Prices of consumer commodities have increased because of the exchange rate increase. During this construction season, the price of cement has increased. During Naadam, the price of one ton of cement rose to 200,000 MNT. That was the highest price for cement this year. The average price for one bag of cement in construction markets is between 10,000 to 13,000 MNT. Before Naadam, the cost of one bag was around 7,500 to 9,000 MNT. But after Naadam, the price rose significantly and experts say the increase was related to demand during the construction season, average consumer demands and the increased exchange rate. Cement prices have now decreased, but market analysts say they are likely to go up again.
The best solution for this price problem is addressing the influence of domestic production. Head of Ministry of Construction and Urban Development Ts.Bayarsaikhan says government is planning to change the situation of import products and prices dependent on import products in 2015. “Mongolia has its own cement industry, which is able to produce at least 1 million tons of cement a year. Also, two more factories will be built, so we will not buy imported cement in 2015,” he added.
We tried to understand the specific reasons for the price increase, so we spoke to government organizations and non-governmental organizations about the changing price of cement.
Domestic suppliers
B.Tsedevsamba, Head of the Building and Construction Materials Policy Coordination Department at the Ministry of Construction and Urban Development:
Today, the price for one ton of imported cement is 200,000 MNT. Domestically produced cement costs around 170,000 MNT. In the Mongolian market, cement that is imported is leading in sales. Construction companies require an average of two to 3.5 million tons of cement a year. Cement demand has risen, so we need to import cement. In relation to the exchange rate, cement sellers did not increase its cost suddenly. Honestly, it is possible for cement costs to be lower than today’s. As far as I know, factories in China have increased their cement prices. But this is not a definite fact.
Last year, the government implemented a policy to stabilize costs. It was effective and cement cost 145,000 MNT per ton last year. But the policy received criticism and its implementation has failed. The price of cement is getting higher because of this. The government decided to support domestic production instead of make policy like before, so Khutul’s chalk and cement factory opened. This factory is able to supply 50 percent of cement needs in Mongolia. If MAK opens its cement factory, we will be able to fill our cement needs by ourselves and prices will be stable in 2015. So we should not concentrate on price, just focus on the numbers of domestic suppliers. If domestic suppliers increase, costs will become stable.
Exchange rates
B.Baatar, Chairman of the Board of Directors of the Federation of Cement Producers:
The increase of exchange rates causes cement price increases. Also, Chinese cement factories stopped working and that became another reason for it. Vendors who sell cement usually import cement from three factories in Erenhot, China: Taigo, Mengo, and Tunkhui. These three Chinese factories stopped work for five days in the middle of June. Demand for cement rose and its price went up to 195,000 MNT. When the factories started working again, they increased the cost of their cement. The exchange rate is increasing hour by hour, not day by day. So cement prices increase along with the exchange rate, because 75 percent of cement is paid for in cash.
Companies start construction work in mid August. During this time, the cost of cement will increase again.
Construction costs
E.Usukhbold, Supply Manager at Undur Buyant:
Increased prices during an economic crisis is becoming a strain. People are doing business by barter, not in cash. This is not only happening in Mongolia, it occurs all over. Because of the qualifications for their products and consumer standards, Chinese factories that we import cement from were closed for several days. During this time, it was difficult for Mongolian importers and the cost of transportation was high, so cement suppliers say they raised cement prices.
If we don’t focus on this issue, and try to resolve or lower cement prices, it will eventually influence the costs for construction projects.
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