French company Saint-Gobain intends to invest around $106m in plasterboard production in Nizhny Novgorod Region. It will be the company’s second facility in Russia, following one in Ufa a year earlier. Although the market is large and growing, Saint-Gobain’s biggest competitor is not Russian players but Germany’s Knauf, with an 80% share.
A red-hot market
It’s not surprising that the French construction material manufacturer is investing these days in a country with such a red-hot construction boom. Even domestic manufacturers can’t satisfy the soaring demand.
Nizhny regional officials were very enthusiastic about the proposal Saint-Gobain came up with in 2007. The company proposed to develop a gypsum deposit in the Pavlovsky district of the region. This past the regional Investment Council gave the project priority status.
Timeframes and financials
Saint-Gobain owns four factories in Russia: Kavminsteklo (Stavropol, glass containers), Saint-Gobain Isover (Egoriyevsk, Moscow Region, insulation materials), Saint-Gobain Weber Rus (Podolsk, Moscow Region, plaster), and Saint-Gobain Vetrotex Steklovolokno (Vladimir, hi-tech materials).
The Nizhny project will be implemented by another subsidiary – Saint-Gobain Stroitelnaya Produktsiya Rus. This affiliate will invest a total of $91.2m in the development of the Gomzovsky gypsum deposit and construction of a plasterboard factory. Another $14.4m will be invested in the project by another affiliated company, BPB. The estimated investment will be $106m.
Industry analysts say that the Gomzovsky deposit’s accessible reserves will enable the factory to reach a projected capacity of 30 million square meters of plasterboard per year.
Gypsum mining will start later this year or early 2009 after all infrastructures are built. Construction of the factory is set to begin at about the same time and is expected to be finished before the end of 2009. The factory should be operating at full capacity in 2010.
Jean Laronze, president of Saint-Gobain supervising its operations in Russia, Poland and Ukraine said that plasterboard produced at the factory would be sold locally and to neighboring regions.
The project’s estimated payback is 176 months. About 150 new jobs are to be created. Regional coffers are expected to be receiving $6.4m a year in taxes after full operation kicks off.
Fierce competition from Germany
Analysts and market players believe Saint-Gobain will have some tough competition, despite hot market growth and potential.
Finam’s recent research says plasterboard consumption in the region exceeded 10 million square-meters in 2007. Kommersant estimates that annual growth in Russia’s plasterboard market is 10 to 15%. The size of the market is less clear. Some analysts believe it is 370 to 400 million square-meters while other more conservative estimates put it at 280 to 300 million square-meters.
The main competitors for the French are not local players, but another multi-national. Currently, the Russian plasterboard market is been dominated by Germany’s Knauf, with six plasterboard facilities throughout Russia (one more is being built outside Irkutsk). Knauf products account for 80% of all sales in the market.
Yet Saint-Gobain has made it clear that it is ready to become a powerful player in the plasterboard market. One year prior to the launch of its Nizhny project, the company started building a similar factory in Bashkortostan, near Ufa. Investment in that project is reported to be $70m. The factory is to be put into operation in 2009.
B&FM believes that the French company may grab as much as 10% of the market (provided exports are also included in projections). The jury is out on whether the French manufacturer has missed the window of opportunity by letting Knauf establish such a dominant position—time will tell.
For reference:
Saint-Gobain SA is an international corporation producing construction Materials. Founded in France in 1665 as a glass manufacturer. Today the corporation owns over 1,400 businesses in 55 countries worldwide and employs over 207,000 people. The 2007 profit topped $65bn.
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