The capacity of the rolled metal market in the Russian Federation in the first quarter of 2023 decreased by 3% compared to the first quarter of 2022, but showed a brisk growth compared to the fourth quarter of 2022 (+6%).
One of the reasons is the negative trends in residential construction: the share of unsold housing in the volume of construction has reached a historic maximum over the past few years in parallel with the reduction in the volume of loans issued.
What prospects are there for rolled metal manufacturers in the construction industry today?
Given that the construction industry forms a huge share of ferrous metals consumption (according to the latest RBC data - more than 70%), the trends it faces directly affect domestic demand.
The new record achieved last year in housing construction, the volume of which exceeded 102.7 million square meters, was able to support the domestic market of metal products, while sanctions seriously restricted its exports.The new record achieved last year in housing construction, the volume of which exceeded 102.7 million square meters, was able to support the domestic market of metal products, while sanctions seriously restricted its exports.
The crisis caused by sanctions led to a 15.6% reduction in the volume of housing loans, which in 2022 amounted to only 4.8 trillion rubles, and in the 1st quarter of 2023 the decline continued, amounting to 3.9% compared to the same period last year. This led to the fact that by the second quarter of 2023, only 29 million square meters were sold. m of 98.5 million sq . m . of housing under construction. The builders formed the remainder of unsold housing in the amount of 42 million square meters and another 27.6 million sq . m . has not been put up for sale yet. The current rolling balance of unsold housing is 24% higher than the average level over the past three years.
Until the accumulated volumes are sold, it is difficult to talk about a return to progressive dynamics in construction, which limits the demand for metal products, reducing the capacity of the rolled metal market.
What problems are preventing the market from developing today?
On the one hand, domestic metal producers are under pressure from Western sanctions, depriving them of their traditional markets. Although the European embargo on the import of Russian metals will come into effect only from the end of September this year, and for some types of products from 2024, the volume of rolled metal supplies to the EU in 2022 decreased by 29.3%.
On the other hand, the increased tax burden and high customs duties since 2022 do not contribute to the development of the market in any way. In addition, the Ministry of Construction together with the Federal Antimonopoly Service are discussing the possibility of limiting the 20% marginality of prices for metal products throughout the supply chain.
Are there prerequisites for growth in the industry?
Despite the combination of factors constraining the development, domestic metal producers still manage to survive. The market can be supported by the increase in domestic prices for metal products observed in the 1st quarter of 2023, but its cause is mainly the increase in the cost of production caused by the rise in prices of raw materials and energy carriers, as well as an increase in tariffs for railway transportation.
In addition, metal producers have largely managed to adapt to work under sanctions, and the global growth in demand for metal products, which may amount to 2.3% this year, will stimulate the influx of buyers.
