Glass production in Russia fell by 30% due to sanctions and reduced demand

Last year, due to the construction boom, factories were loaded at 100%

The workload of glass factories in Russia decreased by 30%, and production also decreased. Flat glass sales fell due to reduced domestic demand, disruptions in logistics and sanctions. This has already driven prices down.

The load on the production of sheet glass, which is used primarily in construction, has decreased by 30%, follows from a comment by the press service of the Ministry of Industry and Trade, received by RBC. In May 2022, the loading of glass production in Russia amounted to about 70%, and last year, starting from March, it remained at the level of almost 100% due to high demand, they noted.

The volume of production also decreased, since it directly depends on the load, the ministry said. The Ministry of Industry and Trade did not give exact data on the decline in production compared to last year. But compared to April, in May, the production of sheet glass decreased by 20%, the ministry cites data, citing information from manufacturers. The press service of the ministry stressed that the needs of the domestic market in glass are fully met.

Salavatsteklo, a large glass manufacturer, has begun to reduce its production due to a decrease in demand, says Maxim Skirtin, director of sheet glass production at this company. According to him, sales in April fell by 25% compared to the same period last year, and by May it had halved. The decline in demand has already affected prices - in May they fell by 15-20% compared to the beginning of the year, he adds.

What is causing the drop in demand?

According to the Ministry of Industry and Trade, until the end of April 2022, the production of sheet glass in Russia was growing. In April, the volume of production increased by 3% compared to March, and in January-April 2022, the growth amounted to almost 21% (compared to the same period last year).

In May, the consumption of flat glass in Russia decreased, primarily due to a decrease in construction volumes, Roman Kuprin, Deputy Director of the Department of Metallurgy and Materials of the Ministry of Industry and Trade, said at a forum as part of the World of Glass exhibition in early June. According to him, in the first four months of 2022, demand decreased by 20%.

But the Ministry of Construction did not record a decrease in construction volumes, RBC was told in the ministry. The department emphasizes that during this period, housing commissioning increased by 60%, the growth of permits issued for its construction increased by 24%. However, First Deputy Minister of Construction and Housing Alexander Lomakin, in a conversation with RBC, admitted that many developers do not start new projects to build not only housing, but also business centers and shopping malls. At the same time, projects that have already been launched, including those financed from federal and regional budgets, “continue to be implemented and start on schedule,” he says. “There are no stops in any region,” Lomakin assured.

The decrease in developer activity is due to the high key rate that has been in effect in recent months. At the end of February, the Central Bank raised the key rate from 9.5% to 20%. The regulator explained the need for such an increase by a “cardinal change” in the external conditions for the Russian economy. After Russia recognized the independence of the LPR and DPR on February 22 and launched a special operation in Ukraine on February 24, the EU, the United States and other countries imposed sanctions against Russia, Russian companies, officials and businessmen, which, among other things, froze part of the assets of the Central Bank. The high key rate has led to the fact that, due to the rise in the cost of bank financing, developers have slowed down the launch of new projects on the market. In addition, since April, the demand for housing has decreased, most of which is sold in mortgages. At the end of May, the Central Bank lowered the rate to 11%.

According to the executive director of the Union of Glass Enterprises (it includes AGC, Gurdian Glass, RSK and others) Sergey Sekin, the decline in demand for glass is associated not only with a reduction in new projects, but also with a reduction in orders for window replacement. In general, in construction, 70% of sheet glass goes to new buildings, and 30% goes to secondary housing - this can be a replacement of windows by private owners, and a major overhaul, he says. Another factor that influenced the decline in glass production is the shutdown of automotive production, which also uses sheet glass. The production of automotive glass, according to the Ministry of Industry and Trade, decreased in May by more than 50%.

How demand was affected by sanctions

Demand for glass, followed by production, is also falling due to the reduction in exports. Almost 30% of Russian glass was exported, including to European countries, explains Kuprin. Deliveries to Europe have almost stopped due to logistical problems, Skirtin says, adding that the company is looking for other markets to refocus sales on.

On July 10, a ban on the sale of glass to European countries comes into force as part of the fifth package of sanctions against Russia. In addition, export sales to Asian countries, such as Uzbekistan, are complicated due to the strengthening of the ruble, says a top manager of Salavatstekla.

Glass products are highly dependent on imported equipment, says Kuprin. Last year, due to high workload, manufacturers did not carry out scheduled repairs, during which production should be stopped. Therefore, repairs will need to be carried out this year. But due to Western sanctions, the supply of equipment has become more difficult. Even if the equipment has already been delivered, Russian specialists will have to install and run it themselves, although foreign certified specialists used to do this, Skirtin says.

Source: https://www.rbc.ru/