Russian cement producers warn of escalating costs

Leading cement producers in Russia have warned domestic regulators of a 17-30 per cent rise in production costs next year, caused by continually increasing costs related to logistics, energy and personnel. The result will inevitably lead to a rise in cement prices over the coming several months, they caution.

Representatives of Soyuzcement, the national cement manufacturing union, have already sent a letter to Russia's Ministry of Economy and Ministry of Industry and Trade, informing the government departments of expected price rises.

Soyuzcement reports that industrial inflation for the cement industry this year will reach 23-30 per cent, exceeding forecasts by 5-10 per cent.

In September 2023, the average price of cement in Russia increased by 14.7 per cent YoY to RUB7900/t (US$89.82), according to estimates by Russian statistics service. Soyuzcement attributes the rise to a serious devaluation of the Russian ruble, which resulted in a 20 per cent increase in the cost of some imported equipment, logistical difficulties associated with a shortage of drivers, and the low rate of renewals of carrier fleets. In addition, personnel shortages have forced manufacturers to raise salaries by 15 per cent. Finally, the cost of servicing loans and leases are rising following growth of the Central Bank of Russia's key interest rate.

Overall, in the first half of 2023 the cost of cement production in Russia increased by 18.3 per cent YoY. At present, cement factories in Russia are heavily dependent on borrowed funds as many plants require modernisation.

For this reason, Ekaterina Molodtsova, commercial director of Russia's largest cement producer Cementum, believes that next year industrial inflation for cement producers in a number of regions in Russia will be 17-20 per cent. According to Ms Molodtsova, the industry is completely dependent on imported equipment from India, China and Turkey.

Industry performance, 8M23
In terms of the cement sector's overall performance, in the first eight months of 2023 consumption advanced by five per cent YoY to 44.3Mt, according to Soyuzcement. Meanwhile cement production rose by 2.5 per cent YoY to 42.6Mt.

Due to good demand and a high capacity utilisation rate at most Russian cement enterprises, some local analysts expect a gradual improvement in the cement industry's financial performance, increasing its investment attractiveness. However, to maintain profitability at current levels and increase production, they underline that businesses must take into account the increase in the cost of production to prevent massive price rises.