The latest forecast from the OECD and IMF predicts a continuation of the global economic recovery during this year, although it could be weaker than in 2010. The growth rates in the emerging countries of Asia and Africa will remain significantly above those of the mature markets in North America and Europe.
At the time of writing there is an air of optimism in the global cement industry. Experts predict that global consumption could increase this year, with the beginnings of a recovery in the mature markets, while the emerging markets continue to maintain their strong position, at least for the rest of this year. Global demand is predicted to rise by 7% following on from last year’s 9% rise, with growth rates increasing from last year’s 2.4% to over 4% in 2011. In recent times it has been said that the Chinese market constitutes about 50% of global consumption, but now a figure somewhat in excess of that is being suggested. The following are some observations on the global regions.
Europe: West and East
A glance through the Q1 2011 interim reports of some of the major cement producers provides useful indications on the current shape of the industry and the outlook for this year. In Europe, after the heavy snowfalls and severe weather in December, the milder conditions in January – March proved very favourable to construction activity. The demand for building materials picked up in almost all markets, with the recovery coming from the private sector, as the public sector continued to suffer from budget restrictions. The economic recovery in Heidelberg’s markets in Western and Northern Europe, as well as in Eastern Europe and Central Asia, led to a significant rise in sales volumes. Likewise, Holcim reported increased sales volumes in France Benelux, and in Germany the economic recovery was an impetus for both private and public sector construction projects. In Eastern Europe, even though there has been a degree of recovery, the difficult economic environment persisted, following a substantial decline over the past few years. The strongest cement sales figures were achieved in Bulgaria, Romania and the Czech Republic. The Russian and Polish markets are expected to become stronger this year.
The cement industry in North America has been struggling through tough times in recent years. It is hard to believe that cement volumes have fallen to their lowest levels since the 1980s. Although there has been an increase in construction activity and cement consumption, there have been considerable fluctuations between the individual market regions. However, consumption has increased in most states. Stimulus programmes are coming through, particularly in highway construction. The PCA has predicted modest growth in the US cement industry during 2011 – 12, and expects that 2013 will mark a watershed for the industry in terms of a substantive and sustained recovery in volume and company decisions to re-open in the context of harsh EPA NESHAP regulations.
In general, the construction markets in Latin America are developing positively. In Colombia, economic conditions continue to look good, and this has benefited residential and commercial construction activities, as well as the infrastructure sector. In Brazil, analysts are expecting an 8% increase in the market this year, compared with just over 5% elsewhere in the region. The construction sector in the country is a strong driver of the economy. The cement market in Chile is also looking good, with predictions of a big increase in output this year. There are mixed reports from Mexico, where in the run up to the 2012 elections there has been some stimuli from the public sector, but in contrast, private house building continues to suffer and the construction sector has failed to gain any sort of momentum. Latest figures suggest that cement volumes could increase by 2.5% this year.
The contrasts in cement production in South Africa, Sub-Saharan Africa and North Africa could not be more different. Civil unrest, conflict and demonstrations in Egypt, Tunisia, Algeria and Libya have created uncertainty in the region. In Egypt, there is a suggestion that demand could drop by 7 to 10% this year rather than the 3 to 5% growth predicted before the demonstrations. In Morocco, Italcementi reported that Q1 2011 cement consumption was buoyed largely by private investment in social building and improved by an estimated 11.5% on the same period in 2010. The new Ait Baha plant has now replaced the Agadir plant, which was closed at the end of March. Holcim reports that new competitors entering the market had created fierce competition.
In South Africa, cement volumes continued to decline with a 4% year-on-year fall recorded from October 2010 to March 2011, this being the smallest for a six-month reporting since September 2008. It is felt that the situation this year will be similar to 2010 but high energy prices and transport costs remain a concern for the industry. The country’s leading cement producer, Pretoria Portland Cement (PPC), recorded a sales increase of almost 20% in Zimbabwe despite operational challenges in one of its plants. The big story in the continent is of course the rapid expansion of the industry in Sub-Saharan Africa, prompted by the boom in commodities and Chinese investment. Of particular note is the Dangote Group’s interests, which will see some US$3.9 billion being invested in cement production facilities over the coming years in Ethiopia, Tanzania, the Republic of Congo, Gabon and Nigeria.
There is overcapacity in this market. A typical example is in the UAE where the current capacity is about 31 million tpa compared to a production of about 17 million t. This figure looks set to decrease to about 13.5 million tpa this year. Even though there are high costs, which have been a barrier to exports, the UAE producers are looking to export up to 2 million t to the Gulf and various African countries. Although there are large clinker stocks in Saudi Arabia, anticipated higher demand this year could well help to reduce these levels. The government policy has restricted exports and companies wishing to export must first satisfy domestic requirements by selling at very low prices. There are unconfirmed reports that the government may lift the restrictions this year. Press reports from Qatar mention that Qatar National Cement Company is ready to cope with increased demand to meet preparations for the 2022 FIFA World Cup. If necessary, it will expand its production capacity. The market size at present is about 7 million t. In Lebanon, where the political situation is not so stable, the cement market is largely saturated with production running at 6 million t. Consumption at 5 million t leaves 1 million t for export to Syria and Iraq. Last November, Lafarge announced that it was planning to increase its annual capacity in Iraq by 2 million t by 2013. Figures released earlier this year by the United States Geological Surveys (USGS) confirmed that Iran had become the seventh largest cement producer in the world and the second largest in the Middle East after Turkey. Cement production in 2010 reached 55 million t via its 57 active plants. It currently exports to Iraq and Central Asia.
In Thailand, the growth reported in the construction sector in 2010 continued in the first quarter of 2011, largely underpinned by government investment and infrastructure and by the recovery in private investment. Analysts are suggesting that cement demand in Indonesia will continue with a growth of 7% this year. The Indonesian Cement Association has said that cement exports are likely to decrease to 1 or 2 million t this year, as the country’s eight producers will allocate a large part of their production to meet the surge in domestic demand. It seems that the country imported about 1.5 million t last year from Malaysia to help meet domestic demand. Cement capacity in Vietnam is scheduled to expand towards 58 million t this year. At least seven new cement plants will enter production, the result of which will see the cement surplus increase from 2 million t in 2010 to 5 to 10 million t. In 2010, Vietnam produced 50.85 million t. Reconstruction work in Sri Lanka following the end of the 25-year civil war and floods could result in double-digit growth this year. Although energy costs are rising, the surge in private credit will boost cement demand.
China and India
In Italcementi’s Q1 2011 report, it was noted that the economy in China had made further progress, estimated to be 10%, and this concurs with analysts who expect another strong year with double-digit growth. The government has introduced initiatives aimed at improving the supply-demand balance. There was a sharp fall in new production lines in 2010 with further closures of vertical kilns. Modern dry kilns now make up about 75% of the total cement market in the country.
Reports from China Customs covering Q1 2011 indicate that the country exported 2.914 million t of cement and clinker, down 31.9% year-on-year. The average export price was US$55.50/t, an increase of 33.50% year-on-year. As part of the 12th five year plan, the Chinese government also plans to build or renovate 10 million low-income apartments over the next 12 months, and over the whole five years the target is 36 million new homes, so that by 2015 the aim will be for public housing to home 20% of the urban population.
Total installed capacity in India by March 2013 is expected to be over 380 million t, according to Indian Cement Industry Forecast to 2012 produced by RNCOS. Total capacity is expected to increase by 5% by the end of this year. Infrastructure projects and the housing market continue to be the main drivers. Companies currently involved in building or investing in new plants include the Birla Corporation with a new 1 million tpa plant in Assam; Madras Cements with an increase in capacity at the Ariyalur plant; My Home Industries (a JV with CRH) planning a US$1 billion expansion from 5 million tpa to 15 million tpa by 2015; Everest Industries proposing to build a plant in East India; and Holcim planning to invest in greenfield plants in the country over the next five years.
This is an abridged version of the full article from Paul Maxwell-Cook, which was published in the July 2011 issue of WORLD CEMENT, available for subscribers to download now.