Topic of the month June

The Russian Glass Market, Part I – Flat Glass

Overview of developments in the Russian glass market, which has seen significant growth and investment over the past few years.

The Russian economy expanded 7.6 percent in the fourth quarter of last year, in its fifth year of growth, and glass came the top of the league, for industrial performance. The latest statistics, from Russia's Industrial Production Index, show the top growth area to be in the glass and porcelain sector – ahead of mechanical engineering, building materials, metals and even the oil and chemical industries. Compared to the same time last year, a staggering increase of 28.3% was reported for February 2004 – showing a promising trend for the primary glass industry and suppliers.

Around three hundred factories currently produce glass in Russia and the Commonwealth of Independent States - with the bulk of production located in Russia and Ukraine. Around 45% of this production output is accounted for by sheet glass manufacturers. (Source: St Petersburg Times).

Flat Glass
Flat glass is currently produced in the Russian Federation at 13 glass plants - nine of which still use sheet technology. Russia, therefore, offers considerable opportunities for float glass manufacturers. Moreover, demand from the construction and automotive markets, has resulted in growth of around 10% a year - prompting significant interest from the world's flat glass manufacturers. Asahi and Pilkington have both recently announced major investment plans to capitalise on this growth over the next few years.

Back in 1997, Asahi Glass of Japan acquired a major shareholding in the former state-owned Bor Glass works – the leading flat glass producer in Russia. In 2003, the European Bank for Reconstruction and Development and the International Finance Corporation agreed to lend $25 million to the glassworks, to repair and upgrade one of Bor's two lines for float glass, as well as the completion of a line producing laminated auto-glass.

The decision to invest in the laminated-glass line was made in order to allow Bor to produce green glass for the automotive industry and ultimately raise Russian auto-glass products to European standards. At the same time, plans for a new furnace for making tempered flat glass in 2004 were also unveiled.

Major investment at the Bor glassworks was considered necessary in order to satisfy Russian auto manufacturers' demand for higher quality glass, as well as match the requirements of international carmakers starting production in Russia.

In the past, the scarcity of high-quality component suppliers in Russia had been a deterrent for international car manufacturers considering entry into the Russian market but significant investment in the Russian glass market is seen as a positive step forward in helping to change this outlook.

Today, a number of foreign automotive manufacturers are reporting expansion in Russia. The Ford Motor Company plant in Russia, which opened in July 2002, has now decided to introduce a third shift at its subsidiary plant in Vsevolozhsk, in the Leningrad region, to satisfy high demand for its vehicles and is increasing the number of plant employees by 410 people. Vadim Shvetsov, General Director of Severstal-Avto, has also predicted that car sales in Russia are likely to double by 2010. Naturally, this expansion is good news for glass suppliers to the automotive sector.

Through its Belgian subsidiary Glaverbel, Asahi plans to capture a third of the Russian glass production market in 2004. Further expansion plans were recently announced to help achieve this goal with the building of a large glass-sheet plant in the suburbs, Northeast of Moscow. The plant is expected to produce 600 tons of glass sheets a day and will start production in late 2004. The Japan Bank for International Cooperation (JBIC) agreed to provide a loan worth $108 million (about 12 billion yen) for the glassmaker, making it one of the largest fundings by the JBIC for a Russian project.

Investment in the region is also being fuelled by developments in the construction market. Due to the privatisation processes, which took place during the mid-90s, a market for private real estate was created in Russia - including industrial, commercial, residential and retail space. There are now significant opportunities in the architectural glass sector, therefore.

This rapid development of the Russian construction sector, centred on the Moscow and central regions, has been cited as one of the reasons for Pilkington's interest in the area. In fact, work is underway on Pilkington's new float glass plant for the Ramenskoye, Moscow region, which will cost around 193 million euros (roughly $156 million). The International Finance Corporation (IFC) provided a 42.5 million-euro loan to finance the building of the glass factory and preliminary work on the float plant is now in full swing. The £112m venture is scheduled to come on stream in 2005 and will have an initial capacity of around 240,000 tonnes per year. The project is co-financed by the European Bank for Reconstruction and Development (EBRD).

Amongst the latest Russian investors is Rossteklo, a St. Petersburg glass manufacturer, which recently announced plans for a factory worth $250 million to produce 20 million square metres of sheet glass per year.

Part II to follow next month highlights the Container Glass and Fiber Industry.

Source: OGIS GmbH, http://www.glassglobal.com/ in cooperation with dmg World Media, http://www.glassmediaonline.com/