Impact of the Ukraine war on the Czech brick industry

The Association of Czech Brick and Tile Manufacturers, Cihlárský svaz Cech a Moravy (Association of brick and tile producers in Boehmia and Moravy) asked four members for their market assessment. We reproduce this collective survey in translation from Czech.

What the war in Ukraine has brought and taken away from domestic producers of brick products

A war hundreds of kilometres away has obviously removed all certainties in business. And what it has brought: Unprecedented energy prices. Sharp increases in the price of building materials, exacerbated by shortages. An exodus of Ukrainian workers who had received conscription orders. Rising labour prices. Prolongation of delivery times. Uncertainty in the market. Disruption of supply and demand chains. To name just a few. That is why we turned to the key players in the domestic brick industry, the members of the Brickmakers’ Association of Bohemia and Moravia, and asked them for their opinion.

One problem that affects every citizen of our country is the rising energy prices. The increase in energy prices is also related to the current situation. The most affected are the very energy-intensive industries, among which the brick and tile industry is the most important. It is difficult for these manufacturers to reflect the rising costs in the prices of their products.

The following people participated in the survey:

• Vera Binderová, Marketing Specialist at Wienerberger s.r.o.,

• Petr Porubský, Sales and Marketing Director at HELUZ,

• Jan Fiala, Šterboholy Brickyard,

• Marek Žídek, Sales Director of KM Beta.

Answers:

If there is no unpleasant surprise from the East, current prices seem to have peaked. Some raw materials have become slightly cheaper. How is the situation among the brick manufacturers and how are they doing?

Vera Binderova: The prices for brick products on the Czech market are stable in the summer period and we do not expect any increase. This is true unless measures are taken in the area of gas supply.

Petr Porubský: The price of bricks is determined by the price of inputs for their production. The prices of energy, transport and emission certificates play a major role in this case. The slight decrease in prices, after the price of some goods increased several times, is only a correction of inputs and the producer’s profit margin. Current brick prices continue to lag behind input growth, so further increases cannot be ruled out. And if the unpleasant surprise you mentioned comes from the East, there will be a shortage of bricks and their price will rise very sharply.

Jan Fiala: I would be careful with that statement. The unpleasant surprise from the East has been going on for some time and energy prices have not yet reached the ceiling. Gas in particular, which is essential for industry (iron, steel, insulation, wood, cement, ceramics), could prove to be completely insufficient. And that will only spiral in the future material prices. Nord Stream is at 20 per cent capacity and winter is just around the corner. We will probably survive it somehow, but what about spring? What will the situation be like? What will work? Will only critical infrastructure be operational? There are many questions. More than 500, 000 jobs in the construction sector are at risk. I don’t want to dwell on the social aspects. Then we would all have to change our lives from the ground up.

Marek Žídek: Our production depends mainly on the price of gas, which is still more than ten times higher now in the warm summer than it was in March 2021, so I don’t see any scope for a significant price reduction this year. This could only be the case next year when the currently very high gas prices fall, thus creating room for a reduction in brick prices.

Brick imports from the Balkan countries came onto the market. Do you have anything to say about this?

Vera Binderová: It cannot be ruled out that the lack of capacity is forcing customers to look for other options for brick blocks, but I have no further information on this.

Petr Porubský: The import and export of bricks is a common phenomenon throughout Europe. Our company also supplies its products to customers abroad. In most cases, these imported bricks, especially from the countries you mentioned, do not reach the quality and parameters of bricks produced in the Czech Republic, so the builder puts the durability, safety and comfort of the building itself at risk.

Jan Fiala: Many brick products are imported into the Czech Republic from all over Europe. Bricks and tiles from our western neighbours, facing bricks from England, Benelux, but also from Poland or Russia. It is one of the building material offers, and time will tell if it will prevail in price, quality and service.

Marek Žídek: We have not seen any yet.

Is it true that today you sell bricks for an average of 200 percent more than two years ago? Try to disentangle the weight of the different influences (energy, transport, wages, emission certificates, etc.).

Vera Binderová: I cannot confirm this price increase. On the contrary, I can confirm that the dominant influence on the higher price increase is due to higher production costs.

Petr Porubský: An increase of 200 percent would be a good coverage of the running costs. The price of bricks has generally increased by a few dozen percentage points, but not by hundreds, as is the case with other raw materials.

Jan Fiala: No, that is not true, but it would be better if the increase compared to 2021 was 200 percent in the small format sector. In our sector it is not that high, only in the double-digit percentage range. If that were the case, there would be more funds available for planned repairs and renovations. We should be aware that life goes on and we have to look beyond next year. We need to be aware that the production of ceramics is a very energy-intensive process and energy prices have increased four to five times compared to 2021, so the price of products today is not completely out of touch with reality. Rather, let us pray that this price does not continue to rise. Energy prices are rising, oil has risen by 50-60 percent, wages are also rising, inflation is in double digits, an emission permit for 1 ton of CO2, emitted into the air costs 1900 CZK today. In 2017, the average price was 144 CZK/ton, in 2018 400 CZK/ton and in 2019 600 CZK/ton.

Marek Žídek: Yes, it is almost three times more ­expensive. But the increase was stronger than you assume, it happened only in the last 12 months (from July 2021), when energy prices, especially gas prices, increased sharply. Other influences contributed to the price rise but were not the dominant factor.

Not only builders, but also any contractor will welcome a predictable environment. The current situation is far from this goal. What do you predict?

Vera Binderová: At the moment, the trends are still very unclear because we are working with a larger number of unknowns, emotions and the mood of the clients play a big role and will continue to play a big role in the future outside of the economic parameters.

Petr Porubský: It is very difficult to make predictions in these difficult times. At the moment, I don’t see any aspect that points to a possible price reduction. So we cannot rule out further price changes.

Jan Fiala: The price of energy will rise even more if there is a severe winter. We are seeing all energy suppliers adjusting gas and electricity prices. The way consumers behave will change, there will be massive savings, which will favour new technologies and the boom in alternative energy sources, even if it is not enough. Perhaps it will speed up the procedures associazted with the development of new sources of electricity. I am thinking of new units of nuclear power plants. However, we will all
pay for this at home and in our businesses with our prices. We will pay for everything in our lives, and it will be more than we expected. It will certainly not be the end of coal. I am not afraid to say that we are in for a revolution of sorts. A change of mindset. There will be an emphasis on reducing energy intensity in the sectors where we are able to. My only fear is that we will miss Jára Cimrman [a fictional universal genius in Czech popular culture] more than ever, showing us how to stay out of the gutter. The connections can be found in all our actions. There is never enough optimism.

Marek Žídek: I expect a gradual return to normal inflation and availability of goods.

The gas price for the European market for August delivery at the Title Transfer Facility (TTF) virtual trading point in the Netherlands was still over 228 euros per megawatt hour at the time of the survey on 27 July. A year ago it was still around 22 euros/MWh.

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