Heat insulation market: Is the glass half-full or half-empty?

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Heat insulation market: Is the glass half-full or half-empty?
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The situation in the sphere of construction on the whole and on the heat insulation market in particular was discussed by the participants of the “Construction insulation 2016” International congress. What are the main conclusions?

The participants’ opinions differed greatly. Some of them think that the industry is in deep crisis and see the ways of development in expenditures reduction and production quality decrease. Others think the current condition to be “a new normality”, where production diversification and enterprises inner structure optimization will play the main role. Is the glass half-full or half-empty? Time seems to dot the i’s on the heat insulation market.


The situation is complicated but not critical

Of course, the situation on the HIM market cannot be considered apart from the state of matters in construction industry. And it does not look as bad as it might seem. The volumes of non-housing realty and commercial construction have decreased but the volume of leased mortgage loans in the first quarter of 2016 achieved the level of 2014.

— Russia is a country of paradoxes. Despite all negative factors of the last two years, the housing construction keeps growing, Nickolai Gavrilov-Kremichev, editor-in-chief of the “Modern construction structures” publishing center. — In 2016 we expect slight decrease in the volumes of housing put in operation, but not 10—20%, as it had been expected in the beginning of the year.  

However, putting housing in operation and housing construction are quite different things. The construction work volumes decreased in 2015, the positive dynamics was shown only in the RF Central Federal District. The volumes decrease in the majority of federal districts, especially in the Southern one, which used to be the leader the dynamics. Neither nonresidential building nor individual housing construction grow.

In this connection, cement production dynamics looks impressive as a leading economic indicator. If in 2014 the index was almost 69m tons, in 2015 it fell to the level of 2012 – to 62m tons. It also witnesses that construction is seriously retarding.

As far as the HIM market is concerned, the situation is not steady either. Thus, heat insulation production capacities commissioning in 2015 decreased 10 fold as compared with 2014: from 4,158,000 to 415,000 m3. According to SMPRO’s data, the GDP in the industry decreased by 3.7% last year, investments in capital assets  - by 8.4%, all construction materials production reduced by 7.8%, and the work volume in construction – by 7%.

—  In the first quarter of 2016 the production of construction materials decreased by more than 14%, housing commissioning — by 16%, — Evgeny Vysotsky, Deputy Director General of SMPRO, stressed.  — And we are inclined to conclude that this year the decrease in the construction materials production will achieve 10%.


Is steadying round the corner?

What is expecting the market in the nearest prospect? The majority of experts agree, that the decrease of production won’t be long. It is conditioned by low housing provision in Russia (24 square meters for a person – it is much lower than in Europe and the USA) and by the housing condition (only 68% may be referred to as well-designed). Russia lacks housing, and it will be constructed.

— We expect that after a slight recession in the beginning of 2017 strengthening of both housing construction and commercial realty markets will begin, — Nickolai Gavrilov-Kremichev says. — Then a slight growth of housing commissioning is likely to keep on in 2018. Since the second half-year of 2017 commercial realty construction volume will recover.  

As far as the HIM market is concerned, according to Yury Savkin, Director of Foam polystyrene producers and deliverers’ association, HIM production and consumption recession in 2015 – 2015 will not be long.

— This year the market will turn from double-digit to single digit percentage rates. And from the middle of 2017 – beginning of 2018 inevitable growth is expected due to large-scale infrastructure projects in the country, — Yury Savkin thinks.

In the period of recession producers are to focus at preserving and improving their products’ quality parameters, and to keep on the market formation as well as its development.

Optimization time

Alexander Romanenko, Director of the Indexbox Marketing company presented an interesting point of view. Before the congress the company made a query among 60 CEOs of the companies-participants of the forum from all over Russia and asked them to assess the market of construction insulation from January to May, 2016. The received answers were compared with the data of the same period of 2015.

An interesting thing turned out in the result. Though the majority of companies did not increase their production volumes, a third of respondents claimed they had enhanced the capacity.

— Either companies having recently entered the market or those having diversified production and introduced other products manufacturing have increased their capacities, - Alexander Romanenko commented on the results of the query. According to him, 40% of enterprises have decreased production capacities load, stocks are declining, and the price follows the growing prime materials’ prices. 

— Stock reduction — is a characteristic feature of the fact that enterprises are accustomed to the crisis condition, the analyst stressed and added: — One of the companies confessed that tries to get rid of stocks during the crisis and to reconstruct the logistics system in the way to deliver all orders on time.

Such attitude towards the production capacities is a good sign, from marketing specialists’ standpoint. Many companies claim business diversification  and production line expanding – and it is a positive fact as well. It is a growth driver giving an opportunity to introduce new production capacities.  

Following Alexander Romanenko, the market will be in the state of the so called “new normality” (Head of the RF Ministry of Economic Development Alexei Uliukaev likes to use this term). It is characterized with low growth rates, reserved optimism as far as prospects are concerned. In its turn this conditions low level of risks adoption: i.e. companies will not be ready to reinvest the income even if they have it.

According to Alexander Romanenko, enterprises have made very trivial steps for the last a year and a half. They have reduced the expenditures for the most evident points: they downsized employees and crossed over to lower quality prime materials.

At the same time many companies have worked with marketing, expanded distribution, products’ line, started to optimize business processes.

— Meanwhile, the only way to survive and gain success in the new normality conditions is to optimize the inner structure and enhance competitiveness, the expert concluded.  

Major repair - forever!

Another thing all the participants paid attention to is the role of the state in the change of the market condition. The congress participants agreed that the state as a customer leaves the construction sector, ad this trend will continue.  

However, constructors expect that the state will not go out of the process and will stimulate the commercial sector to reinvest their income.

— The current negative factors are investments and citizens’ incomes decrease, credits rate increase for business and mortgage loan, — Alexander Gurchenko, Development Director of “Slag wool” line of the “TechnoNIKOL” corporation, thinks. — We look forward to state support in these aspects.

Shota Khabelashvili, Director General of “Mosstroy-31” group, shared an interesting standpoint. According to him, the economic growth driver on the HIM market may become the program of capital repairs.

— We speak much on the necessity of constructing cheap and comfortable housing, why not make it such after the overhaul? — Shota Khabelashvili reasons. — The RF PresidentVladimir Putin announced that 1 bln sq. m housing demands overhaul. And our northern country needs heat insulation.

— If formerly heat insulation of facades was optional, currently a decision was taken in the Moscow region to make such work compulsory, — the top-manager added. — I hope that other regions will follow the example, and shall feel the growth in the heat insulation production in the next year’s first quarter.

A ticket to success — in customer’s being on a safe side

Anyway, construction industry enterprises have to survive in the present conditions. From the congress participants’ point of view, the major negative tendency is the unpredictability of the future for an ordinary customer. 

As soon as a common man understands that his peace is not threatened, he will come back to the market.  And yet, enterprises have to survive in the conditions of tough and even unconscientious rivalry.

But is it so bad? Rivalry provides for mobilizing labour and intellectual resources, stimulates the higher quality products offer, good service. Which is good for any market, including the construction one. Do you agree?