Ukraine will face a total rise in prices for building materials against the backdrop of the cement crisis as a result of recovery and possible monopolization of the market - experts
The Ukrainian cement market is on the verge of a major crisis: the country faces a shortage of building materials to rebuild war-torn cities due to a lack of domestic production. At the same time, a potential agreement between the global “giants” CRH and Dyckerhoff will lead to monopolization of the market and the fact that one player will be able to dictate its own terms to the entire market.
Why do the relevant authorities in Ukraine hardly react to the aggressive takeover of the market by the cement “cartel”? Who and why is slowing down the decisions on which the future of the domestic building materials market depends? But what does a possible merger of Irish and Italian manufacturing companies threaten our country with? Details are in the new investigation
Recently, the English-language publication The Kyiv Independent conducted a large-scale study of the needs and problems of the Ukrainian market in restoring the infrastructure destroyed by Russia. The authors came to disappointing conclusions: against the backdrop of recovery, Ukrainians can expect a significant increase in the price of building materials, a shortage of cement and a likely monopolization of the market.
Here's what international and domestic experts say about this:
“In a concentrated market, the supply of cement will be less than in a competitive market, while prices will rise,” predicts Bruno Pellegrino, an associate professor at Columbia Business School.
“We need more players and diversify the market, and not make it more compact, because competition is very weak,” says Sergei Pilipenko, general director of the Kovalskaya company, the largest consumer of cement in Ukraine.
“There is potential for price growth (ed. – for cement). This is bad because cement production volumes will fall,” suggests Professor Catherine Thomas from the London School of Economics (LSE).
Consequently, according to the publication, in order to restore houses, roads, social and critical infrastructure destroyed by the enemy, the state needs at least 487 billion dollars.
But this figure may increase significantly as a result of the projected shortage of building materials and their rise in price.
After all, Ukrainian cement factories can produce a maximum of 13 million tons of cement per year, and this takes into account the data of the Baltsem plant in the Kharkov region, which was already destroyed by the Russians, and the minimum annual need for restoration is 15 million tons, says Vladimir Vlasyuk, director of the state enterprise Ukrpromvneshekspertiza.
“According to our estimates, our cement production capacity available for 2022 is about 13 million tons annually. The need, as I said, is 15.1-15.2 million tons per year. That is, the conclusion is that we can expect a shortage of cement capacity during restoration. We estimated it at about 14%,” he notes.
How can you increase your own production?
The Irish cement company CRH stated in a commentary for Forbes Ukraine its readiness to invest at least $100 million in Ukrainian cement plants to increase domestic production in the country to 15 million tons. By the way, a lot of publications and exclusive interviews have recently appeared in the domestic information space regarding CRH’s cash injection into its Ukrainian business, notes Alla Martyn.
However, seemingly attractive prospects have another side to the coin, which StopKor has already talked about in preliminary investigations.
It seems that CRH wants to become a monopolist in the Ukrainian building materials market by purchasing the assets of its competitor Dyckerhoff (Buzzi). The Italian company seeks to sell its Ukrainian cement plants to an Irish company in order to develop business in the Russian Federation, as the media write. And if CRH receives permission for this, it will become the owner of the largest share of the Ukrainian cement market/
Consequently, the Irish will be able to dictate their terms and inflate prices for products, building materials manufacturers fear.
“If there is a monopoly on cement, there will be a rise in prices, we will be forced to raise prices for our product, and, of course, this will lead to an increase in the price of a square meter of housing,” says Oleg Sirotin, executive director of the All-Ukrainian Association of Autoclaved Aerated Concrete Manufacturers.
The general director of the Kovalskaya industrial and construction group also agrees with this thesis.
“The first and obvious consequence is an increase in prices for the entire line of building materials containing cement, because as a result of monopolization, I assume that there will be a completely controlled market and in the absence of imports it will be a rather closed environment in which manufacturers can dictate terms,” comments Sergey Pilipenko.
Manufacturers of cement-derived building materials are not without reason to be afraid, because they have already felt the consequences of narrowing competition in this market.
Let us recall that not long ago Ukraine introduced an anti-dumping duty on cheaper foreign cement from Moldova and Turkey. And they did this on the initiative of Ukrainian “cement workers” who united in an association, which actually created an oligopoly in their field, experts say.
According to the Anti-Trust League, whose representatives contacted the AMCU about this, after ousting competitors from abroad, the association members concertedly and unreasonably raised prices for products, when there was not even an increase in the price of electricity, and did this for abnormal excess profits, the document says. Consequently, prices for binders have systematically grown and continue to rise, and derivative building materials, repairs, new apartments and, in fact, the restoration of Ukraine as a result of the war are correspondingly becoming more expensive.
And although the head of the Ukrcement association explains the rise in prices for their products by rising costs, according to Irish businessman Shamez May, the reason may lie elsewhere.
“Of course, these large companies will say that the rise in price is due to increased prices for resources, this is how they justify the price increase. But in fact, all these people strive to maximize income. It all lies in market capture and supernormal income,” our interlocutor assures.
Let us remind you that this is exactly the businessman who exclusively told StopCor about some episodes of the history of CRH’s passion for the global market.
In his homeland, Mr. May, according to him, was taken away from his concrete business and left homeless. In his opinion, the same fate may await Ukrainian manufacturers of building materials, who are threatened with absorption against the backdrop of rapidly rising costs and the inability to change cement suppliers.
Irish deputies spoke a lot about the artificially created monopoly in the cement market by CRH, the world's leading media wrote, and regulators in many European countries reacted. And regarding the monopoly in America, StopCor investigators found many court decisions regarding the pressure of a business giant on local businesses and the groundless inflation of prices for building materials.
It should be noted that our editors have repeatedly tried to get comments from CRH; journalists have visited their offices and production facilities, but representatives of the Irish company avoid meetings and do not respond to numerous requests.
So whether Ukraine will repeat the fate of other markets where CRH is already “dominant” - the Antimonopoly Committee must decide.
Last year, the AMCU began considering the case of concentration in the cement market and had to complete the process no later than three months, as they indicated in their response to Stopkor’s request. Seven months have passed, and there are still no official conclusions regarding the risks of the merger between CRH and Dyckerhoff in Ukraine.
“The committee no longer responds to requests on this matter, and they avoid meeting with journalists, despite their promises and our repeated appointments for official receptions,” notes the author of the investigation.
According to economic experts, the AMCU may deliberately delay this process.
“There is a huge threat of increasing concentration in this market. Currently, the biggest problem is the non-transparency of the work of the Antimonopoly Committee and the rather long time frame for conducting antimonopoly investigations,” says Viktor Medved, head of the investment company William Invest Expert.
On this matter, StopKor has already asked for comment from the adviser to the head of the Presidential Office, Mikhail Podolyak.
And we received the following answer from him: “You understand perfectly well that any monopoly is an extremely negative process as such. But we have an Antimonopoly Committee, and it will ensure that there is some competition in the market for any building materials. If there is a monopolization of more than 30%, we understand that the price will depend on the administrative incentives of a particular company.”
What are the possible ways out of the situation?
The re-opening of the Ukrainian market for imported cement from abroad, according to international experts, can prevent the problem of cement shortages and rising prices for building materials.
“The abolition of anti-dumping duties will alleviate concerns about the acquisition of CRH-Dyckerhoff and restore balance in the market, ensuring competition through imports,” emphasized Catherine Thomas (LSE) in a commentary for the Kyiv independent.
But people's deputies believe that it is better to look for investors who are ready to build their factories in Ukraine.
“We need to create such working conditions in the state that different investors want to come here and build their production facilities here,” says Elena Shulyak, head of the Verkhovna Rada Committee on the Organization of State Power, Local Self-Government, Regional Development and Urban Planning.
At the same time, the owner of Krivoy Rog Cement, Igor Mazepa, said in comments to the media that during the war this is unlikely to happen due to poor market conditions.
It is worth noting that if the Antimonopoly Committee of Ukraine allows CRH to acquire the capacity of the Italians, there will only be three operating cement producers in Ukraine - the aforementioned CRH, Ivano-Frankivsk cement and Krivoy Rog cement.
Thus, the Irish, according to Forbes estimates, will hold 46% of the market, which, one way or another, could negatively affect the entire construction industry of Ukraine.
Let us remind you that the Antimonopoly Committee of Ukraine has been studying a potential sale and purchase agreement between CRH and Dickergoff since October last year, but the consideration of the concentration case has not yet been completed. If the deal is accepted, the Irish “giant”, by buying out the assets of its competitors, can actually absorb the Ukrainian cement market and continue to dictate prices at its own discretion.
