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Developments in Russian domestic boiler marketMarch 2006

The size of the domestic boiler market in 2005 is estimated at around 540,000 units, representing growth of nearly 6% compared to 2004. The main driver for growth is the wall hung boiler segment, while sales of floor standing gas boilers contracted. Jet burner boilers remain a niche product concentrated in high-end new build.

The total value of the Russian boiler market is estimated to have risen from EUR114 million in 2004 to around EUR133 million in 2005. This increase was caused both by growth in the volume of the market as well as a small increase in average manufacturer selling prices due to growing prices on metal.

There are four main types of boiler sold in Russia - floor standing gas mainly supplied by the domestic industry, wall hung boilers, which are nearly entirely imported, jet burner boilers mostly imported from Europe and solid fuel boilers both domestically produced and imported. There are also electric boilers, with strong domestic manufacturing base. Most of the market volume is made up of atmospheric gas boilers, with floor standing boilers accounting for the lion's share.

Floor standing gas boilers are installed mostly in areas off the district heating network. These are smaller towns and villages which have natural gas but no centralised heating. This is the economy segment of the market and it is hard for importers to compete due to fierce price competition from domestic manufacturers.

Russian made boilers are usually of very rudimentary quality, and often operate without electronics in a natural circulation or gravity feed system.

Jet burner boilers are supplied to areas off the natural gas network and for the new build market. In particular the large detached houses or kottedghi being built in the suburbs of the largest cities often have jet burner boilers installed. These boilers are often sized in the higher output range for domestic boilers (40-60kW) to heat large new houses with high heat demand in the long Russian winter. Gas boilers on LPG have also become noticeable on the market competing with oil boilers, as prices on light oil (solyarka) have been growing. The major reason for very modern presence of LPG boilers on the market is high initial investment, such as high costs of containers for liquid gas.

Wall hung boilers have taken a long time to develop in Russia. The main reason is that most new build apartment blocks in Russian cities are connected to the district heating network, which covers in total 70% of all Russian dwellings. In 2002 new building regulations (SNIPI) allowed for district heating conversions from centralised heating systems to collective or individual central heating. However there are often administrative constraints in decentralising a district heating block of flats, such as lack of equivalent regulations for the gas companies on a regional level. Therefore the main market for wall hung boilers so far has been new house building for dwellings not connected to district heating.

However the wall hung market showed impressive growth rates in both 2004 and 2005 and it appears the Russian market is finally poised to take off. The two precedents of Romania and Ukraine show that when heating systems are converted from district heating, the potential for wall hung boiler sales is huge.

Combi boilers
The share of combi in wall hung boilers in Russia is quite high at around 90% of all wall hung boilers sold, of which around 10% have a built in storage tank. For most end users there is little sense in installing heating-only boilers and there is no domestic manufacturer that promotes heating only as in some East European countries.

However, the majority of floor standing gas boilers are heating only, given the lion's share of Russian made inexpensive products. The combined share of wall-hung and floor-standing heating only boilers is high, at 84% in 2005, down from 86% in 2004.

Condensing boilers
Sales of condensing boilers are marginal in Russia and estimated at around 1,500 units in the wall hung sector. Many manufacturers do not yet offer their condensing products in Russia.

There are at least two factors hindering sales of condensing boilers in Russia, namely the low cost of mains gas which makes little sense to buy more expensive equipment, and the fact that ecological awareness is very low in Russia.

Nonetheless in 2005 Ariston, Baxi and Vaillant have been actively promoting condensing boilers in Russia. Therefore condensing boilers are driven by manufacturers who promote this premium range, in part to market their brand image.

The main market drivers in Russia are as follows:

For new building: increasing new house construction of both flats and detached houses. In rich Russian regions (such as the Moscow region) there is active construction of elite housing.
Apart from the improving economy, another main factor for future house construction is the emergence of a mortgage credit system.

For first time installations: demand for new gas equipment in regions with gasification programmes. There is also huge demand for housing renovation which often involves first time installation of central heating products, including conversions from district heating system.

For replacement: rising spending power of the population and years of frustrated demand, built up during the deficit economy of the 1980's and economic stagnation of the 1990's. In particular there is large park of low quality gas boilers in need of replacement.

BSRIAs World Market for Heating will be completed in March 2006, covering key product markets in detail in 39 countries worldwide including market size, structure, trends and forecasts, major players and market forces. For further information contact BSRIA:

Tel:  +44 (0)1344 465600
Email: wmi@bsria.co.uk

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