Cement Prices Take First Drop

The price of cement in Moscow and the surrounding regions has dropped by nearly 10 percent this month, the first decrease that the soaring construction market has posted since 2005.

The drop in the Central Federal District came as a result of a jump in imports following the removal of duties and a slight slowdown in construction caused by a credit crunch, industry players said.

"The current price reductions are a reaction by local producers to increased cement imports from Turkey and China," said Uwe Koehler, CEO of Alfa Cement, a top Russian cement producer and subsidiary of Holcim Group.

"The other reason is that in some of the regions there has been a slowdown in construction," he said Friday.

The price of cement fell by 9.7 percent in the first two weeks of June, the first time in three years that a price fall has been recorded, the Moscow Stock Exchange, the city's second-tier market, said in a statement posted on its web site last week.

In the first two weeks of June, the average price for a ton of cement was 4,321 rubles ($187) before tax and transportation, the statement said.

The average price of a ton of cement from Eurocement, which controls around half of the market, was 4,500 rubles in May, while in June the price dropped to 4,350 rubles, according to Lafarge Cement's analytical service. Alfa Cement's price fell from 4,134 rubles to 3,927 rubles per ton.

The government lifted duties on imported cement in January.

"Imports will further increase because of the huge cement demand in Russia, and the growing construction market will quickly absorb these additional volumes," Koehler said.

He said he expected 1.2 million tons to be imported in June and 8 million tons to be imported to Russia by year's end.

Yet even while cement imports increased, Russian Railways reported a drop in the number of cement cars traveling its rails. By mid-June last year, 292,600 cement wagons were tallied, while this year there have only been 260,000 wagons.

This is a reflection of the small slowdown in construction.

"We are not seeing a decline in construction, but we are seeing a slowing of the pace of growth that we've seen over the last three years," said Vladimir Pantyushin, the head of the economic and strategic research group at Jones Lang LaSalle.

"Because of tighter credit, they can't refinance," he said.

The decline in prices is sending a minor shock through the domestic cement industry, forcing producers to set prices more in line with the international market.

"The pricing policy by local players will be determined. Local producers will react in their pricing, and the market will stabilize," Koehler said.

"I would say we are more or less stable, but we are still thinking what to do," he said.

The Central Federal District consumed 20.6 million tons of cement in 2007, which is more than one-third of the total consumption of Russia, according to Inteko. Since 2005, cement prices have increased by 50 to 60 percent a year. Before 2005, prices grew about 25 percent a year.