Ukrainian market shows potential despite pandemic

The ongoing Covid-19 pandemic and, associated with this, economic recession in Ukraine have not had a negative effect on the Ukrainian panels industry, which continues to show steady growth rates this year. This is according to recent statements, made by some leading Ukrainian panels’ producers and local analysts in the field of timber and forestry.

Their views are reflected by the ongoing implementation of some major investment projects in the sector, probably the most important of which is implemented by Kronospan – the company that already has the status of one of the leading players in the Ukrainian board sector.

At present, Kronospan is continuing its work on the project for the building of a particleboard plant in Rivne, a region in the north-west part of Ukraine, as well as an OSB project in Novovolynsk.

The value of investments in the Rivne project is estimated at €200m, while at Novovolynsk it is approximately €166m.

An investment agreement was signed between Kronospan and the Rivne authorities at the end of last year as a result of almost 18 months of talks.

Kronospan Particleboard Project

According to the initial plans of the partners, the majority of construction work for the Rivne project should have been carried out in 2020, however, due to the pandemic and quarantine restrictions, it will probably be completed in 2021.

The project will create up to 2,000 new jobs, 300 of which will be at the plant and 1,700 in related sectors.

The new production facility will be located on the site of a closed foundry / Rivne Tractor Unit Plant.

Implementation of the project will be part of Kronospan’s plans for the expansion of its presence in the eastern European region, which also involves the expansion of its production facilities located in neighbouring Russia and Belarus.

According to Pavel Piltyai, head of Kronospan’s Rivne project, the Rivne region has great potential in terms of its geographical location as it is located close to the central regions of Ukraine and its western borders.

The company has high hopes for its Rivne project, despite the fact that the plans for the building of the plant have already sparked serious concern from local environmentalists and the public, who fear that the enterprise could be a source of formaldehyde emissions in the region. Natalia Pokinska, general director of Kronospan Ukraine, made comments about the projects during an earlier meeting with the Ukrainian president Volodymyr Zelensky.

“The commissioning of OSB production in Novovolynsk allows us to start exports of those products, which were previously imported to Ukraine amounting to €200m, and we are starting with a new project in the Rivne region, which involves the production of particleboards with the overall investments of €200m,” said Ms Pokinska.

At present Kronospan already operates a particleboard plant in Ukraine, which was commissioned in 2004 in the city of Novovolynsk, 40km from the Polish border.

The company now has plans for the site’s further expansion to provide an OSB plant with an annual capacity of 280,000m3.

Currently, there is one existing OSB plant in Ukraine operated since 2012 by Swiss Krono Group with an annual production capacity of 100,000m3 OSB/3 boards.

The European Bank for Reconstruction and Development (EBRD) recently approved the provision of a €116m loan for Kronospan for the building of a new plant in Novovolynsk close to the existing facility.

The overall volume of investments at the site is €166m, while most of the plant’s output is expected to be supplied to the domestic market.

The installation will be equipped with a directly heated dryer and a multi-daylight press and will also feature 11,000m2 warehousing for finished products. A new log yard will be hard surfaced, while the existing railway line will be extended to serve the new development.

Most leading Ukrainian analysts in the field of timber and forestry believe building the third plant in Ukraine will make Kronospan an absolute leader in the Ukrainian boards’ market and may even allow the company to dictate its conditions for partners and local rivals.

According to experts at Fakty Kiev, a well-known Ukrainian business paper, at present the Ukrainian market remains highly over-saturated, which means that prices for particleboard and other types of boards in the local market are already the lowest in Europe, which puts a serious pressure on local producers.

In addition, according to local analysts, the commissioning of a third facility by Kronospan in Ukraine may create a shortage of raw materials in the Ukrainian boards’ sector and lead to a significant growth in local prices for them.

According to even preliminary estimates, the expected level of wood consumption by the Kronospan Rivne plant could be several million cubic metres per year.

However, the possible shortage of raw materials and subsequent increase in prices could, according to some local analysts, result in the decline of the overall profitability of boards’ production in Ukraine.

That will primarily have a negative effect on local producers –particularly those of a small and medium size.

At the same time, global panel manufacturing majors operating in Ukraine should have enough stability and financial clout to get through any problems and fill any vacant niche if competitors withdraw. Still, the consolidation of the market, according to some local analysts, may also result in the influx of cheap, imported products.

In the meantime, the Ukrainian government, particularly the country’s president, considers the development of the board industry as one of the priorities for Ukraine in the years to come, placing particular hopes on foreign investors.

As of now, government representatives have already promised to provide investors with all the necessary supports and benefits for the implementation of their projects. These will be primarily in the form of tax and customs’ exemptions.

Representatives of Kronospan and other interviewed board producers in Ukraine hope the biggest demand for their local output will be seen from the Ukrainian furniture sector.

In fact, according to the plans of Kronospan and the Ukrainian government, the Rivne plant will also be part of a largescale furniture cluster, which is currently established within the territory of the region.

According to some Ukrainian media reports, if Kronospan sees a successful launch of the project and a stable demand for its products in the local market, the company may consider the launch of a second line at the plant, which will allow it to double its capacities.

Local analysts expect the volume of furniture production in Ukraine will be steadily growing and that is expected to contribute to high demand for boards in the local market.

Still, the current imperfection of the Ukrainian legislation in the field of timber and woodworking remains one of the main problems, which prevents more active development of the local boards’ industry.

According to producers, this is mainly due to the lack of a separate bill, which regulates the development of the industry. At the same time, in addition to underdeveloped legislation, there is some concern about corruption, which some argue complicates doing business in Ukraine.

This is despite efforts by the president and his government for the improvement of situation in the industry in recent years. Finally, illegal deforestation and the grey export of timber abroad continues to be another problem for the industry.

Still, despite the existing problems, many local analysts believe Ukraine will continue to be within the sphere of interests of Kronospan and other global majors operating in the boards sector.

This is mainly due to advantages such as proximity to the EU market and relatively low cost of labour and timber.