Market passport Merchandise sold on the market:
Cement

• Number of market subjects: 14 manufacturers
• Production volume in 2006: 13.68 million tons
• Production volume in 2005: 12.14 million tons
• Sales volume in 2006: 12.12 – 12.14 million tons, $800-850 million in retail prices
• Sales volume in 2006: 10.9 million tons, $640-660 million in retail prices
• Export in 2006 (10 months): 1.33 million tons or $54 million (invoice)
• Import in 2005 (10 months): 0.08 million tons or $60.7 million (invoice)
• Export in 2005: 1.48 million tons or $60.3 million (invoice)
• Import in 2005: 0.2 million tons or $7.87 million (invoice)
• Sales structure in 2006 (in monetary equivalent): national products – more than 98% Imported products – less than 2%

Reorientation of national cement producer s from European market s to CIS market s aggravated the situation around the deficit of cement in Ukraine and re sulted in the increase of cement prices by at least 1.5 times.

East – West
Change of export focus of Ukrainian plants became an important event of the past year. See for yourself: in 2005, Ukrainian cement producers exported 508.86 tons of cement to CIS countries, which represented 38.2% of the overall export. In 2006, they exported 707.4 tons of the “gray matter” there, which equaled 59.3% in the export structure.
According to some experts, the main reason for change of export sales direction was the introduction of European standards in some Eastern European countries (Hungary, Romania and Poland), which used to import Ukrainian cement. European Union countries banned the use of cement containing hexavalent chrome causing allergies in the event of direct contact with skin. Tatyana Radenko, Head of Analytical Research Department of Kharkiv State Enterprise SEPROCEM states that “hexavalent chrome appears periodically in the composition of Ukrainian cement due to the use of chrome-magnesite refractory used in the sintering furnaces and due to the raw materials used in the process. However, presence of hexavalent chrome in Ukrainian cement is not a very serious issue. This component could be removed by so-called chrome-removers (ferrous iron) destroying the hexavalent chrome and turning it into “harmless” trivalent chrome”.

In turn, exporters state that the issue of hexavalent chrome is farfetched. Quality of Ukrainian cement has been confirmed by international and European quality certificates. Also, some enterprises (e.g. Balcem, Inc.) already have installed hexavalent chrome neutralizers. Therefore, the main reason for change of export focus was not the increased standard applied by European Union but rather the economic situation shaping on CIS market and primarily the construction boom causing cement deficit. Gennadiy Donets, director of Eurocement Group Ukraine, Inc. (Kyiv, production and sale of cement; the group includes two cement plants and more than 3 thousand employees, since 2005) explains: “Cement export focus of Ukrainian enterprises of Balcem Corporation (Balakleya, Kharkiv region) and Pushka Kramatorsk Cement Plant (Donetsk region) depended on the economic situation that was shaped on the markets of certain countries and on the market prospects. In particular, the increase of cement supply to Russian market in 2006, was due to the fact that prices in Russia increased by 1.5 times and exceeded East Europe prices. For instance, one ton of packed M400 cement by the end of the year cost $170-180. Similar situation was observed on the markets of Azerbaijan, Kazakhstan, Belarus and other CIS countries. In Azerbaijan, the price of packed M400 cement even exceeded $200 per ton. At the same time, the prices of this cement grade in Europe equaled $110-140.”
At the same time, exporters claim that the shift of focus towards CIS countries did not affect supply to east Europe: Ukrainian cement producers fulfilled all their obligations.

Gray Future
Continuous growth of demand for cement on the internal market together with the change of export focus of national manufacturers towards CIS countries resulted in the deficit of the “gray” compound in Ukraine. In 2006, Ukrainian cement producers made 13.68 million tons of cement, which is 12.7% more than in 2005. On the average, cement plants reached the level of 65-68% of capacity load (in 2005, this figure equaled 5861%). Due to the increased demand, the price of Ukrainian “gray powder” increased more than by 1.5 times over the year 2006. In September – November 2006 (top demand) ex-plant price of 1 ton of M400 cement was 320-390 hryvnias. Evgheniy Shugaylo, Commercial Director of Lotos Private Enterprise (Dnipropetrovsk; concrete production for sale; industrial floors and screed coats; founded in 1996; 160 employees), says that ‘cement prices went up by 60-65% in 2006. for example, early in 2006, we bought 1 ton of bulk cement for 210-220 hryvnias, at the end of the year the prices went up to 340-350 hryvnias”. Not only cement manufacturers but also the intermediaries made profit on cement shortage. Customers complained that intermediaries charged 600-720 hryvnias per 1 ton of the same cement and during the time of most acute shortage the sales were more like auction. Sometimes, the suppliers even announced the initial price on the telephone to two customers and they made their increasing bids taking turns. Eventually, the traders would get profitable offers.
The demand for cement went down a bit in December 2006 – January 2007. However, customers admit that right after the end of the holidays, since mid-January, Ukrainian producers would increase the prices by $20-25 per ton. They explain this price increase by the growth of energy carriers’ prices, increase of minimum salaries and need for equipment modernization. At the same time, cement producers state that the income they receive is still insufficient. Andrey Panchenko, National Director of HeidelbergCementGroup in Ukraine (3 cement plants; founded in 2001; more than 2.5 thousand employees) says that: “according to interim estimations, over the year 2006, three plants owned by HeidelbergCementGroup were going to earn approximately 18 million euro of gross profit. This is not enough to buy even one coal mill, which costs 19-20 million Euro and which is needed to convert the production fuel from natural gas to coal. Therefore, the earned profit covers the planned investment only partly. At the same time, in 2007, the head company plans to invest 160 million euro into its own enterprises.”