According to recent statements by producers, and an official spokesman of the Ukrainian Prime Minister Vladimir Groysman, panel makers from around the world are eyeing the Ukraine as a possible country for expansion of their panel making capacities.

For example, Austrian-headquartered Kronospan aims to become a leading player in the Ukrainian market for panels, which could be achieved by the acquisition of MDF maker Korosten, one of Ukraine’s leading MDF producers, which is owned by a well-known Ukrainian businessman, Leonid Yurushev.

Currently the Korosten factory, which is based in the Zhytomyr region, remains one of the most attractive assets in the Ukrainian panel industry, mainly due to its specialisation in the production of MDF; and its status as a single large-scale producer in Ukraine.

In the middle of last year, the Ukrainian anti-trust regulator The State Anti-Monopoly Committee, gave Kronospan permission to acquire the Korosten factory. However, according to some Ukrainian media reports, due to unspecified reasons, the deal has not yet been completed. According to some market sources, though, there is still a possibility that it may be secured by the end of this year.

Currently Kronospan, which has been working in Ukraine since the beginning of the 2000s, already operates a plant for the production of particleboard in Volyn Oblast, which is a province in north-western Ukraine. The acquisition of the Korosten factory would have provided an opportunity for the company to significantly diversify its local range and strengthen its position in the Ukrainian panel market, which currently remains largely fragmented. In 2015 the profits of the Kronospan Volyn factory amounted to UAH 1 billion (US$36m), but more recent data is currently unavailable.

Analysts at the Ukrainian Ministry of Infrastructure, which is a state agency of the Ukrainian government responsible for the development of the panel and timber industry, believe that a second asset in Ukraine will provide a big competitive advantage to Kronospan over the other major competitors in the Ukrainian panel market. That could be mainly explained by the fact, that, unlike particleboard, which is currently produced by about five or six factories in Ukraine, the Korosten factory mainly specialises in operations in the MDF segment of the industry, which is a relatively new niche in the Ukrainian panel market.

Currently the Korosten plant, which was built during 2009-10, specialises in the production of MDF and has the capacity to produce about 300,000m3 annually. It also produces laminate with a capacity of six million m?? per year.

The factory’s flagship brand is Rezult. In addition to Kronospan, the acquisition of the Korosten factory is being considered by some other panel majors operating in Ukraine.

Prior to 2010, the majority of MDF was imported to Ukraine from Poland, Turkey and Russia. However, the commissioning of the Korosten plant in 2010 resulted in the the first supplies of local products to the major Ukrainian MDF consumers, at prices significantly lower when compared to those imported from abroad.

Among the other advantages of the Korosten plant is its location within the boundaries of the Zhytomyr region in western Ukraine, which is known for its forests and rich raw material base.

In addition, the factory is located close to the Korosten Junction railway station, which is important in terms of logistics, ensuring regular supplies of the factory’s products to various regions of Ukraine; and outside the country.

There is a possibility, after the acquisition, that in addition to panels, the factory will be used for the manufacture of high-valueadded products, particularly furniture.

As part of these plans, the establishment of the Zhytomir Furniture factory, based on Korosten, has been completed.

In the case of Kronospan, to date, the scale of its activities in Ukraine has been significantly smaller than in neighbouring Russia and Belarus.

This is mainly due to the recent political and economic turmoil in Ukraine, which made further investments in the Ukrainian panel and timber industries too risky for foreign businesses.

However, in recent years, the situation in the Ukrainian economy has significantly improved.

According to analysts at the Ukrainian Ministry of Infrastructrure, since 2012 the investment climate in the country’s panel industry has changed for the better. In fact, the majority of investment projects in panels have been suspended in Ukraine as far back as 2012-13 and have not resumed yet.

This was also due to a scandal in the industry in 2012, when the Antimonopoly Committee of Ukraine (AMCU) fined 14 members of the association ‘Mebeldervprom’ (a public association which unites some leading producers of panels and furniture in Ukraine, including Kronospan Ukraine) for collusion and price fixing during the conduct of auctions for the sale of rough timber.

The introduction of fines was criticised by the majority of leading Ukrainian panel producers at the time.

According to them, the state regulator did not take into account the imperfection of the Ukrainian legislation: in particular, the lack of a mechanism for the formation of a starting price for forest raw materials during the auctions (it is formed on the basis of a final price at the previous auction); and the fact that the price of forest raw materials in previous years grew by 70% on some positions.

However, despite the protests of producers, the decision was not revised.

The imposition of fines resulted in the cancellation of a record number of investment projects in the Ukrainian panel industry at that time; and a massive exodus of producers.

According to some of the preliminary assessments by Ukrainian analysts, the losses of the Ukrainian industry from the abandoned projects ran in the order of €3-500m.

However, a spokesman for prime minister Vladimir Groysman has recently said the government expects the resumption of the industry’s growth in the coming months.

According to the spokesman, Ukraine has good conditions for the development of its domestic panel production as the country is fully provided with a forest to European standards and has rich reserves of hardwoods (primarily beech and oak).

From its side, the government has already promised investors in panels that it will provide all the necessary support for the implementation of their projects.

That could be in the form of exemption from taxes and other mandatory payments.

In the case of particleboard, currently about 80% of production imported to Ukraine is purchased by furniture makers, while the remaining 20% is mostly used in construction (most often in the manufacture of partitions and the roofs of houses).

In recent years, the production of OSB has also grown in Ukraine, despite the fact that the volume of local consumption continues to be relatively small.