Government Commissioner: Slight drop in building material prices in Hungary

In which areas have you successfully curbed prices so far? 

The rise in some raw material prices, in particular that of timber and steel products, has been and is being shaped by world market trends. 

At the same time, many foreign-owned construction material manufacturing companies operating in Hungary mainly supplied the markets of their parent companies for example in Germany and Austria, creating shortages in the Hungarian market.

In order to eliminate this practice, for key construction materials - timber products, steel and iron products, insulation materials, sand, stone, pebbles and gravel – an obligation to report exports was introduced, and the state was given the right of first refusal in terms of these products.

In addition, a recommended price was set for sand, gravel, pebbles and cement, and if higher sales prices are used, 

a mining royalty corresponding to 90 percent of the difference must be paid by businesses with an annual turnover exceeding 3 billion forints.

The drastic rise in the price of construction products and building materials seems to have stopped in several product groups by the third quarter of this year, and price consolidation has begun owing to measures taken by the government. Supply has now caught up with demand, and the market’s unpredictability, which makes it difficult to plan investments, has disappeared. 

At the same time, in the short term it is unrealistic to expect that prices will return to their level at the beginning of the year, as world market trends continue to play a crucial role.

According to ÉVOSZ (National Federation of Hungarian Building Contractors), 

the price of certain products began to fall in September. 

Manufacturers can now buy wood, plastic and steel cheaper than one or two months ago, which could result in a decrease in the retail price of end products in 3-4 weeks. ÉVOSZ expects that when the stock of about a month and a half previously purchased at a higher price runs out, the difference can finally show in retail prices too. General contractors are already seeing this happen: they have had cheaper access to wood, copper and aluminium-based products, as well as rockwool insulation materials since the beginning of October. 

Prices have fallen by 10 to 15 percent, but they are still far from where they stood earlier, and they are not expected to return to previous levels. 

For which products is the price increase the biggest problem?

As far as key products are concerned, the rise in the price of steel, wood and plastic-based products was particularly dramatic, which was partly related to supply difficulties (1 to 2 months delay in delivery). 

The general price increase of 10-30 percent in the market in the first half of this year was far exceeded in several cases, for example, 

the increase was up to 40-60 percent in the case of steel products.

A significant increase was also observed for wood products and timber, exceeding 130 percent in some extraordinary cases. 

What annual price rise are you expecting for these products? 

Until 2016, the price of construction products and building materials had grown by a maximum of 3 percent a year, but the construction boom boosted demand significantly, resulting in a 4.1 percent rise in 2017, 6.6 percent in 2018 and 10.8 percent in 2019. 

In the first half of last year, prices were 6-10 percent up on average, and they continued to rise between the third quarter of last year and the second quarter of this year. 

In the first half of this year, the Central Statistical Office reported an increase of up to 40-80 percent for some key products. 

So we can see that building material prices have been continuously rising for years, albeit to varying degrees. 

By the third quarter of this year, the pace of the sharp rise slowed down for several product groups. 

Some product lines seem to stagnate, while others have started to consolidate; they are, however, not expected to return to previous levels. The future development of prices is also greatly affected by world market developments and the rise in raw material and energy costs. Another factor is that

the demand in the construction sector is not expected to fall either, so the uptake of building materials is likely to continue to boom.

Csaba Gyutai, CEO of ÉMI, was appointed Government Commissioner responsible for the coordination of measures in the construction sector early July this year (Photo: MTI)

In which product groups are there shortages or disruptions in the supply chains? 

Last year, domestic manufacturers of building materials and construction products reported a pick-up in demand following a period of stagnation or even decline. In the first half of 2021, the growing demand and the disruption in the global supply chains generated shortages in the supply of several products, 

steel and metal products, wood products, plastic-based construction products and insulation materials in particular.

The price changes and disrupted deliveries affect both private and public investment, having a significant negative impact on construction deadlines and prices. The shortages and the rise in prices are mainly caused by world market developments and the sudden surge in demand due to the rapid recovery of national economies after the pandemic. 

The epidemic has also damaged global supply chains and it takes time for new supply channels to be set up. These effects were further strengthened by the business policies of some domestic market participants.

Nowadays, the shortages have disappeared in the case of several product groups in Hungary, as the companies have understood the government's aim that Hungarian needs should be the first to be satisfied from domestically produced construction products. 

As for the report obligation on exports, the state did not exercise its right of first refusal because

most domestic producers changed their market priorities and sold their products domestically. 

The system is currently being reviewed, and the decision whether the report requirement is still needed in any segment or product range will be made later. An important aspect is the drastic rise in energy prices, the effects of which and possible responses are constantly being discussed. 

Based on the experience of the recent period, now it is particularly important and timely to increase domestic building material production capacities and to ensure the availability of building materials in Hungary.

Currently, about 60 percent of the raw materials and products used in the Hungarian market are produced in Hungary, but there are segments in which there aren’t any Hungarian-owned producers. 

In addition, 40 percent of the products need to be imported. 

During the epidemic, global supply chains were disrupted. New supply chains for substitute products from other markets are being set up and in several cases they are already being used. 

Several possible foreign sources have been identified, but there are several important aspects to consider. Building materials and construction products can only be transported economically over short distances; there are certain products that cannot be easily replaced with others, and there are common building materials that determine the construction processes themselves. Therefore, the real solution must be found in Hungary. 

What are the possible solutions? 

Firstly, supporting the development of domestic building material manufacturers. 

This intention is already reflected in the national construction economy strategy laid down before the pandemic. Since 2018, five support programs for the technological modernization and efficiency of the construction sector have been launched with a total budget of 33.5 billion forints. Currently, based on a decision made this year, the government is planning to provide an additional 12 billion forints both in 2022 and 2023.

Secondly, a 200 billion forint package is being prepared with the help of the Hungarian Development Bank to increase domestic participation and reduce foreign market exposure in the construction materials industry, which is currently 90 percent foreign-owned.

And finally, supporting domestic innovation and materials research. Innovation and materials research is also being carried out at ÉMI, in cooperation with the University of Miskolc and several nearby companies, and the research on concrete and insulation materials may soon produce results for new patents to be registered.

To what extent has the involvement of the Hungarian Competition Authority helped to curb prices? 

The Ministry of Innovation and Technology is forcing building material distributors to abide by the law by carrying out targeted inspections in the sector. Consumer protection investigations will continue in the capital and in all counties.

If problems that cannot be settled by consumer protection are uncovered, proceedings are initiated by partner organizations, in particular the Competition Authority.

Manufacturers and traders are continuously working to address the shortcomings identified during comprehensive competition, consumer protection and tax inspections. The latest results of three months of intensified consumer protection monitoring suggest a positive turnaround. 

The complaint rate has fallen by ten percentage points since the start of the investigations in early July.