CBR sees rising costs for Russian companies due to sanctions

MOSCOW, May 26 (Reuters) – The Russian Central Bank notes an increase in capital expenditures by Russian companies amid a shift from European equipment suppliers to domestic and Asian ones, as well as an increase in the cost of transporting products due to the reorientation of exports to the East.

“One of the main drivers of the increase in capital expenditures is the change in technological processes of companies against the backdrop of a lack of access to previously used foreign equipment,” the CBR said in its Financial Stability Review.

A study of Russian real sector companies conducted by the Central Bank showed that 54% of exporters encounter difficulties in importing foreign raw materials, materials and components, and 39% – difficulties in importing the necessary equipment.

A particularly difficult situation with imports has developed for companies in the pharmaceutical, chemical production, rubber and plastics sectors.

Many companies replace hard-to-reach imported equipment with foreign (approx. 50-60% of respondents) or Russian (approx. 30-40% of respondents) analogues, incurring additional costs related to the change of production processes.

At the same time, companies switching to domestic and Asian equipment suppliers may encounter a shortage of components.

“An additional contribution to the increase in capital expenditures in the coming years will be the intensification of the construction and renovation of infrastructure, in particular in regions that have become a priority in the export of products (including new gas production centers, as well as the construction of the Power of Siberia gas pipeline)” – writes the Bank Central.

Due to the sanctions, the CBR has seen a significant increase in the costs of Russian companies for transporting products. For example, the increase in transportation costs as a result of the increase in logistics leverage had a significant impact on the profitability of companies in the metallurgical and mining sectors.

With a complete reorientation of ferrous metal exports to the east, this will lead to an 18% increase in tariffs. Taking into account the new railway tariffs for transport and the increase in the length of the transport arm, the share of steelworkers’ transport costs in the final cost of products increased by about 30 percentage points to 40% in 2022. review.

Enterprises in the agro-industrial sector also recorded an increase in transport costs – costs increased both when moving goods in Russia (the cost of road transport increased by 50% on average, by rail – twice), and when transporting goods for export .

“In particular, the cost of transporting agricultural products from the regions of southern Russia and the Volga region to the port of Novorossiysk, through which the main export of Russian grain takes place, increased by 37% y/y on average,” the Central Bank said.

“The departure of large logistics companies from the Russian market, the refusal of foreign insurance companies from unfriendly countries to insure Russian ships, the lack of shipping containers and the lack of capacity of some southern and Far Eastern ports to meet the sharply increased demand lead to a significant increase in freight rates for sea transport,” he writes. Central bank.

Thus, for steelworkers, freight costs in 2022 increased 2-2.5 times.

CBR expects that as companies adapt to changing economic conditions, transport costs of exporters will show less volatility and stabilization, including as a result of replacing departing foreign companies with Russian ones. (Elena’s Factory)