In PVC market, the upward trend evolves in the output of products in low-cost segment. The main demand is increasingly concentrated in the products of low quality.
INVENTRA, part of CREON Advisory Group, organized the International «PVC. Results of the Year 2013» Conference in Moscow on December 2. Centropolymer became the Sponsor of the event.
«Discussions of multiple market segments in plastics and hydrocarbons production that were held at our events in 2013 resulted in a uniform conclusion: the growth of demand will be related to the low-quality products. Russia is experiencing the ersatz goods production trend. With regard to PVC converting market, the volumes of imported Chinese equipment testifies that an explicit imbalance in favor of the «backyard» production and poor quality materials should be expected soon. The sales volumes of first-class goods will decrease; these will be sold to the well-off customers at expensive prices, while the majority of customers will buy cheap and low quality substitutes. In line with this scenario, PVC resin consumption will remain on the same level or will grow slightly, but unfortunately there will be more inferior products in the market. For me, this is a consequence of stagnation. I suggest that we discuss toady where this will lead us to», said Fares Kilzie, Head of CREON Energy, when opening the official program of the eleventh edition of the conference devoted to PVC.
According to the market analysis presented by Lola Ogrel, Head of Analytical Department of INVENTRA, PVC consumption remained unchanged for the past three years at about 1.14 million tons. In 2013, slight production decrease is expected, but the market capacity will not change compared to previous year due to 535 tons of the product imported. Larger share of imports falls to suspended PVC – 75%, while 15% is emulsion PVC, and the rest are extender resin and microsuspension PVC, products not produced in Russia.
In 2014, RusVinyl is planning to start its production of suspended and emulsion PVC with a capacity of 300 thousand tons and 30 thousand tons per year respectively. Raw materials for the new plant will be supplied by Sibur-Kstovo, which has already signed an agreement for 49 years with possible further extension.
With regard to production of PVC goods, pipeline segment showed positive dynamics this year: production increased by 22%, and consumption grew by 18%. Flooring market developed positively as well, with growth estimated at 5%. At the same time, production of shaped and linear articles stagnated, while the segments of cable and non-cable PVC plasticizers, window profiles, films and rigid compositions followed the negative trend.
In consumption structure, the share of window profiles was 32%, shaped and linear articles – 24%, floorings – 14%, cable compounds – 13%, pipes – 4%.
Over the past three years, more than 800 equipment items were imported to Russia, half of them arrived from China, mostly extruders designed for production of PVC shaped and linear articles.
Speaking on factors constraining development of Russian PVC market, Mrs. Ogrel noted that implementation of existing projects to increase capacities may be slowed down by the problems of raw material supply. Despite the increase of Russian ethylene production, additional volumes are mainly intended for PE production, not for PVC. Consequences of higher caustic soda production should also be taken into consideration. Overproduction of caustic soda is estimated at 180 thousand tons, and if no solutions are found to utilize it, the imbalance is able to reach 500 thousand tons by 2018.
Dmitry Beloborodov, Head of Additives for Plastics Division at Dow Europe, noted that global market prices for caustic are very attractive for manufacturers due to decline in chloride consumption, while caustic producers are having a good profit. However, according to Mrs. Ogrel, Russia is trying to break into the global market of caustic soda, where tough competition is in place. In addition, targeting foreign markets is complicated by high transport costs.
Igor Valushkov, Head of Department for Coordination of Gas and Energy Operations and Sales of Petrochemical and Gas Processing Products at Lukoil, and Vladimir Troyan, Head of Suspended PVC Production, conducted a speech devoted to the activities of Karpatneftekhim. In May 2011 Karpatneftekhim started production of suspended PVC with a capacity of 300 thousand tons per year under Vinnolit technology, which provides for production of six grades. Currently the capacities are 50% utilized; output is about 10-13 thousand tons per month. Product sales is implemented directly from the plant. Russian consumers are offered contracts in rubles. First deliveries after the launch were made to Ukraine, Eastern Europe, Turkey and Russia. Currently ethylene is supplied to Karpatneftekhim from TVK plant (Hungary). The pipeline was constructed during the Soviet Union and it helps now to save on railway deliveries of pyrolysis feedstock to the plant and to distribute ethylene between production of polyethylene and PVC. The plant has a storage facility which provides for simultaneous indoor storage of over 20 thousand tons of plastics. The Company has its own production of PVC profiles, today its capacity is estimated at 6 thousand tons per year.
According to Mr. Valushkov, Karpatneftekhim production remains in the premium grade segment taking into consideration high technological capabilities that allow to produce a wide range of PVC grades, though the market tends to prefer price over quality.
According to Vladimir Sergunin, Member of the Board of Directors at LRS Planung & Technologie, Russia should expect further rise in PVC prices connected with seasonal stock in storage in the short term. In the long term, shale gas issue will be important: by increasing capacities, ethylene prices can be reduced by 25-40%, which will lead to price reduction for raw PVC by 20-25%. In general, Mr. Sergunin said that situation in the Russian market reflects the global trend.
Aurangabadkar Nitin, Head of Moscow Representative Office of Oxyde Chemicals, speaking about prices for PVC in the U.S., noted that they were not low in 2013 and would not decrease further. Reasons of higher prices include stable demand from the construction market in the U.S., plus temporary operation suspensions at some production plants. Russia is not the single sales market for the American suppliers; they deliver production to 50-60 countries and are not going to go dumping in any markets, therefore there are no grounds to expect lower prices for PVC in 2014.
The next conference session was devoted to the windows market in Russia and other CIS countries. According to Executive Director of Veka Rus & Ukraine Alexander Stepanenko, the aggregate capacity of windows markets of Russia, Ukraine, Belarus, Kazakhstan and Azerbaijan decreased approximately by 5% in 2013 and made about 41 million window units, including 30 million window units in the Russian market. Three leading PVC profiles producers in Russia include Profine with market share of 14.6%, Rehau – 12.7% and Veka – 12%.
Among the major market trends, Mr. Stepanenko marked high dependence of profile and translucent structures manufacturers on windows sales dealers that cannot explain professionally to the customers the difference between quality of expensive windows and cheaper substitutes. So the customer chooses a cheap window without knowing why he must pay more for the same product. Accordingly, sales of affordable windows grow, while their low cost is achieved by lower quality of PVC profiles and by substitution of European fittings with cheaper components. Lack of effective regulatory framework, liberalization of permission documentation and cancellation of mandatory certification for window products became a fertile ground for expansion of low-quality units, and consumers began to lose confidence in the product as a whole. In addition, uncontrolled windows installation causes damage to producers of branded window profiles and windows.
In this regard Peter Ogorodnov, CEO of United Trading System – Chemproduct, noted that the sellers do not split the windows into premium, medium or economical segments. Any item is offered to the end-consumer as a «best window for cheapest price».
According to representative of Veka, consolidation of the market participants is the only way out of this situation. Active preparation to the constituent assembly of the new industry association has already begun. The main goals and objectives of the Association will be development and implementation of regulatory framework for windows evaluation, establishment of the industry quality mark, as well as educational activities for informing end-consumers about characteristics of high-quality windows and industry quality mark.
CEO of Polymer Chemie Rus Igor Bobrov commented that in 2009, after energy saving and energy efficiency bill was enacted by the President of Russia, a number of associations were established to modify regulatory framework and town-planning code. However, those efforts were in vain, and there are no prerequisites that the new windows market business association would succeed in that. In reply Mr. Stepanenko said that the key distinctive feature of PPPU (Plastic Profiles Producers Union) is that it was not established under the Government’s initiatives; it was established by seven leading manufacturers that were conscious of systemic crisis in the market. The Union is going to achieve its goals through its own funding, without involving the government budget. Among the members of the new association, which includes representatives of all the windows industry, are profiles manufacturers, suppliers and producers of fittings, windows, glass and glass units. They hope that their conception is able to stimulate both producers for improving quality of their products and consumers for more selective approach in choosing window systems. Market quality control will be established. For instance, the special Internet site will feature the list of certified companies which have the right to label the window with industry quality mark.
Representatives of O.K.N.A-Marketing – Irina Obrosova, CEO, and Olga Chigodaykina, Commercial Director, continued conversation devoted to the crisis in the windows market, and noted that the roots of PVC profile market reduction in 2013 lied in a strong slowdown of economic growth in Russia and saturation of the windows profile market in the segment of operated buildings. According to their forecast, the only growth driver is building and construction; there are three scenarios for the market in 2014; average with a decrease by 5%, optimistic – stagnation, and pessimistic – decrease by 10%. Some companies will be forced out of business or will have to reorient their production lines to manufacturing other goods.
According to Nikolay Gavrilov-Kremichev, General Director of Modern Building Construction, the decline in consumption of windows and other glass units with PVC profiles will make 2-3% this year. Decline in production of window PVC profiles (excluding sills) will be up to 4%. In 2012, production volume was approximately 380 thousand tons, domestic consumption exceeded 400 thousand tons. In 2014, recession will continue, and the market will possibly be stabilized by 2015. The demand will be supported through the increase in new construction volumes.
Reduction of demand, overproduction, steady decline of prices at the expense of quality, decreasing margins – these are the main trends of window profiles market, in the opinion of Vasily Ignatenko, Product Manager at Profine Rus. Before 2009, the share of low price segment did not exceed 20%, while today it accounts for at least half of the market. Share of premium segment remains unchanged at 5%. Producers of high-quality units are betting on product innovation, energy saving and ecology. But unfortunately, low qualification of the majority of the sellers does not help to promote this segment. According to Mr. Ignatenko, the way out of this situation lies in consolidation of the industry, stimulation of the consumers, as well as real reform of power supply system.
Within the round table, the manufacturing companies shared their estimates of 2013. Jeanne Balandin, Head of Procurement Department at Rehau, noted that this year was very successful for the company; sales grew by 6%. However, such results should not be expected to repeat next year. According to the forecasts, business will be stagnating in 2014. Vitaly Gavrilov, CEO of Monblan Group of companies, said that their windows production figures show zero growth in 2013; there was a decrease in production of window sill – total decline is estimated at minus 4%. Gavrilov expressed his hope for Quality Window Program with regard to surrogates, but also marked that many companies do not participate in the program, and in this connection the share of low-quality products is expected to grow. Vyacheslav Stupin, Operational Director of BFK-Extrusion said that their windows production volumes had not changed. Window sills production volumes grew by 4%. Stagnation is predicted for the next year, and the companies will be focused on reduction of internal costs to improve margins. Vasily Bochkarev, Chairman of the Board of Directors at Exprof, admitted that their production decline is estimated at 6%. He also presumed that substandard products that prevail in the market have shorter life cycle and thus can surprisingly balance the threat of overproduction in the market. So in a sense, low quality of the substitutes can be considered as a growth driver.
Talking about PVC membranes segments, Natalya Radchenko, Branch Director of Logicroof plant, informed that there was a growth in PVC roofing in 2013. The plant launched the second production line with a capacity of 3 tons per hour, so production capacities of the enterprise doubled. Sales growth is estimated at 20-25%. Next year will be less successful.
Natalya Glushkova, Head of Technological Department at Tarkett, noted that their production capacities increased to 131 million square meters of flooring per year.
As for the plasticizers segment, Vyacheslav Moshechkov, Commercial Director of Plastic DPO, marked the stability in this market and underlined that the competition is increasing.
In the final session of the conference Ivan Lobanov, Head of Polymer Additives Department at SBK Company, presented an overview of polymer additives market for PVC processing. His presentation was based on customs data, but as the further discussion showed, actual shares of the companies differed from the official data. Mikhail Shekin, Head of Representative Office of Baerlocher, noted that IKA company occupies about 26% of the stabilizers market, Baerlocher – 21%, Reagens – 15%, Akdeniz – 13%, Chemson – 12%. In 2012, the volume of this market was estimated at 30-32 thousand tons. In 2013 there is a slight decrease of 1-1.1 million tons caused by lower PVC consumption.
Sandjar Turgunov, General Director of CREON ENERGY, noted that Russian producers of PVC resin have reached their production limits, and the market is developing through imports both in terms of volume and the range of grades. The start of RusVinyl production will hardly change the situation. The only growth driver in the market is the ability of converting companies to promote PVC segment by coordinated effort.
