Materials market feels real estate chill
Romania’s real estate crash has forced building material
firms to re-evaluate their business plans from massive
growth to creative survival. Report by Corina Ilie
October 2010 - From the Print Edition
Construction material companies have been hit harshly by the collapse of new real estate development and the delay of works on public infrastructure projects.
The sector also suffers from late payments for public works, a dramatic increase in prices of raw materials and trouble in accessing bank credits to invest in new or expanded production capacities.
So how can the suppliers of cement, roof tiles, pipes, drains and insulation materials survive?
Many have closed down production facilities, laid off staff and cut prices on products.
Those businesses with more financial power have used the opportunity to expand their production capacities, steal customers from the competition and use the crisis as a chance to capture a larger market share – while some have even turned a profit.
Sales of building materials may have picked up a little in the first half of 2010 – but this has also been due to the slashing in prices for materials.
Overall, companies paint a dark picture for the sector for late 2010 and for next year, because there are so few new projects due for delivery on the property market and no new plans on the horizon.
Slash similar to 2009
The size of the construction materials market fell 30 to 40 per cent in 2010 on the previous year – which followed a similar 27 per cent fall on 2008, according to a study by Romanian thermo insulation materials producer, Baumix.
“In 2010 after increasing the production efficiency and relocating our factory we expect to maintain the turnover at the same level as in 2009,” says Augustin Russu, general manager of Baumix.
This company registered a nine per cent turnover fall in 2009 compared to 2008 to 8.5 million Euro.
Meanwhile Romanian construction materials group Teraplast, which specialises in plastic pipe production, increased its turnover by 19 per cent in the first half of 2010, to 22.15 million Euro.
Teraplast is one of the biggest Polyvinyl Chloride (PVC) processors in Romania - its Plastsistem segment produces sandwich panel and metallic structures for commercial and industrial buildings, while its Politub segment produces polypropylene pipes (PP pipes) for gas and water networks.
“Teraplast sales went up in 2010, despite the fact that the markets on which the group is active registered a decline of between ten and 30 per cent,” says Florin Urite, general manager of the Teraplast Grup.
Teraplast budgeted a 24 per cent increase in turnover in 2010, to 55.1 million and a 3.9 million Euro profit. “We are counting on the growth of the infrastructure sector, where Romania has a lot to recover to reach European Union standards and where there are also EU financing possibilities,” says Urite. “On the residential and non-residential real estate segment we anticipate stagnation in the best case.”
The roof covering market also contracted in the first half of 2009, but started to grow last May. Romanian importer and distributor of roof covering, Final Distribution, says in May 2010 the sales of its Gerard metal tile with natural stone cover increased 67 per cent on May 2009. The company’s turnover also increased 25 per cent in the second quarter of 2010 against the first quarter of 2010.
But the value of the roof covering market in Romania dropped last year 34 per cent on 2008, to 116 million Euro, according to a study by Romanian market research Neomar. Nevertheless Final Distribution now has an 80 per cent market share on the metal tile with natural stone cover market and sold 200,000 sqm in 2009.
“Although we obtained positive results in this period of the year, we cannot predict that this shows clear signs of recovery for the next period,” says Dan Mircescu, general manager of Final Distribution. “Although we initially expected growth in the second semester of 2010, the changes on the economic environment will not attract optimistic results in the next period.”
The company estimates a ten per cent turnover growth in 2010.
Swedish ventilation, metallic building components and building systems producer Lindab registered growth in the second semester of 2010 in Romania, especially between June and August 2010 compared to June to August 2009.
“We noticed movement on the real estate market and - although the development is still slow - it boosted our sales,” says Andrei Sulyok, general manager of Lindab Romania. “In 2009, the ventilation systems market was less affected by the financial crisis, considering that the sales resulted from orders made for projects started in 2008, especially in office projects.”
Despite the challenging economic environment, the company ended 2009 with a 1.15 million Euro profit. Lindab had a 7.5 per cent market share on the roof covering market and a 15 per cent market share on the metallic tile roof market and plans to keep its position on the market in the second half of 2010.
Romanian dry mortar and construction finishes producer Adeplast has managed to climb one position to the second position on its market segment, below Austrian mortar producer Baumit and above French mortar producer Weber, owned by Saint Gobain. The company increased its turnover by 23.2 per cent in the first semester of 2010, to 27.77 million Euro, after a 0.46 per cent contraction in 2009 on 2008.
“In the first eight months of 2009 we waited to see what would happen,” says Marcel Barbut, the owner of Adeplast. “In August we increased the prices by ten per cent, because the customer numbers dropped and the prices on cement, plaster and electric energy increased and we had to make some profit and maintain our employees. Between June and September 2010, when the demand for construction materials is highest, we dramatically cut the prices and started working in three shifts in our two factories and increased our sales a lot.”
In 2009, the cement market dropped between 25 and 30 per cent compared to 2008.
However meteorologists are predicting a record cold winter in Romania for late 2010 and early 2011, which may delay construction projects further and could also impact negatively on this sector.
In the first semester of 2010, HeidelbergCement-owned Carpatcement sales fell 15 per cent compared to the first semester of 2009. The turnover dropped 20 per cent, which is less than in the first semester of 2009 against the first semester of 2008, when the company registered a 25 to 30 per cent turnover decline.
Relocation and rationalisation
To reduce the production costs some construction material producers relocated and reduced their number of facilities, while others made investments in better performing equipment to increase production efficiency.
Teraplast Grup invested 36 million Euro this year in the relocation of all its production capacities including a PVC pipe factory, a PVC carpentry factory, a PVC granule factory, a PP, PE and PVC pipes and fittings factory in Saratel industrial park in Bistrita-Nasaud county. The park covers 200,000 sqm and the production capacities of the five factories increased between 20 and 100 per cent after the relocation in the park.
“Right now Saratel Industrial Park is one of the most modern parks of this type in Europe, so we will be able to cover the demand and we will not need to open further production capacities in other areas of Romania,” says Florin Urite.
Meanwhile Lindab closed its metallic tile factory in Sibiu and relocated the two production lines to its Ilfov county-based factory in Stefanestii de Jos.
“Right now the annual production capacity of the factory is 5.65 million sqm,” says Sulyok. “Lindab has turned the location in Sibiu into a distribution centre for the Ardeal area.”
At the same time, Baumix has transferred the five production lines from its Gherla factory in Cluj county to Ploiesti in Prahova county. The company has extended the factory in Ploiesti to six production lines and a monthly production of 35,000 tonnes.
“We reduced important rent, transport and stock support costs,” says Baumix’s Augustin Russu. “On the short term we are focusing on expanding the Ploiesti facility, but on the long term we do not rule out the opening of new production units if the demand goes up.”
Adeplast currently has two factories in Ploiesti and in Oradea and plans to build a third in Moldavia. “In each of the two factories we have two production lines - which is similar to having four factories - this is why we are flexible in terms of quantities,” says Adeplast’s Marcel Barbut. “In Ploiesti we have an annual production capacity of 450,000 tonnes, but we produced even 550,000 tonnes. In Oradea we can produce 250,000 sqm tonnes of dry mortar and construction finishings.”
Adeplast started in 2009 to export products to Hungary, the Republic of Moldova, Greece, Italy and Bulgaria. The exports cover between eight and ten per cent of the overall production capacity.
Final Distribution made investments in its storage and logistic spaces in Baicoi in Prahova county. The company now has a 1,000 sqm storage space and an exterior concrete platform for merchandise charging. “In 2011 we plan to make more investments in production capacities,” says Dan Mircescu.
Payment hold-up
Low demand due to the limited number of ongoing real estate projects and the price sensitive buyers are not the only serious issues construction producers have to fight for on the market.
These companies also have to deal with the increase in raw material prices, such as steel and plastic, which push up their final production costs. The construction material producers find it difficult to access credits from the banks for investments in their facilities and receive payments from private projects or state and local Government authorities - through contractors - for public projects with a great delay.
“The customers make acquisition decisions much slower than before the crisis,” says Dan Mircescu. “In parallel the economic environment stimulates customers less and less to buy construction materials. The economic decisions made by the Government are the only ones that can boost demand.”
Lindab sales might have been negatively affected by the increase in the steel price in the first half of 2010. “We already increased the prices on our products by 15 to 25 per cent, following this global price increase,” says Andrei Sulyok.
Final Distribution also felt the effects of the steel price increase. The price of the metallic tile with natural stone coverage went up four per cent in the first trimester of 2010, on the first trimester of 2009. “The prices on all metallic construction materials went up,” says Dan Mircescu.
Meanwhile the best selling products of Teraplast Grup were those targeting the infrastructure networks, such as sewage and water feeding, especially pipes.
“The acquisition tendency on the market was atypical,” says Mircescu. “The customers either bought cheap products or premium products. The best selling products in Final Distribution portfolio are those from the tile brand Gerard and most of our customers came from southeast of Romania.”
Lindab’s most wanted products were those related to residential buildings, such as metallic tile, gutters and stove pipes.
“The customers buy more and more economical products,” says Baumix’s Russu, “The adhesives and wall surfacing products from the economic Primus range are among the best selling products.”
Cold outlook
There is little enthusiasm among industry players for the next year, unless a new wave of private real estate development emerges and state infrastructure deals hit the ground.
“2011 will be even more difficult for the construction finishings materials than 2010, because developers have stopped building,” says Marcel Barbut. “In 2010 we sold products for housing delivered in 2009, but in 2011 all the producers will fight for the few dwellings built last year. The sales of raw construction materials, such as brick and concrete, will probably explode, as some developers are resuming their projects.”
Mihai Rohan, president and general manager of Carpatcement Holding, does not have a bright perspective on the evolution of the cement market either by the end of 2010 and expects a 15 to 20 per cent decline in sales this year compared to 2009.
“Many real estate projects, especially shopping centres and office building projects, were delayed,” says Rohan. “If the weather will be bad this year, the decline might even reach 20 per cent. I think that 2011 might bring a small growth on the market and in 2012 we could talk about a healthy growth of the cement market.”
The company reduced by 60 per cent the production at its three cement factories in Bicaz, Neamt county, Deva, Hunedoara county, and Fieni in Dambovita county, with a 4.5 million tonnes annual production capacity.
Carpatcement does not plan to open any more cement production facilities in the next five years, but wants to open three to five more concrete stations, to add to its current estate of 18 stations.
