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Russia • Construction machinery • 1Q2017

Production of construction machinery in Russia strives to rebound

Over the past two decades, Russian producers of building machinery have allocated not enough amounts for research into, and development of, new kinds of equipment and improvements to the existing product range, mostly because of the limited financial potential.

Limited productivity and high running costs have stunted the competitiveness of Russian machinery, not only on the world markets but also at home. Most Russian construction machinery manufacturers have been unable to face competition from less expensive Chinese machines, which are increasingly becoming more reliable, and the high-quality brands of well-known international manufacturers such as Komatsu, Caterpillar, Volvo, Hyundai and Hitachi.

The cost advantage from lower energy prices has narrowed significantly in recent years, as Russia has been forced to reduce the gap in energy prices as a condition of joining the World Trade Organisation.

Furthermore, a sharp reduction in domestic demand, limited capacity to compete internationally and the significant financial difficulties experienced by almost all Russian construction machinery manufacturers have left them no room to boost the production of such machines in recent years.

The high reliance on foreign components, the recycling duty and the rouble’s devaluation, rouble has made the import of components much more expensive, have inevitably led to rises in the prices of the final products, particularly in the last couple of years. With obsolete production facilities in most cases, Russian manufacturers are increasingly using Western parts in their machinery.

Furthermore, in many cases the price factor is no longer a competitive advantage for Russian models when these have to compete with their Chinese equivalents, even after the 16% average devaluation of the rouble against the US dollar in 2014, a further 37% fall in 2015 and an another 9% in 2016, as well as after the recycling duty was introduced in February 2016.

Until 2012, when Russia joined the WTO, an insignificant amount of support from the government for domestic production of construction machinery had been provided, almost exclusively in the form of increases in import duty rates. Eventually, those rate increases had generated a limited effect on imports of such machines.

Since 2014, the Government of the Russian Federation has approved two bold legal incentives in order to support domestic producers of construction machinery.

The first stimulus was provided in July 2014, when the government approved Resolution No. 656, which prevents state and municipal administrations, along with legal entities which are 100% controlled by federal, regional, and/or municipal administrations, from purchasing construction machinery manufactured outside the Eurasian Economic Union.

The ban also applies to foreign brands produced in Russia but with a level of manufacturing localisation of up to 50%. However, it is estimated that those companies and public administrations are responsible for fewer than 5% of public tenders initiated every year in Russia.

Another Resolution, No. 513, of 9 June 2016, significantly tightened these criteria, and this further restricted competition within public procurement. Government Resolution No. 81 was approved on 6 February 2016: this is the government’s latest substantial impetus for domestic manufacturers of construction machinery.

The Resolution expands the list of vehicles subject to recycling duty to encompass self-propelled vehicles and trailers (including machinery used for construction, loading, felling and agricultural work, and some kinds of off-road vehicles and snowmobiles), also stipulating the rules for the levy, calculation, payment and collection of the recycling duty for these.

The recycling duty is intended to generate a significant reduction in imports of vehicles, and, conversely, to supplement the modernisation of fleets of such vehicles with those manufactured in Russia. Imported machinery currently dominates the market.

On the domestic market, Russian equipment must, therefore, compete with new models and, in many cases, with used equipment from international manufacturers. Russian products can barely compete with their Chinese equivalents, which are often more modern and energy efficient, in terms of cost.

With regard to Western brands, even used machinery tends to be more expensive but surpasses Russian equipment in terms of ergonomics, comfort, a wider product range and quality of service.

For example production of excavators, which continues to be the most widely used category of construction equipment in Russia, has plummeted over the past two decades. In the early 1990s more than 15,000 excavators were assembled in Russia every year, whereas in 2012-2016 the figure came to less than 2,000 every year.

Russian excavators still lack functionality and reliability when compared with western brands. Furthermore, increasing production costs until the rouble’s recent devaluation have rendered Russian excavators unable of competing easily even with Chinese brands.

In addition, despite the fact that domestic production has become considerably more price competitive after the devaluation, domestic production continued to contract in 2015 and 2016. Even international manufacturers do not use production units in Russia at full capacity.

The most frequently quoted factors which limit the more dynamic use of Russian excavator plants by foreign manufacturers are: the level of manufacturing localisation at the Russian plants of these international vendors is estimated at up to 35%.

The recent devaluation of the rouble has boosted the price of imported components, and, as a result, the cost of machines assembled in Russia the domestic capability factor, highlighting the severe scarcity of Russian manufacturers of excavator components able to provide the level of quality demanded by foreign vendors. • 2/2017

This press release is based on information contained in the latest PMR report entitled Construction machinery market in Russia 2017 • Author of the report and the press release: Vitalie Iambla


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Poland • Construction chemicals • 1Q2017

Construction chemicals market in Poland increasingly dominated by a few leading brands

The fact that the PMR Construction Confidence Index for the construction chemicals industry remains in solid territory and the lack of signs of a considerable slowdown in residential construction both suggest that 2017 will be yet another excellent year for the leading construction chemical manufacturers.

However, the market environment is becoming increasingly difficult for new brands wishing to secure a foothold in the industry. Data gathered from a survey of several hundred renovation and construction companies held for the needs of the report “Construction chemicals market in Poland 2017 – Development forecasts for 2017-2022” suggests that the construction chemicals sector in Poland is becoming increasingly dominated by a few leading manufacturers despite fast-paced growth of residential construction and a positive market environment.

Contractors’ sticking to a tested brand is the most striking trend in the segments of gypsum-based plaster (dominated by Knauf) and anhydrite screed (Atlas and Mapei being the most commonly-used brands) where as much as two-thirds of contractors admitted to using one tried-and-tested brand.

Contractors’ strong attachment to a single brand (at nearly 50%) can also be seen in the segment of cement screed. Companies loyal to a single brand would choose Mapei or Atlas products.

Loyalty to a single brand is slightly more common among companies performing projects for individual customers. Likewise, in the case of tile adhesives, almost half of the contractors only use products from a single, proven manufacturer.

Contractors loyal to just one brand usually choose Mapei products and, less frequently, Atlas. Interestingly, it was revealed in the latest edition of the survey that all the leading brands recorded lower numbers of indications when compared to last year’s survey, which was due to reduced diversification of brands among the contractors.

Loyalty to a single brand was reported to be lower in the case of cement and lime plaster and masonry mortar, where four out of every ten companies would use products from a single brand.

Atlas mortars were the most popular masonry mortar products. Greater brand diversification was reported for cement and lime plaster. As a result, contractors loyal to a single brand would most frequently use products from Ceresit, Atlas, Knauf or Kreisel.

Among the surveyed product categories, the segment of thermal insulation systems was characterised by the greatest product diversification – contractors’ dedication to use products of a single brand is relatively infrequent (29% of responses).

Importantly, companies involved in the execution of orders from institutional customers admitted to using products from a larger number of producers – almost half of the companies used products of at least three thermal insulation brands in 2016.

One of the key reasons behind the growing brand loyalty on the part of the contractors are loyalty schemes run by the main producers. One out of every three renovation and construction companies revealed they participated in loyalty schemes.

Companies employing from six to nine workers were the most willing to take part in partnership programmes. Mapei and Atlas had the most popular loyalty schemes. • 3/17

Author of the report and the press release: Bartłomiej Sosna • More information: PMR