Knauf, headquartered in Germany, said that the main reason for its 55-million-euro ($70 million) investment into the construction of the plant, located in Soledar, Donetsk Region, was the availability of gypsum quarries in the area.

The new Soledar plant will make it possible for the multinational to reduce its gypsum imports into Ukraine from Moldova and other countries where it has production facilities, further concentrating plasterboard production near the raw materials used to make it.

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Knauf entered the Ukrainian market in 1996 with the establishment of Knauf Marketing in Kyiv, and later, two more marketing firms in Donetsk and Ivano-Frankivsk, to promote its products in Ukraine.

Knauf launched production of plasterboard in Ukraine at its first plant in Kyiv in 1998, thenceforth investing more than 24 million euros ($30 million) into the Kyiv facility’s modernization, and doubling production at the plant by 2002, according to company statements.

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“Today, the Kyiv factory works in four shifts to satisfy demand, which is on the rise,” said Knauf Gips Kyiv CEO Oleksandr Havrysh.

“We currently produce the maximum amount possible at Knauf Gips Kyiv. We cannot increase production anymore.”

To meet growing demand, in 2003, Knauf acquired a 100 percent interest in the Dekanskiy Gips plant in Soledar, together with the licenses to exploit the Nirkovskiy, Pokrovskiy and Mikhailivskiy gypsum deposits near the plant.

Knauf said it initially invested 7 million euros ($9 million) into the Dekanskiy Gips plant in 2004 to modernize its 50-year-old production lines. Today, the plant, together with the gypsum-mining operations, is called Knauf Gips Donbass Ltd.

Knauf said it spent another 2 million euros ($2.5 million) to develop its mining group, which supplies a number of Ukrainian as well as Russian cement plants with raw materials in addition to providing gypsum for its Kyiv and Soledar plasterboard facilities.

Knauf began construction of the new, 55-million-euro plasterboard plant on the basis of the old Dekanskiy Gips plant in April 2005. When completed, the new plant will occupy an area of 20,000 square meters and have a production capacity of 40 million square meters of plasterboard a year, more than doubling the amount of plasterboard currently produced in Ukraine – currently around 30 million square meters.

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According to Havrysh, the price for 1 square meter of plasterboard in Ukraine is now about $1.

Knauf is presently Ukraine’s only producer of plasterboard. According to Havrysh, the company imports or exports its Ukrainian-made plasterboard in order to cover shortages in the region.

However, he said, Knauf’s Ukrainian plants might eventually produce plasterboard for regular export to Moldova or Russia.

“If we had both plants built now, we would most probably be able to sell everything in Ukraine, but because our competitors will import more in the near future and also start production in Ukraine, export may be necessary,” he added.

Havrysh said that the gypsum reserves near the plant are sufficient to provide the plant with production material for the next 60 years, and that Knauf plans to acquire licenses for two more quarries in Donetsk Region.

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Of its 120 building materials production facilities worldwide, Knauf currently operates 10 in Russia and another two each in Kazakhstan and Moldova.

Havrysh said that in addition to its new plant in Soledar, Knauf has begun building two smaller plants in the same area – one for the construction of dry construction materials, the other for partition boards – investing about $12 million into each plant.

“Knauf currently has a 60-70 percent share of the plasterboard market in Ukraine,” Havrysh said, referring to the company’s sales.

“A return on the company’s investment for all three [new] plants is expected in about 10 years,” he added.

In 2005, Knauf reported a turnover of $30 million in Ukraine.

One of Knauf’s main competitors in Ukraine’s construction material business, French construction materials giant Lafarge, said that while its share of the Ukrainian plasterboard market is smaller than Knauf’s, it expects to increase market share following the launch of its own, first, plasterboard production plant in 2007.

Lafarge claims to rank among the top three players in the cement, roofing, concrete and gypsum businesses in the world.

Lafarge already has a strong foothold on Ukraine’s cement market through its ownership of Mykolayiv cement factory, located in Mykolayiv, Lviv Region.

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Lafarge entered the plasterboard and construction mix business in Ukraine in 2000, after acquiring a construction materials company called Stromhips in Artemivsk, Donetsk Region.

Lafarge began construction of its first plasterboard factory at the same site in March this year and expects to complete the facility in the summer of 2007.

“Knauf has a bigger market share than we do, mainly because it was the first plasterboard company to build a plant in Ukraine,” said Oleksandr Horbatovsky, senior strategic development adviser at Lafarge Gips in Donetsk Region.

To date, Lafarge has imported plasterboard and dry construction materials to Ukraine, mostly from its factories in Poland.

“As soon as our company finishes setting up a plasterboard plant in July-August 2007, competition between us [Lafarge and Knauf] will pick up,” Horbatovsky said.

“Prospective market shares will mainly depend on the services each of the companies provides in addition to its products. We already have experience competing with Knauf on the world market,” he added.

Lafarge’s new plasterboard factory in Donetsk is expected to have an initial production capacity of 15 million square meters of plasterboard and 40,000 tons of construction mix a year. Lafarge expects these production figures to double in 2008.

“It’s difficult to name all of our competitors, since the plasterboard market is a submarket of interior furnishing,” said Knauf’s Havrysh.

“Based on the information we have, our main competitor on the Ukrainian market, British Plaster Board, has a 20 percent market share [in Ukraine].”

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British Plaster Board is one of the leading suppliers of plasterboard and gypsum plasters in the world, as well as a major supplier of insulation, ceiling tiles and related products for interiors, according to the company’s website. Like Lafarge, British Plaster currently imports all its plaster board.

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