The recent stabilisation of the situation with Covid-19 in Russia and the associated easing of quarantine measures have contributed to a significant growth of construction activities in the country.

This has stimulated the demand for boards in the local market, according to recent statements by representatives of some of Russia’s leading wood-based panel producers and industry analysts.

The ongoing recovery of a local demand is also speeding the implementation of some major investment projects in the industry.

For example, Kronospan Holdings East Ltd is considering investing about RUB18.4bn (US$250m) in the expansion of its production facilities in the Bashkiria Republic – a region in Russia located between the Volga and the Ural Mountains in eastern Europe, which is the most populous republic in the country.

These investment plans of the company have been recently confirmed by Ilshat Tazhitdinov, first deputy prime minister of the government of Bashkiria.

“Currently, the company is considering new projects in the field of OSB and binding materials within the territory of the region,” said Mr Tazhitdinov.

“That will take place on the basis of investment agreements, which are expected to be signed with the authorities of the Republic shortly.”

Mr Tazhitdinov said of the overall investments, about RUB5bn will be invested in the expansion of OSB capacities, while another RUB5bn will be for the production of binding materials. Finally, the largest volume of RUB8.4bn is to be invested in the production of plywood.

As part of preparations for the project, the territory of Alga special economic zone, will be significantly expanded.

KRONOSPAN BASHKIRIA BACKGROUND

Kronospan announced its investment plans for Bashkiria for the first time back in 2012.

In April 2014, it began the construction of a plant for the production of particleboard, including laminated particleboard, which was completed in 2018 at Ufa. The plant was officially commissioned in September 2019 and created more than 280 new jobs. The volume of investments in the project amounted to RUB20bn.

In 2018, the company also launched the production of OSB, which required investments of RUB15bn.

According to data from the Bashkir regional authorities, the volume of production of the company during the period 2015-2020 amounted to 2.9 million m3 of particleboard, as well as 122.5 million m2 of laminated chipboard and 876,000 m3 of OSB.

The expansion of Bashkiria site will allow the company to double its local OSB capacities and completely meet the growing demand for OSB in the construction market of the Volga region, Siberia, the Urals, as well as a number of foreign markets among which are Central Asia, China, Korea, Japan and South America.

During the second stage of the project, the annual capacity of the plant will reach 1 million m3. It is planned that future OSB will be produced in four different formats.

Kronospan operates a large-scale continuous press for OSB in a format of 9ft x 63.7m, which at the time of its installation was described as the world’s largest OSB continuous production line.

The launch of the new production will allow the company to increase its exports and reduce the cost of finished products for end users. In the future, the company plans to export about 38% of its production at the Bashkir plant.

The manufacturing processes of the company operations in Bashkiria comply with the existing environmental standards and regulations in Russia.

Despite this, in 2020 the Russian environmental watchdog the Federal Service for Supervision of Natural Resource Usage (Rosprirodnadzor) had flagged the Bashkiria factory the first category on the basis of a negative impact on the environment.

Kronospan has challenged the latest decision of Rosprirodnadzor in the arbitration court of Bashkiria.

RUSSIA MARKETS

In the meantime, in addition to OSB, big hopes of the company are also put on the particleboard and MDF segments.

This is mainly due to growing prices for both MDF and OSB in the Russian market, which in the last several months have increased by almost 50%, compared to the same period of last year. The main reason for this is a pent-up demand and the current construction boom in Russia caused by lowering mortgage rates for new buildings in the country by the state.

RUSSKY LAMINAT BANKRUPTCY

According to the Russian Versia business newspaper, the growth of prices is ongoing, which is also due to the recent bankruptcy of Russky Laminat, one of Russia’s largest producers of particleboards and other boards.

Due to serious debts, the company has already suspended the production at its flagship Igorevsky and Sergiev-Posad chipboard plants, an interest in which has already been expressed by Kronospan.

As part of preparations for its acquisition, the Austrian company had completed the purchase of Russky Laminat’s debts from its major lender Sberbank, planning to acquire the entire company, although the deal was blocked by the Russian anti-trust regulator the Federal Antimonopoly Service (FAS) amid the threats of possible monopolisation.

As FAS concluded in its report, the deal would result in the increase of the share of Kronospan in the chipboard market in Russia by more than 35% and to more than 45% in the segment of MDF. This, according to the Agency, was maybe associated with a serious threat to competition in the Russian boards market.

At present, the regulator continues to monitor the current situation with prices in the domestic boards market, planning to take measures in order to prevent product shortages, which could be similar to those which were observed in the market at the beginning of the current year.

That shortage even forced Sergey Katyrin, head of the Russian Chamber of Commerce and Industry (one of Russia’s leading business associations) to send a letter to Russia’s first deputy prime minister Andrew Belousov – a state official responsible for the development of the boards industry in the Russian government – where he asked to take measures to prevent a further deterioration of the situation in the market.

Several Russian board producers have expressed views that shortages have been exacerbated by policies of large international groups, operating in the Russian market supplying furniture producers in Russia.

Maxim Valetsky, chairman of Mr Doors, one of Russia’s largest furniture manufacturers said in an interview with the Russian TASS news agency that despite the existence of local producers in the domestic OSB market, most of it is still controlled by global majors.

Mr Valetsky said with such large international corporate strategies, growth of the Russian furniture market was not necessarily of prime concern for the major groups.

KASTAMONU & SWISS KRONO PLANS

In the meantime, Kronospan is not the only global major, planning to accelerate its expansion in the Russian boards market within the next several years.

For example, Kastamonu – another leading local player – is also eyeing expansion projects.

Ali Kilich, general director of Kastamonu Russia, said in an interview for the Russian Realnoy Vremy business newspaper that some of the projects of the company – originally scheduled for implementation within the next four to five years – will now be implemented within a shortened period of three years.

“Already this spring we will launch an investment programme that was previously planned for implementation in 2022,” said Mr Kilich. “The details of the programme will be announced in the near future.”

Of course, Swiss Krono, has also been very active in the Russian market with business expansion plans.

It is developing its existing flagship Russian factory in the city of Sharya in the Kostroma region (central Russia), adding a 600,000m3 OSB plant, which with a Dieffenbacher 65m long press will be one of the largest of its kind in Russia.

The project is part of a €340m investment programme in the company’s Russia operations.

Swiss Krono Group’s investment projects were interrupted a year ago during the onset of the Covid-19 pandemic but subsequently resumed and around €180m-worth of investments were planned for the 2020/21 financial year in total. The largest of those projects is the launch of OSB production at Sharya, which as outlined in our OSB report in this issue will now be completed in 2023 (see pp20-24).

The new OSB facility will be located close to the Sharya plant. It will use low-grade wood to be sourced in Kostroma and other north-eastern districts of Russia as raw material for its production.

The company has an MDF production line with an output of 500,000m3 annually, two particleboard production lines with a total annual capacity of more than 700,000m3, seven board lamination lines, five laminate flooring lines, one line for wall panel production, plus impregnation lines for decor paper used in the process of melamine faced MDF and chipboard production.