Shortfalls in Russian cement output

Shortfalls in Russian cement output
Published: 02 October 2007

Shortages in the country’s cement and building materials industry could hold
back the rate of real estate development, First Deputy Prime Minister Dmitry
Medvedev has said. Commenting on the government’s long-term home
construction plans during a trip to the Tula region Wednesday, Medvedev
highlighted the importance of the sector and potential indirect effects for
the rest of the industry. "Russia is on the cusp of a building boom,"
Medvedev said. The state is set to review its strategy for the sector in the
next few weeks.

Although domestic cement production has risen by 20 percent in the last six
months and brick production by 14 percent, Medvedev said that with
construction rates even higher, demand was outstripping supply.

Over the past few years, the country’s cement industry has boomed
spectacularly on the back of the current construction surge. As housing and
commercial building increased by 89 percent from 1998 to 2006, cement
production has grown by 140 percent from 22.7Mt to 54.7Mt over the same
period, an industry report released in August by the CentreInvest Group
According to government estimates, 85Mt to 90Mt will be required by 2010 to
meet the requirements of the government’s affordable housing strategy, the
report said. By that time, the production shortfall is expected top 25Mt.

Inadequate supply is also leading to increasing prices. According to
CentreInvest Group estimates, cement prices rose by 28 percent in 2006. Over
the next four years, cement prices look set to jump to US$130 per tonne from
the current price of around US$80, the report said.

"The stabilisation of prices is our most basic task and can be solved by
reconstructing current production and creating new production," Medvedev
said, citing a 15 percent price rise so far this year.

"Prices for materials and especially cement have been growing permanently
for many years, and this summer was not an exception," said Pavel Yakimchuk,
a project manager at CBRE Noble Gibbons.

All the major players on the domestic market have announced plans to
increase production radically over the next few years. The top nine cement
companies in the country control 85 percent of the market, with Eurocement
Group presently accounting for over 40 per cent of the industry.