The head of one of the Russian construction material market leaders talked to us about the results of 2015 and the prospects for the future.
The Chair of the Board of “VOLMA” managing company, Yury Goncharov, answers questions from our magazine.
— Mr. Goncharov, how would you characterize the Russian construction material market in 2015? What results did the main players achieve? Where is the situation hardest and where are there reasons for optimism?
— On the whole, the year was very complicated, and everybody felt this. There was little optimism. But you know, such times are sometimes necessary to get yourself concentrated, to look around and find energy reserves.
In our gypsum segment, producers are close to getting to such parameters whereby it is very hard to work with the prime cost. Unfortunately, a significant fall in price for ready-made products occurred on our market: the ruble decreased by 15%. It is painful and complex.
— But prices for raw materials did not go down…
— Yes, they remained at their previous level. Besides, energy costs increased, and natural monopolies raised tariffs. In general, the situation on our market is far from simple. Some members of the Russian gypsum association, which I am heading, said directly that at the end of 2015 they were in the red. It had never been so before. So, we need to work on surviving the year as soon as possible.
— How much did sales volumes and the number of orders decrease?
— On the whole, the number of objects under construction in the country went down. There are no super-projects like the Olympics in Sochi, but there are some objects in the regions, New Moscow is being expanded, and that is all.
— But we are getting ready for the 2018 World Cup, and there are infrastructure objects…
— As far as infrastructure objects are concerned, this is not our sector – we follow them, and little here depends on us. As for the World Cup stadiums and airports under construction, our turn may come in a year. So, our industry survives on repairs, as there are few large-scale objects.
— In 2014 “VOLMA” became one of the top three: first in the production of gypsum partition blocks, second in the output of gypsum plasterboards and second in the production of dry construction mixes. Did the position of the company change in 2015 in these sectors?
— No, everything is in its place. There are certain changes in the ratings perhaps for the fifth to the seventh positions, but the leaders are the same.
— Let’s consider each of these segments. Can you assess the market for gypsum plasterboard? Who has a chance to threaten the obvious leader, KNAUF company?
— Saint-Gobain developed well in 2015. They used the opportunity of having their plant in Nizhny Novgorod, they continued expansion and price competitiveness, and they entered Belarus. So, compared with other companies, they showed good growth.
Speaking on the other market participants, KNAUF fell significantly. It is quite understandable: the leaders of the market lose more than others in hard times. To my mind, KNAUF produced about 140m m2 of gypsum plasterboard, which is 20m less than a year before. We are second, and we also slipped a little: in 2014 we produced 48m m2, but in 2015 about 44m m2. On the whole, the market for gypsum plasterboard is contracting. If in 2014, 290m m2 of gypsum plasterboard was produced in Russia, in 2015 it might be not more than 250m.
— Let’s move on… What changed in the gypsum partition block sector, where “VOLMA” is a leader, during the year? Is anybody trying to catch up with you?
— No. Nothing has changed here. Only “Gypsopolymer” in Perm has grown a little. The total manufacturing reduction on the market of gypsum partition, from my point of view, totaled about 10% in 2015. It means that about 12m m2 was produced and 40% of that is ours.
— And now the most interesting thing. What changes took place on the most competitive market, that of dry construction mixes?
— According to my assessments, it fell by less than in the other segments, by about 5—7%. I think the results of our company in 2015 show about 600,000 tons of mixes, and we will stay in the top three on the Russian market.
— What trends may be observed here?
— Unfortunately, there is a tendency towards a cheapening of products, which naturally lowers marginality. For example, we have to produce more plasters for mechanical application and fewer types of the more expensive plasters for manual application. So there is a trend in favor of rougher and cheaper products. And we are selling less of such high quality gypsum plasters as “Rotband” or “VOLMA-Sloy”.
— The same can be observed in other segments of the construction industry. For example, on the PVC-profile market, customers generally buy simple, economy-class window profiles instead of quality, energy-saving innovation products. But this throws producers and the market on the whole back by years …
— That’s the thing! Besides, being a company positioning itself as a gypsum producer, we came across another unpleasant trend: the market now sells more cement mixes and fewer gypsum ones.
— Has the crisis influenced the investment plans of the company?
— We shall surely construct and put in operation the objects already planned and under construction. In particular we shall start on our new “VOLMA Maikop” plant. It has already produced pilot batches of gypsum partition blocks and in March-April of 2016 the plant will be working at full tilt.
We are continuing our work in Belarus. I’ll remind you that in 2014 we won a tender, and according to Order №34, dated January 16th, 2014 by the Belarusian President, Alexander Lukashenko, we are to build a new plant in Gatovo near Minsk. There, 100,000 ton of dry construction mixes, 500,000 m2 of gypsum partition blocks and 30m m2 of gypsum plasterboard will be produced. So it will be a big, modern plant. Belorussian authorities have given us good terms, and our obligations are very serious, especially as far as the terms of the launch are concerned. The plant is to be put into operation in 2018.
The project is being implemented at full pelt. We have already gone out to the site and are busy with design and purchasing equipment, etc.
— And how does your new “VOLMA-Orenburg” plant work?
— It is working well. We are actively selling gypsum partition blocks produced there. In December we had good results in the production of dry construction mixes and now we are producing basic gypsum mixes. Their prime cost is good as the plant is located near transport. Now we are redistributing their production along the sales channels. Logistics is oriented mainly around the Urals region and Kazakhstan.
— According to the project, the plant is expected to produce 500,000 tons of gypsum partition blocks and 120,000 tons of dry construction mixes. What will its load be in 2016?
— I think it will be at 60%, in spite of the crisis.
— So we should not expect any revolutions in the construction materials market given the current conditions, should we?
— No. Knowing our rivals well, I do not think that any of them is ready to initiate any revolution. Everybody, including us, will work according to long-held trends.
— By the way, what will 2016 be like for the Russian construction industry? When may we expect to see the light at the end of the tunnel?
— In 2016 the fall will go on. I think the market will lose another 10%.
But there are grounds for optimism regarding import replacements. In connection with the latest resolutions of the Russian authorities referring to Turkey, we expect to pressure Turkish producers in the south of Russia more.
— But there are no sanctions referring to Turkish construction materials…
— No, there are not. Mixes, heat insulation and other products are still being imported from Turkey. Nevertheless, the Turkish imports merit closer attention, let’s put it that way. So we hope that we’ll manage to pressure our Turkish rivals in the south of Russia.
— Including the new “VOLMA-Maikop” plant?
— Including that, of course.
— Mr. Goncharov, during last year’s talk, you, as President of the Russian gypsum association, raised such important themes as imported additives and construction chemicals. Have any positive changes taken place in this sphere? Do you still buy expensive imported additives for dry construction mixes or did you manage to interest domestic developers and producers in these components?
— Unfortunately, nothing has changed. The only thing we managed to do was to bargain a little and to lower some producers’ prices. They, of course, see what is going on with the course of the ruble and have slightly decreased their marginality, but that is all.
— But buying construction chemicals with foreign currency significantly aggravates your financial results.
— Of course it does.
— And the last question. How serious, for your company, is the problem of counterfeiting? Are there cases of false representation, and if there are, how do you deal with them?
— The problem exists, and there are cases of falsification, and this continues. For example, in a number of regions, a company (I won’t name it) tried to sell their products in packs as similar to ours as two peas in a pod. The packs are practically identical. The difference is only one letter: “VOLMA” – “VOLNA”.
— And how do you struggle with this? I know, for example, a brand company producing cast formwork has addressed the Federal Antimonopoly Service. What about you?
— We address the corresponding units of the MIA because it’s about uncertified production, trivial fakes. So the people who do it are criminals, law-breakers. Law-enforcement agencies are there to deal with them.
— Did your claim to the police help?
— Sure. At least we have managed to protect our good name and our brand.
— Well, it’s some relief. Thank you for the interesting talk and for the exclusive analysis of the construction materials market. Let me wish, for your company and for all the members of the Russian Gypsum Association, growth in production volumes, sales increases, income boosts, etc. in 2016.
— Thank you, we’ll do our best.