A Finam Management expert on the construction materials industry under sanctions
Russian citizens have complained about liking building materials. One in three respondents (33%) see a considerable increase in the prices of these products, provided data from the Public Opinion Fund. A survey was conducted among 1,500 18-year-old respondents in 53 regions of the country. “A complicated economic situation and a decline in the income of the population can lead to a drop in demand for construction and repair materials,” Finam Management expert Dmitry Baranov, in turn, defined a topical issue for the sector. In an editorial for Realnoe Vremya, the analyst explains how the building materials industry is surviving the new reality and what support it needs.
Restrictions influence the sector less
The current situation has affected the building materials industry the least, but it has also been affected. Companies in the sector cannot borrow money from other states, they are deprived of the possibility of supplying their products there, are limited to the use of foreign equipment. However, the fact that the domestic market is essential for them supports the production of construction materials, the demand for their products here is important for them, and the various external restrictions influence the sector the least.
Producers always have access to different raw material resources with which to craft almost any type of building material. According to various estimates, the share of building materials produced in Russia is 80-85%, the rest is imported.
Thus, the Russian Minister of Industry and Trade, Denis Manturov, affirmed in February that imports of building materials had not exceeded 4%, and mainly ceramic products, tiles and dry mixes. The minister pointed out that Russian manufacturers and localized companies account for more than 80% of sales of these products.
Focus on equipment made in Russia
Further modernization remains a hot topic for the industry, which will support the ramp-up of production and the expansion of the product range. In addition, given the current circumstances, the focus should be on Russian-made equipment in order to exclude dependence on the supply of both the equipment itself and individual components and consumables for its maintenance from abroad.
The difficult economic situation and the decline in the income of the population may lead to a drop in demand for construction and repair materials, this is also a current problem for the sector. Perhaps accompanying measures will be needed to save these important consumers for manufacturers of building materials.
The regulatory correction is also important for the sector today, which will provide a chance to save the economic stability of the companies, ensure their competitiveness both in the internal and external market. In particular, the amount of compulsory payments for enterprises can be reduced, different preferences, state guarantees can be provided. These measures should be provided on a reimbursable basis, which will allow manufacturers of building materials to get through the difficult period but at the same time it will not let them relax as the support will not be provided “forever”. The current situation has not yet seriously influenced the operation of the building materials industry in the country, their products are in demand.
Here is an example. In the first quarter of 2022, the production of building materials in the Volgograd Oblast increased by 9.6% compared to the same period last year. Thus, the production of basic bitumen in the region increased by 2.5 times, road bitumen mixtures by 2.4, construction mixtures by 2.5, bricks – by 45.5%, lime – 48.6%, building blocks – 32.5% compared to the same period last year. However, it is not excluded that in the coming months the production of various construction materials in the country may be lower, even despite the “high” season in construction. This may be caused by the influence of various restrictions imposed, the decline in demand from businesses and people.
Support for the request of necessary building materials
The building materials industry has prospects because the people of the country will not stop repairing houses, roads, apartments, gardens and many other things, which means that different building materials will be needed, they will still have to be produced. However, in the difficult economic situation with reduced incomes and the desire to save money, support for the demand for building materials is necessary. First of all, the support can take the form of purchases of these products by the State for its own needs. Many building materials have a long lifespan, contractors working in public facilities can buy them directly or sign an agreement of intent to buy them, all this will support producers, ensure their financing.
Also, the state can support other consumers by allocating targeted funds only to purchase Russian-made building materials. The measures taken to develop the production of Russian equipment for the sector, to encourage producers to manufacture more such equipment can be another measure of support for the building materials industry. It has export potential because no one canceled the task of increasing the turnover of sophisticated equipment.
Other support measures will also help the sector: for example, a finer adjustment of the regulations, a temporary exemption from tax duties. I repeat that the building materials industry has prospects. With and without it, different building and repair materials are always needed. The sector will emerge from this difficult situation faster only with support, increase the contribution to the economy faster, provide jobs for thousands of people, provide orders to companies in other sectors, i.e. that all this aid will be repaid in spades, it should be provided.
The author’s opinion does not necessarily coincide with the position of the editorial board of Realnoe Vremya.