15 февраля 2011

`РVС. Rеsults оf thе yеаr: еvеnt rероrt`

The problem of quality of PVC products have been moved to the background by manufacturers for too long. With the deceleration of demand the struggle for the quality now is not a whim, but a pledge of survival of companies.

On Wednesday, December 5, 2011 at the hotel "Baltchug Kempinski Moscow" Creon`s conference "PVC. Results of the year" was held. Twelve months ago it was talked a lot about what will happen on PVC market in Russia in 2011. Somebody was expecting a repetition of last year`s growth rates; somebody was expecting growth of prices for PVC up to 70 thousand rubles per ton. To put it mildly, not all of these predictions came true as the market turned around in the opposite direction. Now many Russian processors experience serious difficulties, because they can not sell the products made of expensive PVC, which was bought in the beginning of the year. PVC prices, instead of the expected growth, have decreased dramatically and have reached the psychological minimum. Considerable volumes of imported PVC still remain in warehouses. While at the end of 2010 participants of the market were too optimistic, now the processors and traders are struggling with negative expectations from the coming 2012 year. CEO of Creon Sandjar Turgunov told about it in his welcome address to the participants of the conference.

The conference was opened by the report of the deputy of chief manager of "LUKoil" Kirill Popov about the new PVC production at the plant "Karpatneftekhim" in the Ukrainian Kalush. The new production which runs with industrial volumes for more than six months is unique for Ukraine, which, as it is known, does not have the "big petrochemical industry". According to Mr. Popov, the quality of Kalush PVC complies with European counterparts and considerably exceeds Asian imports. The content of residual vinyl chloride is 0.7 ppm, while the content in products of competitors ranges from 3 to 10 ppm. Around 77 thousand tons of PVC were already sold from the start of the production, 70% of this volume were delivered for the Russian market, 25% for Ukraine, and the rest for Turkey and other countries. Official traders in Russia are "Centropolymer" and "Plastsnab". The plant with the installed capacity of 300 thousand tones of PVC per year may, in case of necessity, increase output by another 15%.

The reporter particularly described long-term and current trends on the world market of PVC. According to his estimates, for 20 years, the margin on the market reduced from $ 200 per ton to $ 25, it changes cyclically. Now the situation resembles the end of the 1990s, when processing developed rapidly because of low prices for PVC. The main reason of global redundancy of PVC is output on the market of large amounts of American product, which, according to Mr. Popov, sold in Russia at dumping prices that are 40% lower than American ones. Now taking into account Russia`s accession to the WTO "LUKoil" tries to solve this problem, the American PVC price should rise by 20%. "LUKoil" is planning to increase the selling price for PVC in December-January.

The rate of growth of the domestic market of PVC in Russia significantly decreased, however market will remain deficit even after 2013 (the launch of production of "Rusvinyl" with a capacity of 330 thousand tons), even if it go on to grow by at least 6% per year. At the same time, Mr. Popov estimated the redundant volume of imports in the middle of the year as 100 thousand tons, however, according to him; the most part of these reserves has already been sold. The competitiveness of Russian producers of PVC is questionable in comparison with American producers, although traditionally it is considered to be otherwise. The fact, that even expensive European PVC being imported to Russia, according to Mr. Popov, is explained by the fact that it is "squeezed" out of the European market by American products. The reason for the loss of competitiveness of the domestic petrochemical industry, according to the reporter, is caused by the growth of oil production costs, which in Russia are already larger than in China. Report of the representative of "LUKoil" attracted the attention of the audience, although some of its provisions aroused the discrepant reaction of participants.
The chief chemist of Sayanskchimplast Alexander Seleznev made the comparison of the characteristics of Russian and imported PVC. He reminded the audience that the characteristics of the polymer depend on its molecular properties. The diffusion of molecular weights is particularly important; the higher the temperature of polymerization, the lower is molecular weight of the polymer, respectively, the stricter temperature of the reaction is maintained, the more homogenous and high qualitative product comes out. The thermal stability of the polymer depends on the presence of branching in polymer chain. In turn, the presence of branches and foreign extraneous groups of the polymer is determined by the content in the reaction mixture of oxygen and other impurities. The bulk density of the polymer must be homogeneous; otherwise its processing becomes much more complicated. For the production of compounds also an important characteristic is a mass of the absorption of the plasticizer and speed of this process. The ecological characteristics of PVC are determined by the content of residual vinyl chloride. As well as Mr. Popov, Mr. Seleznyov noted that the qualitative characteristics of production of the enterprise, which he represents, is not inferior to European and American PVC and exceed the Chinese samples. At the same time, he noted that the qualitative characteristics are discussed with each major client of Sayanskchimplast individually. Director for commerce of the company Alexander Krivopusko specified that the qualitative characteristics are prescribed in agreements with just four companies - one manufacturer of plastic compounds and three manufacturers of profiles.

Head of the department of the research and development of PVC production of Plastcard Yuri Shatalin told about the prospects of manufacture of this product in the company. Karpatneftekhim was called by reporter as the main competitor of the enterprise and it was explained by geographical reasons. Production by Japanese technology has reached the capacity of 95 thousand tones, now it is being actively transferred to production of specialized PVC brands. Nearly half of additives and catalysts are imported; the company previously bought them in Japan, now purchase in European countries. Among the major consumers of PVC, with which the company actively cooperates, Mr. Shatalin named companies Biochimplast, Vladimir Chemical Plant, Profine Rus, STL Extrusion, Logicroof, Technonicol. A number of PVC is processed by Solygran and Plastcab that is included, as Plastcard Nikochem Holding. In particular, Plastcab produces cold-resistant PVC compounds for the needs of Russian Railways. Selling of special brands is carried out by the company itself, and ordinary brands are traditionally sold through United Trading Company.

Leading specialist of the IAC Kortes Valeriya Samarina told about the current condition of the Russian market of PVC. Over the past five years the Russian PVC market has increased from 740 to 976 thousand tons, and the growth was achieved entirely because of increase of imports, so far as domestic production over the same period decreased by 7%. Only for 9 months of 2011 import of PVC in the country increased by one third, however, the market could not absorb all the volumes of this product. Mrs. Samarina estimated redundant import at 60-70 thousand tons; these volumes can be reduced to nothing only in the end of the year. American PVC massively enters the Russian market already in 2007 and now along with the Chinese products, absolutely dominates in the structure of import. The share of the new Ukrainian PVC on the Russian market makes up 2%, and will grow with the increase of utilization of the Karpatneftechim. Imported PVC, which now makes up about half of the consumption of polymer in Russia, will not withdraw from the market for a long time, even in spite of the fact, that all Russian manufacturers of PVC are planning to increase capacities. By 2015, the total capacity of Russian enterprises can reach 1.5 million tons; Sterlitamak Kaustic and Sayanskchimplast plan to produce 400 thousand tons of the polymer each, the capacity of the plant Rusvinyl will be 330 thousand tons, Plastcard will bring the capacity up to 120 thousand tons, and Volgograd Chimprom up to 197 thousand tons. PVC prices in Russia are gradually going down, and now have reached 40000 rubles per ton, that is much less than in the middle of 2008. Dynamics of the prices for the Russian product in whole is similar to that of the competitors from the USA and China. According to the estimates of Mrs. Samarina, the growth rate of demand for PVC according to the results of the 2011 will not exceed 7% that roughly corresponds to the average annual indicators in Russia for the recent years.

The CEO of Mining and Chemical Company Pavel Kalugin told about regional trading as a perspective form of business on Russian market of PVC. He reminded the audience that in the 1990s, factories sold the products by themselves, then there was a brief period of trading houses, and from the mid-2000s specialized trading became a mass phenomenon in the industry. Now the reduction in the number and merge of traders is taking place, which leads to the restriction of competition and increases entry barriers for newcomers. According to Mr. Kalugin, the further successful development of the Russian market is possible only through a system of regional traders, closely related with local processors. The task of the "growing" of the local processing of polymers should be solved with the participation of regional traders. The reporter noted that although the share of Central Russia and North-West still make up about half of the PVC processing in the country, the markets of the Urals and Siberia have been actively developing in recent years and primarily they are in need of support. Alexei Zavyalov, the CEO of Centropolymer pointed at economic weakness and market inefficiencies of small companies that cannot ease price volatility at the expense of large stocks. The CEO of the other trading company UTS-Chimproduct Peter Ogorodnov added that the aims should be to be an effective distributor, and not just to sell the products.

Marketing director of the analytical centre Miel Olga Muratova told about the trends in the market of residential real estate of the Moscow region. In 2010 1.8 million square meters of habitation was put into operation in Moscow in total, that is 2,5 times less than in pre-crisis years. At the same time only 1.1 million square meters were sold on a commercial basis, other volumes are used for the needs of the resettlement. Respectively 2.5 and 1.5 million square meters of housing are expected to enter in 2011. The plans of the mayor`s office do not intend significant increase in these numbers in the next few years. At the same time residential construction in Moscow region is developing actively and in 2010 the region has put into operation 4.9 million square meters of housing (excluding the low-rise construction). At the end of this year the figures will be even higher - 5.3 million square meters. Housing is built mainly in nearest surrounding suburbs - Balashikha, Communarka, Khimki, Odintsovo, as well as in Shodnya and Lobnya. More affordable housing is constructed in the Moscow region - the share of the middle and economy class in the region is higher than 95%, while in Moscow it is a bit more than half. Apartments` prices in the Moscow region is now 14% lower than they were in the middle of 2008.

Senior analyst of Cushman&Wakefield Alexander Zinkovsky told about tendencies of the market of the commercial real estate of Moscow and Moscow region. According to him, the volume of office construction during the crisis has dramatically decreased and it will start to grow not earlier than in 2013. The projects of building of new office centers are being implemented mainly in the city center, as well as along the Leningradskoe highway and Kutuzovsky prospect. Mostly office buildings of class A are constructed, as there is a lack of ones on the market. The market of trading real estate has fallen very much, however, it will grow, as the provision of retail space in Moscow is in 3-4 times lower than in other global cities. There is a lack of new projects on the market of warehouse real estate, but their appearance is inevitable, because the amount of warehouse areas in the capital and in the region is less than necessary. No defined investment projects have been announced yet on the territory of so called New Moscow.
Representatives of the company "O.K.N.A.-Marketing", CEO Irina Obrosova and commercial director Olga Chigodaikina told about tendencies of development of Russian market of PVC profiles, which accounts for more than half of the total PVC consumption in the country. In 2011, the market has grown, according to the estimates of speakers, only by 1%. At the same time volumes of consumption in construction has fallen, and in the private sector have increased, and the market "get in plus" due to that. Private consumers make up 82% of sales of PVC windows in Russia. Their motivation for purchase of these products is changing with the course of time: people are attracted not by the best thermal insulation, but more efficient noise-protection. Windows are bought less in relation with a repair, more often they appear after moving to a new-built or new-bought apartment. Because of the recent hot summer, many consumers prefer to spend money that was saved for the replacement of windows for purchase of air-conditioners. The incomes of the population have not significantly increased, however, consumer lending revives, and unemployment has decreased. Nevertheless, consumer behavior remains conservative, crisis, according to the apt remark of the speakers, is not in the wallets, and in the heads. The cost of PVC profiles is reducing - if five years ago, a kilogram of profile cost 2,4 euro, now it costs only 2,07 euro. In the same time the quality of the products decreases - there is less and less of PVC in the profile, and titanium dioxide replaced actively by a chalk. Reporters suppose that the potential of growth of the market can be provided by replacement of worn-out PVC windows of the first generation, which were mounted 15 years ago in Moscow region and in the Far East, and also in the development of small regional markets. Now in Russia the share of PVC windows in the glazing is estimated at only 40%. According to the optimistic forecast the market will grow in 2012 by 5%, according to the pessimistic scenario - will be reduced by 10-20%.
During the roundtable discussion, the participants of the conference agreed on the fact that presented estimates of market growth and forecasts of demand reduction are too pessimistic. CEO of the firm "Proplex" Dmitry Matveev estimates the growth of the market in 2011 by 5-10%, next year the company is preparing for the worst and planning to cut costs. The commercial director of "Exprof" Vasily Bochkarev supposes that the solution of the problems is in the transition to co-extruders of profile, in which the outer layer will be made according to traditional recipes while the inside layer according to reduced scheme. He encouraged not to be afraid of crisis, because the industry is living though it already the fifth year in a row. Director of business development and project management of "Profine Rus" Alexander Kitaev-Smyk told that the company, whose share on the market by the estimates of the company is 15%, is planning to master new directions - manufacture of profiles colored by lamination or dyeing, as well as to develop the production of cheaper brands of window profiles and other profile-molded products. Sales director of "Vintek Plastic" Sergey Asadychev did not agree with the colleagues and foresees the market decline by 10% in the next year because of a drop in new housing development and the decrease of the purchasing power of the population. The service life of windows decreases over time, as their quality is reduced as market competition intensifies. The reason for this, in his opinion, is overpriced monopolized market of PVC.

Founder of the company "Polymer Service" Michael Grosse-Aschoff and sales director of the company Vladimir Morinov made a presentation of the production technology of high-filled PVC profiles. The speakers explained that to reduce the cost producers of profiles increasingly refuse traditional and expensive components in favor of cheaper ones. Expensive and scarce components are titanium dioxide, acrylic monomers, plasticizers and lubricants. Reduce of the cost price of profile in this case is possible due to the technology of co-extrusion (see above) or due to transition to high-filled profiles with a high content of chalk (20 or more parts per 100 parts of PVC). With the correct selection of the compounding and extrusion technology the quality of such profiles are the same as of ordinary ones, but the cost is lower by 50-90 euros per ton. In addition to the replacement of titanium dioxide by chalk, chlorinated polyethylene is proposed to be used as modifier in the inner layer to reduce the cost of a profile. These technological innovations are in great demand among the Russian companies, but, the speakers did not disclose who exactly uses them according to customers` please.

The Head of Creon Fares Kilzie considers that the PVC market in Russia now is shouting about what the company said over the past years: a qualitative degradation of the industry. However, the slowdown of growth in demand and toughening of competition will inevitably lead to the improvement of the market and will spur its division into the premium and budget parts. To sell more expensive products, manufacturers will have to pay more and more attention to the quality of the product. Speeches of representatives of Sayanskchimplast have confirmed that it is already happening.

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