Delegates at the latest Petrocem conference in St Petersburg, which opened on 21st April, have been given some informative insights as to the present status and future outlook of the Russian cement industry.
To some observers, Russian production, which was virtually written off only 12 years ago as an industry sector in terminal decline, now represents a goldmine of opportunities for both local producers and international equipment suppliers. For producers: a scenario of rapidly rising demand accompanied by a seemingly unstoppable rise in prices, while for producers the promise of 70 new greenfield projects, which, if only 50 per cent are realised would add some 55Mt of new capacity by 2015.
And what is set to drive this growth is a range of measures now being pushed through by the Russian government for a quantum leap in basic infrastructural services, coupled to which is a massive new affordable housing programme, throughout all the major cities, all of which is set to boost construction and, in turn, cement demand.
Striking a cautionary note however, market leader Eurocement, while acknowledging these most recent trends, suggests that there is a danger of over-enthusiasm now creeping into these latest forecasts and argues that currently there is still a cement surplus nationwide of 10Mt, in that total industry capacity is now at 78Mt, demand is 68Mt and currently imports are running at 6-10Mt. Hence a surplus of almost 20Mt.
However, this analysis is perhaps rather too simplistic, and disallows the massive logistical problems of moving cement to the main centres of consumption, coupled with certain regional shortages etc as is evidenced by the fact that some traders are paying as much as US$100/t to move cement in bulk from Vladivostok in the far east to St Petersburg in the far west (and presumably still making a profit!) while other sizeable quantities of cement are now arriving on the domestic Russian market from China and Turkey.
Eurocement chairman Michael Skorokhod, did however then confirm that his own company is now investing some US£9bn to develop some 17Mt of new capacity over the 2008-2015 timeframe, so perhaps his caution is understandable - one of keeping the status quo, rather than see this growing cash cow be milked by too many players - in the years ahead.
And in terms of domestic prices? Well the picture is far from clear, and with government agencies now monitoring recent price rises and threatening to impose price caps – apparently prices have risen by over 70 per cent in the last 12 months and 25 per cent in the first four months of 2008 – a degree of reticence prevails. Perhaps around US$120-140 might now be a fair nationwide average, although there is talk of prices climbing to well over the US$150-175 level this summer as demand continues to outstrip supply in certain regions during the all-important summer months.
PRICE UPDATE 22/4/08
Since writing this news item, we have now had chance to liase with a number of local buyers and producers. In essence we have probably under-estimated prices above. Moscow prices are now already reported close to US$180 per tonne as are those in St Petersburg, while in Russian central regions, away from the major centres of demand, prices are reported as over US$165 per tonne - bulk basis. Clearly, price controls can only be round the corner, but with sizeable quantities of cement now being sold by producers at various market exchanges, they might well argue that simple market forces and not scheduled price hikes are now the main drivers of this upward spiral in price.