The industrial gases business in the CEE region has grown at between 7-10 percent per year and is forecasted to grow at a similar rate over the next five years. The total industrial gases business in Eastern Europe was valued at approximately â‚¬1.85bn (including Russia and CIS) in 2005. Central and South Eastern European (CSEE) countries are driving the current growth in particular, along with a manufacturing migration from Western Europe to the lower cost base of the region.
Bulgaria and Romania comprise the second part of the EU's fifth enlargement and joined the EU on January 1st, 2007. The next five or so years could be a unique window in Eastern European growth, before countries that have become European Member States join the Euro, which could lead to rising costs.
German based Linde Gas and the Messer Group are the biggest regional players, and really expanded their presence following the fall of the Berlin Wall. Linde's acquisition of AGA, seven years ago, added to its presence in this region, and it now holds more than 35 per cent of the market and is the market leader in almost every country where it operates. Italian company SIAD, plays alongside Linde and Messer. Due to the significant investment and growth in the CEE region, a smaller player like SIAD has a wealth of new opportunities to capitalize on as well as retaining existing customers who have instigated a move eastwards from Western Europe over the last two to three years. $quot;Some of our Italian customers did not close their Italian facilities but rather enlarged or built new plants in (CEE) countries,$quot; according to the company's managing director, Bernardo Sestini.
SIAD Group is an independently owned gas company, which was formed in 1927 and has headquarters in Bergamo, Italy. Over the past 17 years the company has expanded into Central Europe, including Austria, Czech Republic, Slovakia, Hungary, Croatia, Romania and Bulgaria. In addition the country operates in Slovenia, Croatia, Serbia and Bosnia through its joint venture with Istrabenz Plini.
According to Sestini, Romania and Bulgaria are seeing the greatest growth amongst countries where SIAD operates: $quot;In Romania, this year we have a big contract with a steel mill, which gave us the possibility to install a big air separation unit,$quot; he says. As well as supplying the steel mill the new 300tpd plant, which is due on stream in September, will also supply liquid gases. Sestini predicts SIAD will become one of the biggest producers of bulk gases in Romania, where it also has 11 gas filling stations. Romanian gas revenues were worth around $110 million in 2005, while smaller Bulgaria, reaped $36 million in that period. Total revenues in both countries grew by over 30 percent year on year at the time.
Messer Hungary's general manager, Johann Ringhofer says that South Eastern Europe is an area to watch. $quot;We have growth rates of between 7 and 20 percent, depending on the country,' he says, citing Serbia and Romania at the top of the league table. Ringhofer says that expectations that the cylinder gas business would slow a little due to new onsite opportunities have not yet proven correct: $quot;Surprisingly with the economic development in Serbia and Romania we see quite good development in the cylinder business.$quot; Messer is responding with investments in Romania in cylinder filling stations (in the Bucharest area) and has already established more in Serbia. Serbian gas revenues totalled around $47 million in 2005.
In terms of growth drivers, steel is one of the main businesses where there are big opportunities - along with metal fabrication and welding. Chemical and petrochemical demand for gases is also strong. Sestini says that the food industry is lagging in CEE because the region is short of major facilities. Automotive industries have also played a part - KIA and Peugeot have attracted suppliers in Slovakia, for example.
Building on a good position in packaged gas, two years ago SIAD began adding cryogenic plant to enlarge its bulk liquids business. Sestini adds that the new plant in Romania will allow the company to cover the area even better. Sestini says that SIAD's engineering department has played an important role in through cryogenic and on-site plant construction: $quot;this gives us a big opportunity to grow in these countries.$quot; He adds: $quot;I think (for SIAD) in 2006 we can expect total growth in Central and Eastern Europe at 23-24 percent.$quot;
Poland has the largest economy in the Eastern European region, with 2005 gas revenues of some $373 million, and offers not only a low-cost infrastructure but also a possible springboard for expansion into Russia and the Ukraine. SIAD's business partner, Praxair, recently lost out to Air Products in the Polish BOC Gazy divestment made by Linde to fulfil its antitrust obligations, following the German major's acquisition of BOC. Praxair's CEO Steve Angel, recently told gasworld: $quot;Air Products obviously thought the business was worth a lot more than we did!$quot; And pointed out that Praxair had already exited Poland early in 2002 via a sale to BOC.
Air Products, which paid â‚¬370 million for BOC Gazy, now operates in the Czech Republic, Germany and Poland. Air Products, which has acquired several Polish gas companies over the last ten years, believes its recent purchase offers a solid foundation for double-digit growth. $quot;It allows us to build critical mass and a low cost position in the region and to be a bridge to serving a broad range of customers across Central and Eastern Europe,$quot; commented Air Products chairman and CEO John Jones.
$quot;There's a diversification in the suppliers now in Poland again,$quot; says Ringhofer. Messer was also very interested in taking over the BOC business to gain additional Polish production capacity. $quot;Because we could not succeed in that project we are going to invest in our own production capacities now in Poland,$quot; Ringhofer revealed to gasworld. He anticipates a major Polish investment to supply steel and metal processing, and also food production and chemical markets. The investment is still at an early planning stage.
Russia and the Ukraine
Russia and the Ukraine are viewed as less stable than some other markets in the region, and major gas companies are involved to a very limited extent. $quot;We are going cautiously into those markets,$quot; says Ringhofer.
However Linde has not held back from becoming involved in both Russia and Ukraine (following the acquisition of AGA's business), where it says it has the 'first-mover advantage.' The company is involved with air separation unit start-ups at the Maksi Group in Russia and Elektrostal in the Ukraine, and announced it had acquired regional technical gas supplier SaKiZ based in Samara in southern Russia in January. The acquisition makes Linde the market leader in the Volga region's rapidly growing economy, where SaKiZ supplies both liquefied and gaseous nitrogen, oxygen, carbon dioxide, helium and argon. Linde indicated that it intends to continue to make further investments in Russia and the company has a strong position in the greater Moscow region. Russian gas revenues are estimated at $400 million but the potential is far higher (see interview with Dmitri Ermolov, pages 26-30).
Construction materials costs may be on a par with the rest or Europe, but CEE does have lower manpower overheads as well as potential efficiencies going forward. Air Products estimates that manufacturing growth, an indicator of industrial gas demand, in Central Europe will drop slightly to around 6 percent in the next five years from the 8.8 percent level seen from 2002 to 2006.
Messer's future strategy and success is very much tied to CEE: as well as remaining near to the customer, Ringhofer says Messer will concentrate its business in Europe and not diversify to other countries around the world, reinvesting primarily in the region. $quot;We are expecting strong growth: We will see big growth in Romania, and we see another chance to win a big project in Bosnia with a steel mill there,$quot; he adds. Messer is also looking into several promising projects in Bulgaria, including one in a chemical plant and one in a mine.
$quot;What is fantastic is that new Europe is a part of the European Community,$quot; Sestini says. Sestini mentions rapid growth rates, the sheer number of opportunities and the fact that people in CEE $quot;like to work$quot; as the biggest differentiating factors compared with Western Europe. $quot;It's a completely different world,$quot; he says.
Other recent investments
Linde is to build an LPG recovery plant in Constanta, Romania for Petrom, part of OMV Group. Scheduled for completion in the second half of 2008, the plant will cost over â‚¬70 million and have 100,000tpa nameplate capacity.
SIAD completed construction of a filling station in Bucharest, and Sestini says that many other potential big investments are currently under negotiation, not least plans to create a new cryogenic plant in Slovenia.
Messer commissioned a â‚¬44 million ASU in Smederevo close to Belgrade (Serbia) supplying customer US Steel in November. $quot;We are supplying them mainly with oxygen, nitrogen and argon directly from the plant. In addition we are producing the majority of our bulk product in that area out of Smederevo - for Romania, Bulgaria and the market in Serbia,$quot; Ringhofer says.
Air Products acquired BOC Gazy in Poland and will consolidate this wilth business in Czech Republic and Germany. Its on-site plant in Russia has started supplying N2 gas.
Cryogenmash is constructing 2 new on-sites in Russia, at Ykaterinberg and Pritz.
Air Liquide is due to commission its major new ASU at Severstahl in September