Star performer

19 March 2008

Jean-Claude Doucene, sales director for Potain tower cranes CIS: “With so many residential developme

Jean-Claude Doucene, sales director for Potain tower cranes CIS: “With so many residential developments under construction in Moscow there is also a huge boom in power plant construction.”

There is no doubt Russia's construction equipment market is booming. Sales grew by +25% to € 1.57 billion (US$ 2.1 billion) in 2006, according to the latest report from PMR Publications.

Speaking to iC at the recent CTT show in Moscow, Russia, Alexander Lyubin, of Caterpillar's CIS rental & used equipment division said he thought the construction market in Moscow and St Petersburg alone is worth an estimated € 60 billion (US$ 80 billion) a year.

However, Mr Lyubin points to the rental sector as the one to watch in coming years, estimating it could be worth as much as € 300 million (US$ 402 million) a year.

Demand for rented equipment said Jean-Claude Doucene, sales director for Potain tower cranes CIS, (part of the Manitowoc Crane Group) comes mainly from the large number of foreign contractors active in the country. He said they are helping fulfill the huge demand for high-rise residential and ce units, coupled with the “fairly new phenomena” for shopping centre construction.

Demand for high-rise buildings, especially for and coal fired, meaning even further demand,” Mr Doucene.

What is spurring all this construction activity is political stability, which Mr Doucene expects to continue after the presidential elections on 9 March 2008.

Besides this, the government is cash rich thanks to its oil and gas reserves. Foreign investment is also on the rise-almost € 5.6 billion (US$ 7.5 billion) worth of deals were signed by foreign companies at the recent annual St. Petersburg international economic forum in June-while economic growth hit +7.5% this year.

Problems

While many manufacturers iC spoke to were enjoying rising sales, Russia presents some problems: “there's a lot of bureaucracy” said one. Security is also an issue, as are intellectual property rights. “Russia isn't a member of the World Trade Organisation yet, which gives local manufacturers a loophole over copyright,” said another.

There is also a burgeoning market for cheap Chinese machines, many of which are seemingly “modelled” on other, more established manufacturers’ designs. The market for these is mainly Russian contractors, with foreign-based contractors preferring to buy, or rent equipment they know.

According to one western manufacturer iC spoke to at CTT, who wished to remain anonymous, Chinese manufacturers are seen as “a threat” because they “compete on price not quality.”

He added that, “it's the same story all over the world; they come and take pictures of your machines and copy your technology. But we have to take them seriously because they can respond quickly and the technology is getting better.”

After sales service was also seen as a problem for those buying Chinese machines. Volvo's Andrey Komov, sales director Russia, Ukraine and Belarous, told iC while the majority of Chinese manufacturers have only been in the country for two or three years they are taking larger shares of the market.

“They now have 46% of the wheeled loader market, for example. The first sale, given their cheap price is easy, the second will depend on after sales-parts availability and service-so, if they don't perform it's suicide.”

While Chinese manufacturers were unwilling to comment of the issue of copyright infringements, one manufacturer did tell iC its machines were, “frankly not as good as our western counterparts.”

David Zheng, regional manager Zoomlion, told for its part the company was busy “responding to the needs of [our] customers”. This includes providing includes providing training and offering 95% parts availability. Its dealer in Russia has most common parts to the concrete pumps it sells thanks to the “spare” machines it holds.

These are cannibalised for parts. When the correct part arrives from China it is shipped out, swapped and the cannibalised part returned to the dealer. Mr Zheng expects this to change when the company opens its new ce in Moscow later this year.

On the issue of quality, said Mr Zheng, Zoomlion is also “improving all the time”, with the focus on “providing good quality products and better service in the future.” He concedes, however, that Zoomlion is fairly new to the market. “But, were trying to improve in all areas as much and as quickly as possible” he added.

Country-wide expansion

While Russia's major cities continue to expand outside the major urban centres the railways and road networks are also growing.

Komatsu's sales promotion executive, Kirill Kirov, told iCRussia's expanding road network and the demand for aggregates in general, meant many of its machines were inding their way into quarries in east Siberia, while demand in the earthmoving sector, particularly around Moscow and

St Petersburg was also boosting demand, particularly at the heavier end of its product lines.

He also pointed to higher than expected demand in the south, were houses, schools and the non-residential markets are “strong”, while also citing the north of the country, where Komatsu supplies machines specifcally designed to work at very low temperatures, as experiencing high levels of sales.

Volvo's Mr Komov also told iC the market throughout the country was “booming” at present. He estimates imports of construction equipment grew by +164% in the first quarter of 2006.

“Infrastructure spending is about to boom, mainly on the back of oil and gas revenues, and I expect the market to continue growing by 20000 to 25000 units per year for the foreseeable future,” said Mr Komov.

Outlook

There is no doubt Russia represents a fantastic opportunity for construction equipment manufactures and rental companies alike. Provided economic growth and political stability continue there looks to be no end in sight to the boom.

However, the “flood” of cheap Chinese and second hand machines could make it dificult to maintain consistent prices in the future.

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