Russia cement prices fall 20 per cent in inflation battle

Russia cement prices fall 20 per cent in inflation battle
Published: 08 August 2008

Cement prices in Russia have dropped off sharply from record highs despite a continuing surge in demand, showing that on some fronts, the state’s battle against rampant inflation is working.
 
In the past two years, rising cement prices have frustrated some of the Kremlin’s efforts to renew Russia’s infrastructure. Russia plans to spend $1 trillion by 2020 on dams, roads, power stations, airports and other basics.
 
All of these things need a lot of cement, the price of which has doubled in the 18 months to June to reach 5,043 roubles ($215.2) per tonne, becoming the highest in the world after nearly a decade of growth.
 
In July, however, the price fell 20 per cent and will not bounce back, the industry watchdog said.
 
"I doubt [cement] prices will get any lower, but they have stopped growing, and they will not grow any more," Denis Davydov, the head of the construction materials department at the Federal Anti-Monopoly Service (FAS), told Reuters.
 
His service has become a favourite weapon of the government in urging companies to rein in prices, which this year pushed inflation well beyond government targets to almost 15 per cent on an annualised basis after it hit 11.9 percent in 2007.
 
FAS is leading an investigation into coking coal miner Mechel , which Prime Minister Vladimir Putin last month accused of charging too much for its coal on the local market, sending the company’s New York-listed stock into freefall.
 
The leader on Russia’s cement market, Eurocement Group, has also faced investigations for pushing up domestic prices and has been the biggest loser from the government’s cement initiatives, Davydov said.
 
He said the company’s share of the market in European Russia had declined to 38 per cent from 44 per cent so far this year.
 
Privately owned Eurocement confirmed it was losing market share because of new competitors and said the industry had taken a big hit even as state statistics show new construction projects overall grew 22.4 per cent in the first half of 2008.
 
In January, a 5-per cent tariff on cement imports was lifted for nine months, driving prices downward as new suppliers came in. Davydov said this policy could become permanent.
 
"If there are no catastrophic consequences, then the tariffs can be done away with altogether. For local producers, with the exception of Eurocement, it has not been catastrophic," he said.
 
Meanwhile, new cement factories, which high prices have encouraged investors to build, are coming on line. They will help quadruple growth in domestic cement supplies next year, Davydov said.
 
Standing at 3.7 tonnes this year, the cement coming from new factories will grow to 16Mt in 2009 and almost 30Mt in 2010, he said, citing official forecasts. Russia produces a total of 64Mt of cement a year.
 
Turkish pressures
 
Since the tariffs were lifted, Turkish firms have flooded into Russia, where up to 30 per cent of trading is now done on the stock exchange, especially during shortages.
 
"The producers saw that the barriers are down, the sales channels are streamlined, and the prices were still very attractive," Davydov said.
 
Eurocement said more than 4.5Mt of cement were imported in the first half of this year, while Lafarge is building four new plants in Russia.
 
Alexei Ryzhkov, president of the Moscow Stock Exchange, which handles cement trades, said Turkish firms had taken 22 per cent of traded volumes as of July, up from 14 percent in June.
 
Eurocement, which is still the biggest with 47 per cent of traded volumes, has its factories working at only 80 per cent of capacity during peak construction season, Ryzhkov said, adding: "This is essentially what they lost to the Turks."
 
The company confirmed it had slowed down its output.