PVC market growth despite Russian construction industry stagnation

The I International conference PVC in construction: trends, prospects, growing points took place in Azimut Moscow Olympic Hotel on 21 June. Changes in the construction industry of Russia and their influence on the market for PVC mouldings were discussed at the conference. Representatives of Rehau, Aluplast RUS, Trade House Bashkhim, Veka Rus, Döcke Extrusion, Deceuninck Rus, Kaustik, Proplex Trading House, profine RUS, PVC Window Profile Manufacturers Association, Exprof, YALUKS Group to name a few participated in the event.

            The PVC market situation is changing diversely. Sayanskkhimplast halted production last year. A shortage of domestic products arose. After Sayanskkhimplast returned to steady operations, it was eliminated. In 2017, the PVC market has converted into a buyer's one. Even though PVC supply has stabilised, the business environment has stayed harsh in the consuming industries. The Russian construction industry has been stagnating for 14 quarters in a row now, and this has been affecting the PVC market in general and the mouldings segment in particular.

 

Stagnation of construction industry as main reason for PVC market contraction

            The first round table meeting was dedicated to the industrial and civil construction and its influence on the market for PVC goods. The head of the project management team at the Rating Agency of Building Complex (R.A.B.C.) Fyodor Vylomov delivered a report about the current situation in the Russian construction industry and the outlook for it. There are over 5,000 developers in the Russian market.The construction output declined by 4.3% in 2016. Housing commissioning dropped by 6% to 80.2 million sq m, and it will go further down to reach about 75—76 million sq m over 2017.

            There are also positive trends in the construction industry. The mortgage lending is increasing. The total mortgage loan value is expected to hit RUB 2 trillion this year. A number of reforms are being implemented to improve the business climate in the construction industry in the near term. Subsidies on infrastructure construction are among them. The reform 24-FZ aimed at encouraging pre-construction housing co-investment will stimulate demand in the long term.

         Mortgage lending may become an important driver of the Russian construction market. Construction of over 80% of all the commissioned homes was funded by individuals under cost-sharing agreements. In 2016, individuals' investments in residential construction under cost-sharing agreements increased by 9% to RUB 3.05 trillion. A total of 856,344 loans worth RUB 1,472 billion were given in 2016, up 24% and 28% respectively from the previous year. The mortgage interest rates decreased to 11.7% per annum in Q1 2017, and they continue falling. Aleksandr Kozlov, the senior analyst of IndexBox Russia market research department, is certain that this will lead to the mortgage market expansion in the next three to four years. Lending will rise by 15—17% this year, with the annual growth rates of 12—13% forecast for the period from 2018 to 2020

            Nikolay Gavrilov-Kremichev, the editor-in-chief for SSK-Inform, gave a review of the situation and the trends in the PVC window and door profile market. The construction industry stagnation will contribute to the continuing shrinkage of the PVC profile market in 2017. The contraction rates will be minimal though. Stabilisation may be expected as early as 2018.

 

Russian PVC market rebounds

            Marina Ostrovskaya, the analyst for Chem-Courier information agency, mentioned in her report Russian PVC market: outlook for 2017—2018 that a 25% five-month increase in the estimated consumption is attributed to stable operations of all the domestic producers (PVC was out of production at Sayanskkhimplast in the same period last year) and a spate of imports of Chinese acetylene-based PVC. The actual consumption is at odds with this figure because a part of the polymer is in stock of traders, producers and, to some extent, converters ahead of the high season.

            The Russian market for suspension PVC has overcome the stagnation, and consumption will grow in the next few years. Chem-Courier's factor analysis-based forecast for the S-PVC market capacity suggests that S-PVC consumption will total 845,000 t in 2017, which is 3% above the last year's level. In 2018, it will come to about 879,000 t. Even though imports will decline this year, they will be as large as 99,000 t, sinking by 35% in 2018.

            Large imports of Chinese PVC and a slight increase in actual PVC consumption, along with stable operations of local facilities will make Russian producers balance the market at the end of the year by shipping significant volumes of domestic PVC to the foreign markets. Chem-Courier predicts exports to amount to 90,000 t.

             With the imported low-cost Chinese PVC being available in the Russian market, local manufacturers will be unable to implement high-season price increases this year. Moreover, prices for Russian PVC will not reach the highs of 2016. Russian plants are likely to try increasing the polymer value in August, during the maintenance at Bashkir Soda Company and Sayanskkhimplast. Even if the scenario unfolds, the price rise will be small.

 

Expensive titanium dioxide for Russian consumers

            The situation in the world market for titanium dioxide has a profound impact on the Russian one. The shutdowns of large plants worldwide have resulted in an acute shortage. Under the circumstances, producers are hiking prices. Between H2 2016 and mid-2017, prices for different grades of the product added 40% to 70%. Chem-Courier business development director Viktoriya Chernova thinks several scenarios are possible in the titanium dioxide market in 2018. Under the optimistic one, the shortage will ease off and prices start creeping up as early as the second half of the year. If the pessimistic one unfolds, the product will still be in tight supply throughout next year, and this will result in a sharp price rise.

            Dmitry Polosin, the director of Titanovyye Investitsii marketing department, told about titanium dioxide as an integral part of polyvinyl chloride formulations. There are two main reasons for the appreciation of titanium dioxide now. The first one is a lack of the commodity in the market and the second one is a surge in prices for ilmenite, titanium dioxide feedstock.

 

Season start falls short of PVC profile market participants

            During the discussion session, representatives of the largest PVC profile and siding companies discussed the impact of raw materials costs on the finished product markets. Summing up the results of last year, Artyom Kassin, deputy managing director for production at Döcke Extrusion, highlighted the company's two focus areas. The situation is still difficult in the siding market, and the company faced a 5% decline in this segment. That for drainage keeps growing rapidly, and the company's growth was 15% there. This year, the weather has added to the difficulties already existing in the market. Cold and rainy weather discourages consumer activity. The depression is likely to persist in the siding market in 2017.

            The head of the procurement department of profine RUS Tatiana Luzina pointed out that the situation improved in the PVC market. This is primarily attested by larger supply of the domestic goods compared to last year. At the time of Sayanskkhimplast's shutdown, at the beginning of 2016, consumers faced difficulties with stable procurement of the product as they had to purchase Chinese polymer. Its delivery sometimes came with the customs problems, which added uncertainty and made procurement even more complicated. Even though the situation has become much better this year, the market is still far from becoming a buyer's one. Anyway, converters have already got an opportunity to diversify supplies from different producers.

            Stiff competition in the PVC profile market has urged many producers to try changing formulations so that production cost of finished goods is minimised. In pursuit of cost saving, some companies neglect quality though. Aleksey Kashtanov, Exprof managing director, considers this a wrong path because it entails reputation risks and a loss of face. Occasional earnings are much smaller than advertising and brand promotion costs are.

 

PVC profile quality outweighs marketing gimmicks

            "The sandwich panel market has been rather stable in the last few years," Aleksey Karovetsky, the director of YALUKS Group plant, said. Consumption averaged 24 million sq m in 2015 and 2016. The sandwich panel market correlates with the translucent assembly one since both products are used in construction. Moreover, the markets have similar problems. There are many producers of low-cost sandwich panels in the market. Amid rough competition, prices are reduced by means of worse quality. One of the ways of resolving this problem is making producers legally liable for defective goods.

            PVC profile windows, according to the estimates of Sergey Rusin, the director-general of the PVC Window Profile Manufacturers Association, accounted for 70% of the market last year. The rest of 30% is comprised of wooden and aluminium windows. Nevertheless, PVC profile consumption is shrinking. The estimated consumption of PVC used in profile production fell to 260,000 t in 2016. In 2012, it amounted to 495,000 t. The PVC profile market is expected to stop narrowing in 2017.

            "Power saving is an important feature of window systems," mentioned Proplex managing director Stanislav Soynov. Russia's energy intensity is higher than that of all the developed nations. Compared to Scandinavian countries, for instance, it is three to four times higher. A legislated launch of thermal power saving schemes will make for much faster growth of the PVC window profile market, primarily owing to replacement of the existing window systems with low energy efficiency.

            The report of Aluplast RUS managing director Aleksandr Klotts about high-end profile systems became a logical conclusion of the event. The experience of Aluplast RUS shows that the quality of finished goods and the maximum customer focus are essential in the window system market in terms of consumption. Moreover, consumers are barely receptive to marketing decisions.

            The industry burning issues were discussed during the workshop sessions and behind the scenes of PVC in construction: trends, prospects, growing points conference. The PVC market is dynamic though, and there are still issues to focus on. Being aware of the necessity of discussing pricing, analysis and outlooks for the PVC and downstream markets, Chem-Courier information agency is going to hold the II International conference PVC in construction: trends, prospects, growing points in mid-June 2018. Visit chem-courier.ru website for up-to-date information. 

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Head of marketing of Veka Rus Sergey Yel’nikov will present a report on the topic of “Regional peculiarities of PVC products usage in Russian building sites” during the first session of the conference.

CHELPIPE joins conference
Thursday, 18 May 2017
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Head of business development of CHELPIPE (CPPP) has confirmed his participation in the international conference “PVC in Construction: Trends, Prospects, Growing Points”.

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Euro Colour (Saint Petersburg), the official representative of KRONOS TITAN, has chosen its delegation. The company will be represented by the head of sales department at the international conference “PVC in Construction: Trends, Prospects, Growing Points”.

DPO Plastik to attend event
Thursday, 18 May 2017
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The executive director of DPO Plastik (Dzerzhinsk) will join the participants of the international conference “PVC in Construction: Trends, Prospects, Growing Points”.

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The vice-president of Holzplast Pavel Sergunin will participate actively in the conference’s business programme and give a report during the discussion-session dedicated to the usage of PVC products in external finishes of buildings. The topic of the report is being specified.

Kasimovnerud coming to conference
Friday, 05 May 2017
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Head of sales development of Kasimovnerud (note – mine and converter of carbonate rock) will join the participants of the International conference.