The authorities proposed the introduction of restrictions on markups on building materials and metal

The government plans to limit the markup of manufacturers and suppliers of building materials and rolled metal products. The mechanism began to be developed against the backdrop of a sharp rise in prices.

The Ministry of Industry and Trade sent a draft government decree to the relevant departments, according to which the ministry itself, as well as the Ministry of Construction, the Ministry of Energy and regional authorities will be able to regulate the mark-up of manufacturers and suppliers of building materials, rolled metal and raw materials for their production. We are talking about the conclusion of special temporary agreements between the authorities, manufacturers and suppliers.

RBC has a copy of the document, its sending to the relevant departments was confirmed by the press service of the Ministry of Industry and Trade. The draft resolution was finalized in connection with the instructions given at an industry meeting with Deputy Prime Minister Yuri Borisov, they said. At the moment, the document is being approved by the federal executive authorities. RBC sent a request to Borisov's representative.

In a letter attached to the draft resolution, Viktor Yevtukhov, deputy head of the Ministry of Industry and Trade, asks the Ministry of Energy, the Federal Tax Service, the Ministry of Economic Development, the Federal Antimonopoly Service and the Ministry of Construction to consider it and agree on it "as soon as possible." A representative of the Ministry of Economic Development confirmed receipt of the document, saying that it was “in progress”. The press service of the Ministry of Construction said that the department had already agreed on the project with the comments. “The Ministry of Construction noted the need for additional elaboration in terms of regulating the profitability standard for manufacturers of building materials or raw materials, the procedure for which is not specified in the draft documents,” the press service explained.

“Currently, the interested departments are discussing the issues of profitability and margins, which will be prescribed in the agreements,” a source in one of the departments explained to RBC. RBC sent requests to the press services of the Ministry of Energy, the Federal Tax Service and the Federal Antimonopoly Service.

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Why regulate prices

At a meeting with metallurgists on March 10, Yevtukhov demanded a reduction in prices for hot-rolled steel, rebar and other steel products that companies sell directly to end consumers. “Comrade producers! The prices that are currently set for the main types of metal products do not suit us. Prices should be lowered. To do this, you provide us with the cost of your production,” he said.

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Prices for building materials in Russia, according to Rosstat, in March increased by 9.95% compared to the previous month. But growth slowed to 1.69% in April. Prices for products of ferrous and non-ferrous metallurgy in Russia have noticeably decreased and become balanced, Yevtukhov said in mid-April. According to the Ministry of Industry and Trade, which Interfax got acquainted with, since the beginning of March, hot-rolled coil (4–12 mm) has fallen in price for end users by 19.4%, to 65.1 thousand rubles. per ton, as of May 13, 2022 (from manufacturers - 64.1 thousand rubles). The price of rebar (12 mm) in the retail market has fallen by 30.7% since the beginning of March, to 45 thousand rubles. per ton.

The draft resolution was developed in order to stabilize prices in the Russian market for certain types of building materials and metal products in the conditions of high volatility of the ruble against foreign currencies, as well as "in order to level the consequences of restrictive measures" against Russia, the document says. It involves the conclusion of agreements between the authorities, manufacturers and suppliers, which, among other things, will regulate the profitability standards (for manufacturers) and the maximum trade margin (for suppliers). If the resolution is agreed upon by all relevant departments and signed by the prime minister, it will be valid until December 31, 2022.

In the original version of the document, published in early March, there were no details on the content of such agreements. It was prepared when the prices for building materials and metal continued to rise. The head of the FAS, Maxim Shaskolsky, speaking in the State Duma on March 10, said that in the first quarter of 2022, prices for metal products in Russia increased by 15-30%. A week after that, the head of the Ministry of Industry and Trade, Denis Manturov, met with the owners and top managers of metallurgical companies. As a result of this meeting, he recommended establishing "transparent" metal prices along the entire chain of "raw materials - producer - distributor - consumer" so that the state does not regulate them.

Metallurgists agreed with traders to limit margins Business

Later, Russian steel producers and traders agreed to limit the maximum markup on the sale of rolled metal at the level of 7-12%. Yevtukhov also stated that a similar mark-up could be set for manufacturers of building materials. The Deputy Minister explained that it is primarily about cement, sand, gravel, thermal insulation and metal products used in construction.

How markup regulation will affect the market

Mark-up agreements are a “completely voluntary story” for manufacturers and suppliers of building materials, says Anton Glushkov, president of the National Association of Builders (Nostroy, which includes almost a hundred companies in the construction industry). According to him, they will give "an understanding of pricing" and the cost structure of manufacturers, such an open market will lead to stabilization and lower prices.

The draft strategy for the development of the construction industry until 2030, which is being developed by the Ministry of Construction, also does not exclude the regulation of prices for building materials and equipment when they are used at construction sites under government orders. It is proposed to establish such regulation “for the period of crisis phenomena in the economy”.

The Russian Union of Industrialists and Entrepreneurs warned that state regulation of prices in a market economy could lead to a shortage of building materials and equipment.

Deputy Prime Minister Marat Khusnullin, in an interview with RBC in April, also called the regulation of the building materials market by the state "an ambiguous matter" and said that it was "always bad." “But now, in order to still have some kind of budget forecast, we need to understand the form of pricing for at least three years. And this is what we are doing now with large manufacturers, ”Khusnullin specified.

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Sergei Grishunin, managing director of the NRA rating service, agrees that any intervention in market mechanisms can cause a shortage of building materials. As a temporary measure, limiting the margin is suitable, but it should not be extended, he said. “This will support the construction industry, but will constrain development and investment in production. The decline in investment is especially critical against the backdrop of the departure of many foreign manufacturers,” says Grishunin. Establishing a margin will push the remaining foreign producers to leave the Russian market, he believes.

Over the past three months, Russian steel prices have fallen following world prices by 20-30%. “Given the continued decline in world prices, as well as the strengthening of the ruble, even without regulation, they can decrease by another 10–20%,” says Kirill Chuiko, head of the analytical department at BCS Global Markets.

RBC sent inquiries to the press services of the largest rolled metal producers - Severstal, NLMK, MMK and Evraz.