Construction boom leads to shortages, propels prices

  • 2006-08-16
  • From wire reports
TALLINN - Estonia's ongoing construction boom has propelled sales of materials and prompted companies to invest in expansion, though a shortage of raw materials and labor have put a crimp on faster growth.

The business daily Aripaev reported that total sales by companies that are members of the Association of Construction Materials Producers in the first half of this year amounted to 3.7 billion kroons (236 million euros), a 30 percent increase over the same period a year ago. Exports grew by 231 million kroons to 1 billion kroons.
The chief executive of the association, Enno Rebane, said volumes kept moving higher, and the only factors holding back growth are a shortage of raw materials and labor.

Eino Tapio Aura, the CEO of Kunda Nordic Cement, said the cement producer was working at full capacity. Sixty-five percent of its output is sold on the domestic market. "We have to curb export in order to meet demand on the home market," Aura said. The company has invested 200 million kroons in enlargement.
Tartu Maja Betoontooted (Tartu Maja Concrete Products) is planning an investment of 250 million kroons in Estonia and Latvia. Deputy CEO Jaan Luts said high demand on both the domestic and external markets, as well as a price rise, were all pushing up sales. "In the second half of this year, demand will remain higher than we are able to supply. A shortage of raw materials may become an important obstacle," he said.

Half-year sales by the window maker Glaskek grew 24 percent over the January-June period of 2005. CFO Meelis Polda said this had largely happened as a result of re-division in the market. At the beginning of July, Glaskek opened a new aluminum plant to supply large projects, and at the end of the year a plant for making wood frame windows is going to be opened in Tartu.
Growth in the sales of Henkel Makroflex came mostly as a result of bigger exports. "We're selling our output in 20 countries, mostly in Central and Eastern Europe. Less than 5 percent of our sales comes domestically," CEO Sirje Aal said.
Krimelte, another producer of construction foams, saw exports of over 100 million kroons in the first half-year.

Still, despite the expansion boom, producers of construction materials are unable to meet demand, Aripaev said.
Merko Ehitus, which released its half-year results last week, said in its comments to the report that rapid increase in volumes highlighted the unsatisfactory situation prevailing in the workforce and material supply sector, which boosted the ongoing increase in construction prices even further.

"The limited supply of labor and the quick price increases are currently the main factors clouding the market's development prospects. The rapidly changing environment hinders planning and increases the risk of extraordinary costs significantly," Merko said. The continuously increasing construction prices, whose rate of increase currently exceeds the rate of increase in the consumer price index, may decrease demand in the long run, the company said.