Russia: cement industry crosses the border

Russia: cement industry crosses the border
Published: 28 June 2007

The Russian cement industry is one of the main beneficiaries of the national project to construct accessible housing. The conflict between the Federal Antimonopoly Service and the Eurocement Group over price regulation on the market has, by all appearances, been overcome. In the last review issued by the Aton investment company, dedicated to small producers in the cement industry, almost no data on Eurocement were provided. The group’s financial reports are not made public.

Company analysts think that the profitability of cement production in Russia began to grow quickly last year, in spite of high production costs. Analysts’ calculations based on last year’s figures and this year’s forecasts for five mid-sized cement companies show that the growth of those companies’ proceeds on the sale of a ton of cement surpasses the growth of production costs by several times. Production costs are growing at 10.5 per cent, while proceeds are growing at 17 per cent.

Analysts claim that the cement boom in Russia was unexpected for the producers. At the peak of the construction, there is a run on cement that leads of a deficit of transport capacity and railcars equipped to haul cement. Overproduction of this basic material for the construction industry is even expected in 2008. Aton, citing industry experts, predicts that up to 10Mt of cement (that is, about 17 per cent of annual production, if the 10-per cent growth in production seen in 2006 continues in 2007) will be left in the company’s storage facilities because of logistic shortages.

Paradoxically, the super-high demand for cement has led to the elimination of one of the basic principles in the industry, that is, locality. In the central regions of Russia, cement has been shipped in from Siberia for several years already. Earlier, such shipping had been considered unprofitable in principle, and Russia’s cement imports exceed 1 million tons. “Huge distances that used to be considered critical no longer bother consumers,” the analysts say. Expected logistics problems may not only increase imports, but make industry growth senseless.