Foreign cement groups evaluate Russian investments
Recently, foreigh investors are reported to be looking closely at the Russian construction sectors with some announcing their plans to build new cement plants in Russia and modernization of the factories belonging to them. Experts explain expansion of foreign companies by growth of the construction market, as well as by dramatic raising of cement prices and expected future deficit of cement.
According to the Federal Antimonopoly Service, foreign companies now control about 21 per cent of the cement market in the European part of Russia and Urals Federal District, which should amount to 50Mt in 2005. Holcim Ltd (it owns Volskcement and Shchurovsky cement) controls eight per cent of the market; Lafarge (Voskresenskcement and Uralcement) controls 6.3 per cent, German Dyckerhoff AG (Sukholozhskcemen) controls 5.3 per cent and German Heidelberg Cement (Slantsevsky cement plant) controls about one per cent.
Market share of Russia’s largest player Eurocement Group is now 55 per cent. In the last few months, almost all foreign cement producers announced launching of ambitious investment projects. Thus, Lafarge plans to modernize both plants belonging to it. The company will invest EUR125m in increase of capacity of Voskresenskcement from 1.0Mta to 3Mta.
Lafarge is also working out a long-term plan for development of Uralcement. According to Artem Polyakov, Executive Director of the Moscow representative office of the French company, investments will amount to "tens of millions of euros." Now the plant produces 1.35 million tons of cement a year but in 2006, its output will grow, although Lafarge does not name an accurate figure.
Heidelberg Cement will invest EUR40 million in increase of capacity of the Slantsevsky cement plant to 1Mta by 2007.
Dyckerhoff AG is going to invest EUR500 million in construction of a new plant – possibly as much as 3Mta capacity. The site, capacity and construction deadline have not been disclosed.
Heidelberg Cement has just announced acquisition of 100 per cent of Bukhtarminskaya cement company, the largest cement producer in Kazakhstan with capacity of about 1Mta.year for about US$150m
Unnamed Austrian investors have reportedly signed an investment agreement with LSR Group, the largest construction company in the Northwestern region, on construction of a plant with capacity of 1.5Mta.
Experts say that interest of Western players in the Russian cement market is conditioned by a whole number of reasons. Natalia Odintsovo, corporate finance and financial consulting director of BDO Unicon, comments, "First of all, investors are attracted by a rapid growth in the construction market of 10 per cent a year, which increases demand for cement." Sergei Meshcheryakov from Eurocement agrees with her and refers to the presidential program for increase of housing construction in the country to 70-80 million square meters a year.
As a result, the Federal Statistical Service predicts a cement deficit by 2008. The maximum capacity of Russian cement companies now amounts to 69.2Mta, but in 2008, developers will need already 71.7Mta of cement to achieve housing construction target figures.
Analyst Maxim Ivanov, of CenterInvestGroup, presumes that investments of Western companies are connected with the upcoming deficit. In any case, the largest market player is not idling either. Ivanov comments, "Eurocement is also building two new plants in the Lipetsk and Voronezh regions with aggregate capacity of 3Mta. Most likely, Eurocement will share the market growth with foreign competitors."
Natalia Odintsovo predicts that active putting of new production facilities into operation both by Russian and foreign investors could lead to slowdown of growth in cement prices from 20 per cent to 10 per cent a year.