How is the ceramics industry surviving in these conditions of decreasing demand?
Worrying news is coming in from the ceramic industry: a number of enterprises have significantly reduced their production capacities, and some of them have stopped production until better days. We talk with the Director of the Ceramic Materials Producers’ Association, Albert POPOV, on the situation for enterprises in the crisis and how they are going to overcome it.
Hope for the beginning of the season
— Mr Popov, it is no secret that the ceramic brick market is now in a rather complicated state…
— It is indeed. At the end of 2014 we saw demand peak, when the storage yards of many factories emptied: people trying to save the battered rouble bought surplus construction materials.
This spoiled the next season, in 2015. In winter, many factories had storage yards full of produce and unpaid bills. They had to look for additional finance to cover energy expenses and salary payments. This all led to a significant reduction in production in autumn and winter or even no production.
— How badly did the factories suffer?
— According to analysts, wall panel production volumes went down by 12—15% last year. Many still had hopes for the beginning of 2016, even though plants had stopped started working in January and February, 2016. The prices seemed to be going in the right direction.
A kind of niche formed in the industry. A number of large players left the market: the Verkhne-Volzhsky brick plant stopped for up-dating, and factories in the Moscow and Volga regions greatly reduced their output. The leaders of the market, for example, “Wienerberger”, decreased their output almost twofold.
This balanced the volumes of supply and demand on the market.
Factories have to operate at a loss
— Were hopes realised?
— To some extent. But then again, supply was greater than demand. And now, though the summer season has been better than the previous one, the volume of product keeps on glutting the market.
Enterprises have to make great efforts to reduce the deficit in their liquidity – that is, to engage in predatory pricing. Trade companies are taking advantage of it and maximising profit.
In spring we held a number of meetings and tried to determine the main price trends of the spring and summer season, in order to understand the prospects for enterprises’ survival.
We came across a paradox: while enterprises are trying to save kopeks (that is, to sell brick at 7.8 roubles apiece instead of 7.5 roubles), dealers were selling it at 12-14 roubles apiece on construction markets.
— So, some people are dumping and others are profiteering?
— Construction financing is stuck at present, and they have to agree with dealers over credit for construction materials: they suffer a short delay in payment but with significantly increased prices.
— Why can’t they buy directly from producers?
— They have their reasons. Pricing their product low (at the limit of the prime cost or, even lower, the break-even point), producers hope for an inflow of ready cash. This money is to help them cover the budget deficit and solve the problems connected with the risk of gas and energy shutdowns, or - God forbid – a strike in the event of salary payment delays.
Constructors do not often have such “live” money, but dealers have it.
Brick or gas concrete?
— Hasn’t the growing popularity of gas concrete as compared with brick played its role?
— I think it is connected with customers' lack of awareness of a wide range of modern ceramics’ new features.
Gas concrete is usually valued for being a little cheaper than ceramic materials. But the replacement of ceramic brick with gas concrete or gas silicate blocks does not offer any economy worth mentioning: the relative share of construction materials in the total cost of construction is not that great.
But ceramic wall panelling is a material which does not require any additional protection. Gas concrete blocks must be insulated, protected against weather impact, etc.
Quite another thing is brick work. It will last without any additional protection as it is protected itself.
Gas concrete makes the process of construction simpler: builders with low qualifications can work with it, but the presence of such workers on a construction site is a drawback rather than an advantage, as they make serious mistakes in building objects.
Besides, with such replacements builders create problems for future residents – houses made of foamed concrete are more expensive in their exploitation.
Nobody buys low-grade products
— What does the quality of brick depend on? Are there producers who improve the formula and update technological processes?
— It is not profitable to produce low quality ceramics. You might sell a batch once, then you lose the client after they complain.
Though the primary material is different, the technology allows us to develop the product up to the necessary standards. GOST “Ceramic brick and stone” dated 2012 is a comprehensive document developed by our Association, the Ceramics Scientific Center and leading industry producers.
Five years have passed since it was adopted, and we are starting work on amendments to get new norms regulating the requirements of output by 2017, including rules of storage and transportation.
Also, a new technology - foam ceramics – is to be assimilated. It has excellent performance factors: a high heat insulation index, incombustibility, a long lifespan. There are no other heat insulators in the world providing such performance. We hope that in some time, the first factories producing it will appear in Russia.
Are we dangerous as we are many? Nonsense!
— Many foreign factories deal with green technologies. Are there domestic enterprises where this is important, in spite of the crisis?
— To remind you, in brick production water resources are not used – that is, nothing is drained off. There is no vent emission either. Besides, wall ceramics producers are very much interested in production sustainability increases and CO2 emissions reductions.
It was very strange to learn that brick production was included in the first category as to the degree of impact on the environment, alongside metal production, the chemical industry and cement and glass production!
It can be explained only by the large number of producers. There are 300 ceramics enterprises in Russia. Perhaps this is the reason why we were considered as significantly influencing nature.
— Mr Popov, to sum up our conversation, what ways out of the critical situation the industry has fallen into can you see?
— I must say that the factories themselves are very self-motivated. The creation of our Association was the first step towards consolidation. At present it has united 50 producers of wall ceramics. We have started systematic work on standards and regulations in design and construction improvement. We continually inform our members about the current price trends on the market and customers’ preferences.
We provide for Russian producers’ participation in the exhibitions, even the international ones. This year a delegation will be sent to the TECNARGILLA specialized exhibition in Italy within the mutual program of the Association and the Italian trade mission in Russia.
I think that even in the most difficult moments of life we should not stay in the same place. This stop is deathly.
It is important for us to understand the conditions of the industry, and the possibilities of updating. It is in difficult times that successful startups are born. Our factories are actively searching for new niches on the market, and we plan to produce new sorts of ceramics. And it is very useful to attend high-level exhibitions. We will do everything possible for the industry’s potential to grow. Wall ceramic panels must be available to the majority of Russians.