Sinosteel Equipment & Engineering Co Ltd, one of China’s largest metallurgical engineering companies, has signed an agreement with JSC Mariinsky Board Mill, to build a plant for the production of OSB and particleboard.

The Russian panel maker is Russia’s leading producer and the new factory will be built in the city of Mariinsk. This is in the Kemerovo region, located in southwestern Siberia on the West Siberian Plain.

The volume of investment in the project at the initial stage is estimated at six billion rubles (US$90m), with the majority of the funds expected to be provided by Sinosteel Equipment and the rest coming from the Mariinsky Board Mill company, as well as the government of the Kemerovo region.

Construction works have already begun and the new plant will create more than 500 jobs, while its implementation is personally controlled by Aman Tuleev, head of the Kemerovo region.

The new factory will have the capacity to produce up to 120,000m3 of OSB, as well as 20,400m3 of particleboard per year. The latter may sound like a small production figure, but the particleboard line is to be launched as a ‘test project’ and if this is deemed successful, the production volume will be increased to 100,000m3 in 2017.

The idea for the construction of the plant was proposed for the first time as far back as 2013. However, due to the beginning of the economic crisis in Russia caused by Western sanctions and lack of strategic investors, implementation of the project was suspended.

According to initial plans of the government of the Kemerovo region, (the region currently remains a centre for Russia’s coal production), the majority of funds for the project should have been provided by Vnesheconombank, one of Russia’s largest banks, in the form of a loan. However, due to the deterioration in the business environment in Russia, the bank revised its initial plans.

According to Yevgeny Vostrikov, director of the Agency for the Attraction and Protection of Investments of the Kemerovo region, (a public association which is responsible for the attraction of investments to the Kemerovo region), future production of the plant will be supplied both to the domestic and Chinese markets. Demand for OSB in these markets has significantly increased in recent years, mostly coming from the furniture and building industries.

According to Mr Vostrikov, under the terms of the agreement, Sinosteel Equipment & Engineering will provide the majority of funds for the project and that will take place by July 1, 2016.

There is also a possibility that the Chinese company may receive a stake in the new plant, the amount of which is currently undefined since talks between the parties involved are currently ongoing at the time of writing.

The Kemerovo OSB plant will not be the only investment project to be implemented by Sinosteel Equipment & Engineering in Russia during the next several years, as the company is currently involved in the building of an electrolytic manganese plant in the Russian Republic of Khakassia.

Oleg Boltovskii, general director of the Mariinsky Board Mill, declined to comment with regard to that project.

To date, the scheme has already been included in the list of priority investment projects which will be implemented in the Kemerovo region. The payback period of the project is set at eight-and-a-half years.

It is planned that low-grade wood will be the main raw material for the future production, the majority of which will be supplied from the Mariinsky, Izhmorsky, Chebulinsky and Tyazhinsky areas of the Kemerovo region.

The annual volume of consumption of raw materials by the new plant is estimated at about 250,000m3.

Most of the required equipment will be supplied by the German Binos company, which produces machine components, single machines and complete turnkey manufacturing plants for the timber and mineral bonded panel industry.

The new plant is expected to be commissioned by the end of 2017. In the event of the successful implementation of the project, the new plant will be the only OSB plant in the Russian Siberian region and will be able to cover the majority of the demand for that panel in the Russian Siberian cities.

At the same time, according to Denis Manturov – Russia’s Minister of Industry and Trade responsible for the development of the OSB industry in the Russian government in addition to Siberian regions and China – the production of the plant will also be in high demand in the European part of Russia.

This area is still experiencing a shortage of OSB, mainly due to the suspension of a significant number of OSB projects in Russia, mainly caused by the economic crisis in the country and the devaluation of the national currency, the ruble.

According to the calculations of Mr Manturov, currently Russia has about 10 OSB plants located in different regions of the country, which are currently still unable to fully meet the country’s requirements for that panel.

According to his predictions, the demand for OSB will grow significantly during the next several years amid the ever-improving situation in the country’s national economy and the growth of demand from major consuming industries, such as the local construction industry.

At present the Russian OSB market is estimated at about 1.5 million m3 in volume terms and, according to predictions of the Russian Ministry of Industry and Trade, it may grow up to 2.0 million m3 during the next few years.

There is a possibility that these figures will be achieved due to planned increases to the existing capacities of some leading local players.

For example, the Kalevala OSB plant, located in the Karelia region of the country, currently remains Russia’s largest producer of this panel type, with an annual production capacity of 300,000m3.

Since part of the company’s plan is to increase its production of that mill through the launch of a second stage, that would give an increase in the overall capacity of the plant to 600,000m3/year.

On the other hand, in contrast to Kalevala, there is a possibility that implementation of some of the industry’s planned projects will be suspended.

For example, Swiss Krono Group has recently announced the suspension of its project for the building of a second OSB plant in Russia, which it initially planned for the Krasnokamsk area of the Perm Krai.

The main reason for the suspension is the deterioration in the business environment in the country, although, according to the company, implementation of the project may be resumed by the end of the current year.

According to the original plans, the new plant should have been commissioned in February 2016, while its capacity was intended to exceed 600,000m3 of OSB per year.

During the second stage of the project, the whole plant could be expanded by the launch of new lines for the production of particleboard and MDF.

Coming back to the Kemerovo project, according to Russian analysts in the field of forestry and woodworking business, despite the optimism of investors, the project may face serious difficulties, as in recent years the level of competition in the Russian OSB market has significantly tightened, with a simultaneous decline in imports.

Due to devaluation of the Russian ruble, imports of OSB to Russia fell five-fold in 2015, to 107,000m3, and there is a possibility that they will continue to decline this year.