Russian Market of Food Glass Containers

This review of Russian market of food glass containers is based on the research “Market of Food Glass Containers” executed by the First Independent Rating Agency. Material for this article is prepared using analytical soft fira.ru.

Analysis of glass container production is presented in the article with description of dynamics of all-Russia output, regional structure of production and output of leading manufacturers. Analysis includes product kinds corresponding to All-Russia Classifier: 598600 – 0.5 liter glass jars and 598700 – glass bottles.

TOTAL PRODUCTION VOLUME
During recent 6 years production volume of food glass containers was growing at higher rates than general growth rates of Russian industry and only in 2005 this index was less by 2%.
In 2006 production of glass containers again started to grow. During 9 months of 2006 more than 7 billion units of glass containers were produced which was by 1 billion units more than during the same period of 2005.

Increasing output during first 9 months of 2006 – growth rate constituted 116.8% – evidenced for retention of the trend of outpace development of glass container industry.

Growth of aggregate output in 2006 was determined both by increased production of narrow-neck containers (in this segment growth rate constituted 118.1%) and growing output of wide-neck products (growth rate 107.5%) which experienced significant downswing in 2005. Still, even though the said growth rate was retained output of glass jars in 2006 just reach level of 2003–2004.

Lagging of growth of wide-neck containers was peculiar to Russian glass container industry during the recent years. New production facilities are first of all oriented on narrow-neck containers and share of this group in total production permanently increases. For instance, in 2000 ratio of narrow-neck to wide neck containers was 79.1 to 20.9% and after first 9 months of 2006 this ratio was already 88.5 to 11.5%.

REGIONAL PRODUCTION STRUCTURE
Today regional structure of glass container production is characterized with high concentration of production facilities in several regions – 88.4% of total output of food glass containers in 2006 fell on 11 federal districts of Russia.

But capacities on newly started facilities are so significant that start of even one glass plant is able to change existing regional production structure drastically. One of latest examples was production facility “Rusjam-Ufa” (“Sisecam Group”, Turkey) – in the beginning of 2006 it was started to produce transparent glass bottles for vodka, beer, low-alcoholic and soft drinks. This new plant moved Bashkiria to leaders – republic went from 14th place (according to results of 9 months of 2005) up to 5th line in rating. As soon as the plant reaches designed capacity Bashkiria would enter top-three.

Besides Bashkiria high output growth rates in 2006 were registered in two more regions – Vologda region (143.0%) and Smolensk region (131.7%).

In Vologda region two large glass plants are located: “Chagodishenskiy Steklozavod i K (Chagoda Glass Plant & Co)” LLC and “Pokrovskiy Stekolniy Zavod (Pokrov Glass Plant)” OJSC (“Sisecam Group”); shares of these plants in total output of the region constitute respectively 61.8 and 30.6%. Each of these plants has enough margin of slack to increase output. In March 2006 “Chagodishenskiy Steklozavod” finished reconstruction of the second line producing glass containers, and in 2005 “Pokrovskiy Stekolniy Zavod” started second glassmaking furnace with capacity of 600 million bottles annually.

Unavailability of data for year 2006 makes it impossible to track what facility exactly had such a significant impact on increase of glass container output in the region – most likely both plants contributed to positive dynamics*.

Only one large glass plant is located in Smolensk region – “Sitall” OJSC – 89.6% of regional volume of glass container production fall on it. This allows suggestion that exactly this plant contributed to regional output increase in 2006. Moreover, in 2005 the plant had a downswing of production at 11.9%.

According to the index “deliveries of produced goods” glass container industry in leading regions constitutes from 0.23% (Bashkiria) to 6.84% (Vladimir region) of total region’s industrial output**. During 9 months of 2006 as compared to the same period of 2005 development of glass container industry in 8 out of 11 federal districts was outpacing average industrial development.

Analysis of regional production structure by segment of narrow- and wide-neck glass containers shows that in regions ratio of jars to bottles is practically similar to all-Russia index. Top-three of bottle production is constituted by Vladimir region (25.5%), Vologda region (12.0%) and Leningrad region (8.6%) – together they cover almost half of all-Russia bottle production (46.1%).
In the segment of wide-neck glass containers the monopolist is Volgograd region – its share in general all-Russia output constitutes 43.8%. For many years permanent leader inside the region has been “Kamishinskiy Steklotarniy Zavod (Kamishin Glass Container Plant)” CJSC.

KEY MANUFACTURERS
Several holdings are currently operating on Russian glass container market – aggregate share of them in general country’s output constituted 47%. The holdings and their shares are: Association of Glass Container Manufacturers “RKM” – 14.6%, “Anadolu Cam Sanayii A.S.” (“Sisecam Group”) – 14.3%, “RASKO” LLC – 9.5%, “Stekloholding” OJSC – 5.5% and group of companies “OST” – 3.1%.

We can expect change of leader and strengthening of associated companies in 2006. Start of “Rusjam-Ufa” will provide strong leadership of the company “Anadolu Cam Sanayii” – a part of Turkish holding “Sisecam”. The first line of this plant has design capacity of 700–800 million bottles per year. And after start of another two glassmaking furnaces production capacity will reach 1.5 billion bottles annually.

Deficit for glass containers still experienced on food glass container market will be stimulating production increase in the nearest future. Main stimulating factors will be: reduction of return containers, increase of exclusive containers, increased production in main consuming industries, tend to import decrease and high load of existing facilities.

Production increase will be provided both by start of new facilities and by upgrade of existing plants. The vivid example of this process is growing investment into this industry. During 9 months of 2006 the amount of investments outdid the index of the same period of 2005 and constituted Rb4.9 billion while total amount in 2005 constituted Rb4.4 billion. And the bulk of the funds – 62% – was allocated to reconstruction of existing plants.

Just like last year the industry is characterized with highly leveraged investments: leverage ratio constitutes 55 to 45% (Rb2.7 to Rb2.2 billion). Outside funds are mainly constituted by bank loans – 67% or Rb1.8 billion, which in their turn are provided mostly by foreign banks – 71% or Rb1.3 billion.

Thus glass container industry is the darling for investors today. Production growth is determined by increasing investments including foreign sources of financing.