Will Building Materials Price Increase Stop?

Will Building Materials Price Increase Stop?

Photo: https://framehouse16.ru/

Сonstruction materials prices have skyrocketed in Russia. The surge began last year during the first wave of the COVID-19 pandemic. Today, timber and metal are clear price hike leaders.

The Federal Antimonopoly Service (FAS) explained this rise in prices by the “domestic and foreign markets surge after the lifting of the pandemic-related restrictions.”

Even Russian Central Bank governor Elvira Nabiullina had to comment on price increases. She said that “the building industry can in fact shove the rising prices on to consumers.” The current increase in prices of construction materials has already led to higher costs of new homes.

Meanwhile, the prices of construction materials are not stabilizing. For example, the cost of the edged board has gone up by 11.7% this year. Last year, the prices rose by about the same amount in a gradual increase. Oriented strand boards (OSB) have carried a price hike of 21% since the beginning of this year. Again, their prices rose by 8.5% within 2020. At the same time, the production of lumber in Russia is twice as cheap as, for instance, in the United States or Canada. The Russian companies also have more affordable raw materials and labor.

As for the prices of metal products, those of coking coal concentrate increased by 42% between June 2020 and April 2021. The prices of iron ore concentrate and ferrous metal scrap doubled. The FAS reported that it had filed a case against several producers and metal trading organizations that had taken actions towards keeping prices high and overcharging.

"First of all, our government does not pursue protectionist policies on principle," Mikhail Delyagin, research supervisor at the Institute of Globalization Problems, Doctor of Economic Sciences and full-fledged member of the Russian Academy of Natural Sciences, told wek.ru.

Russia's domestic market reflects the situation in foreign markets. Our government does not protect the national market and ignores its duties in the sphere of reasonable protectionism, hence the inflation strike. For example, metal prices almost doubled. Iron metallurgy faced the same situation that had occurred in the oil industry. At that time, the economy was very much underinvested, but there was overproduction on a global scale. The development of new deposits was underfunded, and as a result, it caused shortages and imported inflation.”

The prices of construction materials increased by tens of percent as inflation jumped, but many experts said that we are not on the way to hyperinflation. The thing is that the economy has begun to recover after the “pandemic” year when it shrank not only in Russia but throughout the world. In Russia, the recovery pace is quite fast. This implies that the inflationary surge will recede as the economy returns to more stable equilibrium.

“The arbitrariness of monopolies is the second cause of rising prices,” Delyagin says. “Russian monopolists get scared when they see the government acting inadequately, to put it mildly. When a corrupt official gets scared, he steals as if it were the last chance. If a monopolist is very worried about his future, he drives up prices as if it were the last day. This is what we see now.”

Last year, Russian President Vladimir Putin ordered the Russian government to fully ban the exports of coniferous logs and valuable hardwoods starting 2022 and develop timber construction, increase responsibility of forestries, and design a unified system of accounting for timber and transactions with it. Will this result in at least some stabilization of sawn timber prices?

“As for the fact that Putin decided to prohibit the export of Russian round timber from 2022,” Delyagin said, “in theory, this might lead to at least some order, including even certain reduction in prices. However, the main thing is to make sure that presidential orders are carried through. Of course, we really want to see these initiatives implemented, but I believe that the outcome will be the same as that of the May 2012decrees which have become an embarrassment.”

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