Key Points:

Chris Ellis, one of Fletcher Building's divisional chiefs, heads to Hungary on Saturday to sign a deal on 5.4ha on which the company will build a $20 million metal roof tile manufacturing plant.

Fletcher is developing the plant at Várpalota in Hungary's western area, a highly industrialised zone between Budapest and the boarder with Slovenia.

Várpalota was a mining area during the socialist era, but the mines have been closed and now the Government wants to encourage new business there.

Fletcher chief executive Jonathan Ling announced in August that his company would establish the new plant, expanding its metal roofing manufacturing bases in Auckland, Malaysia and Corona, in Southern California.

Ellis said a Hungarian regional development authority had drawn Fletcher to establish the plant in that area via incentives which were highly attractive.

"We're working with the Hungarian Investment and Trade Development Agency, which is a support institution to the Ministry of Economy and Transport. The agency is providing the industrial subdivision, roading, power and infrastructure but we're building the factory. We're also working with the Várpalota Council, buying the land at a concessionary price and there are incentives for employing people in that area too."

When the plant begins production in 2009, it will employ about 100 people from Várpalota and initially produce six million roof tiles annually. The plant will be developed alongside an aluminium smelter and other manufacturers and Ellis said a drawcard had been good industrial services to the area, a dependable electricity supply, large labour pool, competitive pay rates and the regional development incentives.

Fletcher will close its metal roofing tile warehouse in Britain when the Hungarian plant is finished.

Ellis said Tony O'Brien, AHI Roofing's European manager, based in Britain, has just moved to Slovenia but might go to Budapest to manage construction of the plant.

Fletcher had initially considered developing in Slovenia but found better opportunities in Hungary. It also initially examined licensing deals but found building was the best option.

"We looked at that Eastern European location because that's the centre of the market and we want to minimise our freight costs. It really came down to two choices: either Slovenia or Hungary but our perception was that Slovenia is ahead of Hungary in terms of industrial development, which could lead to labour shortages and higher prices for industrial land."

When the plant is commissioned, steel will at first be pressed in Auckland then shipped to Hungary for finishing with paint and chip coating at the plant. But Ellis said Fletcher would soon source metal on the international market for the European operation and build a brake press in Hungary.

Fletcher's AHI Roofing plant in Glen Innes is the world's largest metal roofing tile manufacturer, Ellis said, making about 12 million tiles annually. Establishing the new plant in Europe will reduce freight costs and give the company access to the lucrative Eastern European bloc where the product is in high demand. Fletcher distributes roof tiles branded Decra in the United States and Gerard in Europe.

* Fletcher's annual meeting is at 10am tomorrow at the Langham Hotel in Auckland.