The main peculiarity of the domestic gravel chippings market is that despite vast depots in Russia, import share is traditionally high. Why so?
Cheap gravel chippings used to be considered a good thing, but now it is quite different. At present, material extraction and processing requires the use of modern technologies. In developed countries, material consumption is high – 3 to 4 times higher than Russian indices per capita. How to achieve this level and what is to be done – these were among the issues discussed at the 3rd International conference, “Russian Gravel Chippings Market 2016”.
The Russian construction materials market keeps on falling: according to the Russian State Statistics Service, it decreased by 14% in the first quarter of 2016. Meanwhile, construction volumes reduced by only 1.6%.
However, there are positive dynamics in the aggregates industry: output grew by 7% during the first three months of 2016, up to 66.8m m3 (during the same period of 2015, it was 62.6m m3), and consumption grew from 64.3m m3 to 67.9m m3, or by 6%. Gravel chippings release increased by 20%.
Some more figures characterizing the market... Gravel chippings and sand excavation prevails among nonmetallic materials. 70% of imported gravel chippings come to Russia from Ukraine, mainly from the Zhitomir and Kirovograd regions. Gravel chippings production is of a seasonal nature, and so in the warm seasons it is 2-3 fold higher than in winter.
According to Evgeny Vysotsky, Deputy Director General of the SMPRO consulting company, the price formation for gravel chippings in Russia is subject to heavy distortion: the average material purchasing price is 2.5 fold higher than the manufacturer’s prime price. The difference winds up in the pockets of intermediaries, including traffic engineers.
This cannot but influence the industry: risks of bankruptcy increases. The peak was in 2012, but this year, from the experts’ standpoint, the record may be broken: in only the first 4 months of 2016, 100 enterprises went bankrupt. Most of them are from the Moscow and Krasnodar regions.
According to Evgeny Vysotsky, gravel chippings excavation will achieve pre-crisis levels (in 2013, 201.7, tons of gravel chippings were excavated) only by 2022, and before that, the situation is likely to stabilize at some level.
What’s going on with our European neighbours? In Europe, gravel chippings are one of the most important construction materials. According to Dirk Fincke, General Secretary of the European Aggregates Association, the total market of the 29 countries of the EU is worth 15 bln euro annually. The total extraction of nonmetallic materials in EU is 2.7 m tons, 47% of which is gravel chippings. 200,000 workers are busy in the industry. The largest European producer of gravel chippings is Germany.
According to Dirk Fincke, aggregates extraction in Europe faces a number of challenges. Some depots are not comfortably located, and “green” volunteers and environmentalists sometimes prevent them from developing borrow pits.
This alienation syndrome is characteristic of Europe: the inhabitants of a municipal entity often do not want extraction to be arranged on the territory of their district, and this often increases materials delivery transport length.
The EU raw materials strategy is based on a number of strict principles: mainly, world market deliveries security and supply continuity as well as materials processing and usage efficiency.
There are plans for the development of aggregates development for the next 20—30 years, though only 12 states have them, Dirk Fincke complains. He thinks that all the countries of the Union should have such programs, as they provide for investment attraction, especially since aggregates are very popular in Europe: they make up 80% of the total demand for construction materials.
But at present, nonmetallic material extraction is in crisis in the Old World. For example, in Ireland it has fallen by 30%.
Strange as it may seem, European bureaucracy gets in the way of beating the crisis. The Head of the European Aggregates Association has shared data: it takes from 6 to 12 months in England and Sweden to get a permit for gravel chippings extraction. The term may be even longer in some other countries – up to several years. It is nothing short of a shame, Dirk Fincke concludes.
We should not forget the roads
One of the main consumers of gravel chippings is the road construction sphere. Alas, the current condition of the sphere is far from good. Due to the optimization of the state budget for 2016, its financing has been cut by 10%.
According to Andrei Chernigov, Deputy Head of the Federal Road Agency’s Department for Road Construction and Operation, contracts concluded earlier will be continued in 2017. However, road expenditures sequestration decreases the use of aggregates, including gravel chippings. And here there is no hope for growth in the near future.
If in 2014 581 km of federal roads were put in operation, in 2015 the figure was only 369 km. In 2016, 96 bln roubles have been allocated, and only 278 km will be laid. Besides, the mains capital repair rate is not growing either.
According to existing plans, by the end of 2018 46,000 km of 50,000 km of federal roads are to be put in order. This program is being fulfilled.
From this, we may forecast gravel chippings consumption. In 2014, 24.7m tons of stone were used for road construction, including 9m tons for new road construction and the reconstruction of old roads, and 15.7m tons for capital repair. In 2015, gravel chippings expenditure totaled 22.7m tons: 7.5m tons for new road construction and the reconstruction of old roads, and 16m tons for capital repair.
On the whole, the demand for gravel chippings decreased by 10% due to road construction volumes decreasing.
Andrei Chernigov voiced his forecast for 2016: the total volume of gravel chippings consumption for federal road construction and repair will be at a level of 19.5—20m tons. This is the figure for stone producers to aim at, but at the same time they should keep in mind that more than 70% of costs are transporting and other services. To reduce these, it is necessary to develop direct deliveries between producers and consumers.
The bigger part of expenditures is explained by irrational logistics. This results in cheaper delivery of gravel chippings from Karelia to Tatarstan than to the neighbouring Leningrad region.
The course adopted by Rosavtodor for the increase in inter-repair intervals of roads and guarantee terms after putting the roads in operation is not adding to the growth of gravel chippings consumption. According to the plans of the institution, depending on the type of the earth, highway guarantees will be prolonged for 2 or more years if the traffic intensity is 20,000 vehicles a day, and up to 6 or more years for an intensity of less than 6,000 vehicles a day.
Again, hoping for UralVagonZavod
The gravel chippings market may face another threat, as mentioned by Deputy Director General of the Institute for Natural Monopolies’ Problems, Vladimir Savchuk.
According to him, from 2006 to 2015 the decrease in the transportation share of all kinds of cargos by railway was 60m tons, and the released volume was carried by automobile and river transport. Lately, quite the reverse is being observed: for the first four months of 2016, 1.6m tons of gravel chipping came by rail. This saved 55,000 trips.
The profitability of gravel chippings transportation by road is lower than the average profitability of railway transportation. Meanwhile, gravel chippings are one of the optimal cargos as to the technology of transportation by railway. But soon there will be a lack of low-sided cars due to their discard rate, which is 3—4 fold higher than their procurement rate. UralVagonZavod’s capacity allows for the production of over 20,000 low-sided cars a year, but last April it produced only 11. From January 1st, 2014 to March, 2016, wagon turn-around decreased by 19%. This means that the demand for rolling stock was reduced by about 12%.
But, as Vladimir Savchuk stresses, these data are still behind the discard rate, and in the nearest future gravel chippings producers will have serious problems with product shipping.
The future of the gravel chippings production industry is to a great extent connected with its resource basis. As Alexander Karpuzov, Director of the regional hydrogeological and special works of Rosgeo, affirms, there is a lot of high quality construction stone in Russia, but deposits are very hard to access from geological and economic points of view. At present there are 2,000 deposits with 384m m3 of stone, and 700m m3 are out of balance. 956 deposits are being developed, 200 are being prepared for extraction, and 5 are being investigated. 767 potential fields are not in operation for geological, economic and other reasons. Unfortunately, the majority of deposits develop only 40—60% of their resources.
So, there is a question: if Russia’s potential is so big, why do we need imports?
Will Superpave change the market?
As was remarked at the conference, not everything is good with the quality of the delivered gravel chippings. According to Andrei Semianikhin, Head Specialist for technologies and quality of the “Avtoban” road construction company, before the usage of the delivered materials, the consumers often have to bring it to the necessary condition themselves: dry it, crush it and grind it, and this costs.
The Superpave (Strategic Highway Research Program) program should be paid attention to. Now, in designing the compositions of asphalt-concrete mixes, one can determine, with a high degree of certainty, what the road surface will be like in a specific period of time.
That’s how it works in Germany: a recipe is prepared which is registered in a type of album. Nobody may change the composition, and specialists guarantee that if you do everything as prescribed, the road surface will serve for the pre-calculated period. Even a slight change in the recipe may cancel the guarantee.
Unfortunately, now we cannot boast of persistently high standards of construction stone, so we have the expansion of Ukranian concrete aggregate imports to Russia, as they are cheaper and, alas, of higher quality.
One procedure of asphalt-concrete composition designing, according to Superpave, will cost a contractor 1m roubles. If there are violations in the composition, the money goes down the drain.
In fact, the industry is approaching a new stage of its development, in which quality performances, not volumes, get priority.
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