Construction Equipment and Building Products in Russia

A Hot Tip about Building Products and Construction in Russia

Posted on: 23 Dec 2009

Overview

The Russian construction market continued its growth at an average rate of 10% to 15% throughout most of 2008, offering opportunities to U.S. manufacturers and distributors. Sector growth was driven by extensive residential and commercial construction across Russia, infrastructure projects and, to some extent, planning for the Sochi Olympics. For example, about 61 million square meters of new residential construction were commissioned in 2007 and about 60-65 million square meters were expected to be completed in 2008 along with the 40 million square meters of commercial and industrial space. Until the effect of the economic slowdown became evident in late 2008, experts were forecasting the boom in the construction industry to continue throughout 2009 and 2010.

 

The slowdown has impacted many sectors of the economy, including construction, as it is highly dependent on the banking sector and financing. Many developers continue to finish what they started in 2008. However, a number of new projects have been postponed. Overall, construction activity in most Russian cities (St. Petersburg, Krasnodar, Nizny Novgorod, Kazan, Samara, Rostov, etc.) is decreasing. According to research reports, residential construction has been particularly impacted. Growth slowed from 30% in January-October 2007 to just 5% in January-October 2008. It is expected the housing output will fall 15% in 2009. Some experts predict that the most significant impact on this market will be felt in spring-summer 2009, and that there will be no significant improvement until the end of 2009. Recovery in this segment is expected to begin in early 2010.

 

Despite the slowdown, many developers remain optimistic and continue to look at this market as a tremendous opportunity. For example, Barkly is planning to build 93,505 square meter apartment complex. Don Story (a large Russian company) is planning to complete the construction of residential complexes with a loan from a Russian bank (VTB) in the amount of $500 million. The Russian government has plans to invest in the construction of new social housing in the Moscow suburbs. Various projects for the construction of hotels, business centers, ports, resort complexes, and sporting facilities are expected to be completed in 2009-2010. According to research reports, the demand for cement will grow 6.6% to 76.7 million tons in 2009 and 11.1% to 85.2 million tons in 2010. This is mainly attributable to the development of infrastructure needed for the Sochi Olympics.

 

The construction of sports facilities, hotels, and transportation systems has already begun in Sochi and the Krasnodar region and will continue for the next five years, creating opportunities for suppliers. Finally, there is expected growth in individual housing construction. Therefore, Russian companies will continue to demand construction equipment and building materials. Given the reliability of foreign-manufactured equipment and building materials, Russian companies tend to prefer to purchase from Western manufacturers.

 

Price is an important factor. More companies will opt for cheaper products. Therefore, U.S. producers might face severe competition from Chinese manufacturers.

 

About 90% to 95% of apartments and homes in Russia are sold without interior decoration; therefore, demand for such products will continue to grow. The market share for imported construction materials will also increase. Although 80% of building materials is sold in open markets, the “Do it Yourself” (DIY) segment continues to expand as demonstrated by growing consumer purchases at such stores as OBI, Castorama and IKEA.

 

 

Russia’s economy utilizes three times more energy than European OECD countries and Japan. Part of this is explained by colder temperatures throughout Russia and a higher level of demand and consumption. However, the lack of energy efficiency in building construction and materials, and outdated equipment and factories, accounts for a large percentage of this waste. The energy savings potential is estimated at over 45% of Russia’s current energy consumption.

 

In 1994, the City of Moscow adopted new construction standards to improve the energy efficiency of buildings. Over half of Russia’s regional governments subsequently followed the same course of action. In 2003, the Russian government approved an energy strategy and considers improvement of energy efficiency of importance. The policy called for a 50% reduction in energy consumption by 2020 as compared with 2000. New building codes have transformed technologies and resulted in major manufacturing changes within wall panel, insulation and window factories.

 

Best Prospects/Services

Construction equipment: Tractors, bulldozers, mobile cranes, concrete pumps and mixers, excavators, compaction rollers, front loaders and crushers. Building materials: Roofing materials, wall building materials, gypsum boards, cement, bricks, blocks, and energy efficient materials.

 

Opportunities

U.S. construction equipment is well known in Russia for its excellent quality and reliability. U.S. manufacturers can further improve their market share by offering state-of-the-art technology and products, and by employing reputable agents and/or distributors. Price, reliability, availability of sales financing and after-sale service continue to be the main competitive criteria for equipment exports to Russia. Given the current value of the ruble, used construction equipment from the United States may become popular among Russian companies that want to minimize their costs.

 

Opportunities also exist for licensing and transfer of modern U.S. technology to Russian equipment and component manufacturers. Provided the right price is established, U.S. building products can compete against those from European suppliers. Because DIY chains have become much more active in the Russian market, U.S. companies can also be competitive in retail sales of DIY products in these chains.

 

 

Read the full market research report


Posted: 23 December 2009

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