Pikalevsky Cement, owned by the Russian cement market leader Eurocement, has been shut since November last year. The plant stopped production after its supplier of raw materials, Pikalevsky Glinozem, stopped the supplies.

Pikalevsky Cement is located in a small town of Pikalevo 150 miles east of St. Petersburg with a population of 20 thousand people.

Pikalevsky Cement has been the primary supplier to the St. Petersburg market and, with a nominal capacity of 2.3Mta, it makes up almost half of all the installed cement capacity in the North Western Federal District of Russia.

The history of the Pikalevo industrial base goes back to the Soviet times when three enterprises were created under a single roof: Pikalevsky Glinozem, Pikalevsky Cement and Metakhim. Pikalevsky
Glinozem manufactured alumina, a by-product of which production was belite slurry used as raw material for high quality cement made at Pikalevsky Cement. Another by-product, carbonate mud, was used by
Metakhim for production of sodium carbonate and potash.

With the advent of free market economy the three plants ended up under three different owners. In 2007 Pikalevsky Glinozem was incorporated into Basic Element, a group of companies of Russian oligarch Oleg Deripaska, as part of an acquisition of aluminium assets. This group includes Basel Cement, which became the ultimate owner. Thus BaselCement found itself supplying its direct competitor Eurocement.

In 2008 Basel Cement cut the supply of belite slurry to Pikalevsky Cement. When the latter managed to identify an alternative source of raw materials, Pikalevsky Glinozem, which controls all transport
infrastructure around the town’s industry, cut logistical services to Pikalevsky Cement.

In November Pikalevsky Cement halted production. Pikalevsky Glinozem stopped too, but at the same time Basel Cement announced that it would convert the plant from the production of alumina to own manufacturing of cement. Basic Element can easily do without alumina output at Pikalevsky Glinozem since the group can produce 3 million tons more of it than is required. Metakhim has ground to a standstill as well.

For Pikalevo, where life depends on these three huge enterprises providing direct employment to one eighth of the town’s population, this story was nothing short of a catastrophe. In mid-February a quarter of the town’s residents came out to protest. They threatened to block a railway line and highway going to St. Petersburg. At the same time the Federal Antimonopoly Service ruled that Pikalevsky Glinozem violated antimonopoly legislation and ordered the company to resume deliveries of belite slurry to Pikalevsky Cement or to sell the plant.

The issue is quickly gaining considerable attention at the central government level. Earlier this week the governor of the region included the situation at Pikalevo into his discussion with President Medvedev. In the meanwhile, Pikalevsky Cement has decided not to wait for someone else to resolve its problems and is proceeding full speed with an overhaul of the plant so that it can restart cement production by using alternative raw material sources. Eurocement promises to re-launch the plant in September 2009.

Meanwhile, one solution around Pikalevsky Glinozem can be Metakhim acquiring the company to resume production in the old way. However, its conversion to cement manufacturing cannot be ruled out also. As a result, Pikalevo may end up being home to two large cement producers, at a time of a substantial downturn in cement demand in Russia.