Russian cement prices up 30 per cent YTD

Russian cement prices up 30 per cent YTD
23 May 2007

Moscow area builders are becoming increasingly concerned about the rising price of cement and rebars used in construction, Vedomosti reports. Prices for both materials have grown by roughly 30% since the start of the year (report analysts at Aton, Moscow). According to the Moscow city government, local demand for cement in 2007 should be about 12.2Mt, and 2 million meters for rebars and tubes. Key suppliers to the capital’s construction companies include Eurocement and Voskresenskcement, and steelmakers Evraz, Mechel, and Severstal. Market participants attribute the higher prices to Moscow’s warmer winter, which allowed construction work to continue, meaning that inventories were lower when the spring building season opened.

While Aton analysts see the news as positive for cement producers, we also note the possible negative impact on builders and developers: prices in the Moscow property market are determined more by demand than costs, so passing the higher costs on to consumers may prove difficult.

Aton continues to believe there is significant upside in Russia’s infrastructure sector, as a strong economy demands major investment to support growth, as discussed in our April 11 report, Good promise, limited choices, high risk. Aton notes that the reported 30% price growth is above 20% for all of 2007 it incorporated in its forecasts, which suggests the Russian cement producers could report better than expected results in 2007.  Aton also note that in that report, that it highlighted Voskresenkcement and Eurocement as some of the more interesting plays on the sector; the latest news are positive for both companies and thus further support Aton’s investment case. However, the choices available to portfolio investors are limited, due to the low liquidity and transparency of listed infrastructure and construction stocks.

Published under Cement News