Igor Shats: The Russian slag wool market is close to 100% localization
The Director General of “Paroc” Ltd., Igor Shats, answers questions from “Construction.ru”.
— Mr. Shats, what are the results of 2014 for the slag wool market?
— Despite a rather pessimistic forecast at the beginning of 2014, the Russian market for mineral wool products production showed a good tendency towards growth. Last year we didn’t see serious over-production, though the key players of this market launched new facilities and some of them even started new plants. There are some imports on the market but they are decreasing gradually. For example, last year our company imported about 35% of saleable volumes and our main competitors also used imports. By our assessment, mineral wool production localization on the home market is approaching 100%.
— What are the pricing tendencies on the market, as they correspond with the volatile course of the ruble?
— With the current rate of the ruble to the euro, local production is much more profitable than importing, so we’ll continue import substitution.
— But still, won’t the market be congested because of a fall in demand following construction volumes reduction?
— Everything will depend on the market situation in the coming two years. We think that this year, construction volumes will decrease by 10-15%, and this tendency will continue next year. Hard times for mineral wool producers will come at the end of 2015 / the beginning of 2016, due to a decrease in the launching of new objects. Investment activity will be reduced, and we cannot expect rapid development of new construction.
— How do anti-Russian sanctions impact upon the work of companies in your construction materials market sector? Do they influence the production costs and final prices? What is the role of Russian raw materials in production?
— On the one hand, sanctions are negatively influencing our economy. On the other hand, following our government, I’ll repeat that we will see some advantages and gains from these sanctions. However, the Russian economy will feel this only at the end of next year, and in 2017 for sure. Final production and the localization of associated products on the construction market is going on and gathering speed. Of course, it is connected with the devaluation of the ruble. As all imported materials are much more expensive than local equivalents, I see a definite benefit from the sanctions for the Russian economy.
As for the prime cost,
It was influenced not so much by sanctions but by the ruble rate decrease and some panic in the market. It also will be influenced by the energy supply cost increase. Starting in July, prices for electric power and gas are to grow by 8%. It will seriously influence both prime cost and final prices.
— How seriously?
— I think the cost will rise 5-12%,depending on the role of Russian primary products. Thus, we now use 40% imported primary products, and some of these cannot be replaced by Russian ones. For example, in technological processes we use a definite kind of stone which geologists haven’t found in that part of Russia where it is convenient to deliver it from, so we cannot do without European imports.
— Where are primary products delivered from?
— About 30% of stone is delivered from Finland. 10% is packing materials’constituent parts and coal. Paroc uses coal for rock wool production and we are very demanding as to its quality, first of all of fractional constituent. We still work with Ukrainian coke-coal, prices on which are calculated in euros. That is why it’s difficult to find Russian product with the same characteristics, but we are working at it and are close to signing a contract.
— 40% of imported primary materials is rather a lot. How are you going to decrease these imports?
— Significantly. This year we’ll reduce it by 20%, and in 2016 the maximum will be 5%. Thus the situation with primary products will change drastically.
— What are your dynamics on the market for construction insulation commercial sales? What helps you develop?
— Our commercial sales of construction insulation have increased by up to 50% on the level for 2013 while the market on the whole has grown by 10-12%. Several factors provided for our active development: we have become a local producer and the sales geography of our production has broadened. We have developed our commercial strategy on the Russian market, in its key regions, for three years. And all that has rendered a good result, though we are carefully planning some slight growth in 2015; it’s hard for the whole construction market.
— In December 2013 in the Tver region, your plant producing technical and construction insulation started work. The Prime Minister of Russia, Dmitry Medvedev, took part in the opening ceremony. How in-demand is Paroc’s production on this market?
— All of the produced materials – about 29,000 tons – were sold. This year, 100% capacity utilization has been achieved (45 thousand tons), and all the volume is planned to be sold.
— How do you see the company’s participation in the RF Government program on energy efficiency increase?
— Participation in this important state program is one of the key directions in the company’s development strategy. Within its framework we are implementing a number of interesting projects: energy-efficient houses, ecology etc.
— You take an active part in the Association of Russian Quality Heating Producers. What problems do market players manage to solve with its help?
— The work of the Association is very useful, and participation in it reaps a number of benefits. We popularize mineral wool production on the market. “Rosizol” communicates closely with testing institutions, promoting its technical advantages. We also work with the specifying authorities in order to master standard technical documents: a number of construction rules and regulations haven’t been kept up to date for dozens of years, and technologies have moved on a long way. Another direction of “Rosizol”’s work is the active promotion of heating production, its standardization and fire safety certification.
— READER’S QUESTION. Kirill from Tula asks: what requirements should a company meet to become your dealer?
— We choose our partners carefully, especially our commercial partners. Our production is some of the highest quality on the market. So our dealers must have serious experience on the market, and their development strategy should correspond with ours. That is, they must be reliable and transparent, aimed at the end user, and they must have high quality service and a reputation with clients.
— Our traditional question about your free time: what are you fond of?
— I spend all my free time with my family. My children are already grown up and I have a granddaughter who is a year and a half old. Playing with her gives me huge pleasure. My wife and I like to travel; we have travelled half the world and are going to visit places where we haven’t been yet. I like sports, but I really have no time to practice them actively. But I do my morning exercises.