had some worries about opening a plant there. The Khabarovsk area is a very complex region, far from Central Russia, and it has specific features. But we actively started the project and soon we were sure we had done the right thing.
I am glad that due to the efforts of Governor Viacheslav Shport and the Ministry of the Far East, territories of advanced development were formed in the Khabarovsk area. Our company, led by our president Sergei Kolesnikov, and other CEOs and specialists, took an active role in the process of TAD forming.
Last September we received documents confirming that the TechnoNIKOL company was included in TAD and was an official resident. Next spring we are to complete the full construction cycle of the plant in Khabarovsk, where 600,000 m3 of slag wool will be produced.
— Are you planning to deliver these products to the countries of South-Eastern Asia?
— Of course! We consider this market very promising. The plant is located not far from China – 30 km from the borderline. But…
The problem of customs has not been solved yet. The nearest border outpost for transporting goods is 700 km from Khabarovsk, so it is a big distance, though there is the Big Ussury Island in Khabarovsk, on the Amur, half of which belongs to China. A bridge has already been constructed (a joint project between Russia and China), but there is no border crossing point yet.
This problem has long been discussed at all levels, but is not solved yet. We hope for the best, as when it is solved we’ll be able to develop the HIM market in China.
In general, slag wool is widely used in the European part of Russia: in the CFD there is 12 kg of HIM per person, and in Siberia and the Far East, about 7kg. So, there is some deficit of product in the east of the country.
Having put in operation the new plant in Khabarovsk, we shall present new materials to the market: first of all, plaster facades, new products used in low-rise construction for winterizing pitch roofs, and many other things.
— An export company with plants all over the country must be very careful with logistics…
— It goes without saying. We understand well that transportation expenses are an important component of our business, and in 2015 they grew significantly because of the transportation tariffs increase and our sales markets expansion. But we initially built our business so that the plants were situated at a distance of 500—1000 km from one another. It is clear that in Siberia it is difficult to observe this principle due to the population localization. But in the European part of Russia and in the Urals we did it, and it helps us to achieve good economies.
If now we deliver our products in the south, paying 50,000 – 60,000 rubles for a truck, the plant in Rostov-on-Don having been launched, the delivery cost will decrease more than twice. Of course, the clients will win as well.
With regards to this plant, we expect to enter new sales markets in Azerbaijan, Armenia, Georgia, and perhaps Iran.
— What other instruments besides export delivery growth do you use to hold your position on the market?
— We have invested money in, and launched the production of, growing medium (substrates) for hothouse culture growth. Investment volume in this area of production has totaled about 250m rub. Russian agricultural holdings are coming over to the idea of domestic material.
Substrates are made of slag wool and are used for growing hothouse vegetables (tomatoes, cucumbers, etc). Hydroponics imbibe moisture and retain it well. The technology is as follows: seeds are planted in the cubes of slag wool, not the ground, and the yield is good.
The hydroponics market is incomparable with the construction market, but it is still rather big. Hydroponics have never been produced in Russia; they have always been imported from Europe. And the company’s strategy has again coincided with the policy of import replacement and development of domestic agriculture. Thus, we really support domestic agrarians, and we prepare good soil for their businesses, in the proper sense of the word. And we expect to be one of the leaders in this market.
Of course, we are taking into account the rapid development of the private housing construction market, so we have created new products and entered them into the marketplace – e.g. “Technoface Cottage” heat insulation for plaster facades.
Another product of our know-how is GreenGuard. This environmentally friendly product was launched in April and it has met our expectations. Even on this failing market, we have managed to introduce material which is 15% more expensive than standard materials, and it has successfully occupied its niche.
Next year we are thinking of increasing sales both in the central part of Russia and in the south.
— Your forecast for the near future? What can we expect from the HIM market in 2016?
— According to our assessments, there won’t be any sales growth on the HIM market. It is likely to be zero or even negative – about -5%.
Our task in such conditions to hold the volumes we have achieved. We will increase the efficiency of our production and introduce new products, in particular: technical insulation for pipes, vents, inner and outer connections, cylinders of slag wool, etc.
We see growth potential here.
Recently we have defended the strategy of mineral insulation development for the coming 5 years in front of our shareholders, and on this basis yearly plans will be formed. With regards to the crisis, our strategy will be a bit more reserved, yet we plan to make serious investments in production development and to complete the above-mentioned plants in Rostov-on-Don and Khabarovsk.
Our further long-term plans are connected with Kazakhstan. I am sure that the Middle Asian market has good prospects. There are no modern plants for heat insulation production with slag wool in this region, so I think that TechnoNIKOL will occupy a significant part of this segment.