Cement 2024 – stagflation

IA Cement in London has published its Cement 2024 research report, a comprehensive document looking at expected trends in 2024. The report takes a detailed outlook at consumption prospects around the world, as well as a review of key risks, competitive pressures and trading flows. It examines the world’s leading producers, and analyses the key topics of carbon emissions and the effect of high interest rates on cement consumption. This article presents a summary from the report, analysing 2024 demand prospects by region.

Global cement consumption has been lacklustre ever since the pandemic. A series of unfortunate events have impacted demand – lockdowns, the Russia-Ukraine conflict and a surge in global inflation. Demand is expected to drop slightly in 2023 with only India and the Middle East showing notable growth. Cement prices have broadly caught up with cost pressures, yielding a recovery in profit margins.

In 2024, a mild recovery is predicted in global cement consumption, in the range of 1 – 2%. GDP is depicted by the IMF as ‘limping along’. Interest rates appear to have peaked, but are expected to come down only gradually due to sticky inflation. This has substantially raised the cost of financing new construction projects. Pandemic savings have mostly been exhausted, and mature market nations carry very high debt. Cement demand in Western Europe is lacklustre. US consumption is underpinned by its infrastructure bill. Demand in emerging markets is very mixed. China is expected to stabilise, although real estate is still declining. Recovery in Africa and Asia is predicted to be uneven. India is likely to experience a slowdown post-election.

Seaborne trading markets struggled in 2023, impacted by weak demand and falling export prices. Lower production costs and falling freight rates make exports increasingly viable. Import demand in 2024 is projected to pick up only gradually however, hampering a trade recovery. Exports from Türkiye are a key swing factor, as the diversion of exports to the domestic market in 2023 may reverse out.

Western Europe – the interest rate squeeze

The region faces a third year of falling cement demand in 2024, although the rate of decline is expected to moderate significantly. Interest rates are increasingly squeezing the economy, EU recovery funds are proving complex to administer, and most countries carry very high national debt ratios following the pandemic.

At the country level, Germany is by far the worst-affected major market. A further significant decline is forecast for 2024 cement demand. Housing is in freefall, construction companies are going bankrupt, and public works face cutbacks after a recent court ruling on government spending. The UK is expected to decline due to major cutbacks in housing construction. Other key markets – France, Italy and Spain – are expected to see a small increase in demand. Nordic countries endured a very difficult year in 2023, and a further deterioration is expected next year.

Eastern Europe – bottoming out

Central Europe has been hit hard by rising inflation, which pushed interest rates towards the mid-teens. This led to a severe decline in housing markets in the likes of Poland, Czech Republic and Hungary. A bottoming out process is underway, and a slight growth in cement demand is predicted in 2024. The European Union has withheld billions of Euros in funding from Poland and Hungary. Any release of cash could boost the level of public works. In the warzone itself, cement consumption has increased in both Ukraine and Russia. Further modest growth is projected in 2024, even in the absence of conflict resolution.

US – supported by public works

The US is firing on multiple cylinders. Record public expenditure, heavy investment in nearshoring, and consumers spending their pandemic savings have all helped to underpin economic activity. The housing market has defied expectations of downturn, maintaining an unusual balance. Lower demand due to high rates and home prices has been matched by a sharp reduction in the supply of homes, as existing owners stay put in order to retain their low-cost mortgages. Demand for cement is forecast to rise in 2024 at a 2 – 3% rate. A challenging housing market is expected to be offset as volumes from the US$1.5 trillion infrastructure bill ramp up, with spending peaking in the period 2024 – 2026.

Latin America – mixed picture

The cement demand outlook in Latin America is mixed. Overall, IA Cement expect a modest increase in 2024 cement demand, as growth in Mexico and Brazil is offset by a decline in Argentina. The Milei election win brings significant economic uncertainty to Argentina, which is expected to result in a sharp drop in cement demand. Growth in Colombia has suffered a setback, as surging inflation has sent interest rates up to over 13%. Brazil has turned an economic corner, with cooling inflation paving the way for interest rate cuts. Cement demand is expected to increase 2 – 3% in 2024, driven by rising public works and social housing. Mexico is a major beneficiary of nearshoring, which has led to an investment boom. Long-delayed public works have picked up ahead of elections in June 2024, helping to offset a subdued housing market.

Middle East – solid GCC fundamentals

Demand growth is expected to slow to 2 – 3% in 2024, although forecasts in major markets Türkiye and Saudi carry a high degree of uncertainty. GCC countries are expanding their non-oil economies, while low inflation due to the dollar peg is attracting foreign investment. The UAE property market is booming, bringing a return of large development projects and off-plan sales to both Dubai and Abu Dhabi. The Saudi market has been very weak in 2023 due to a decline in housing. A rebound is projected for 2024, but this is likely to be H2-weighted as mega projects such as Neom get underway. Iraq is expected to post strong growth due to a surge in the public budget. In Türkiye the market is expected to decline, as a major reset in interest rates offsets reconstruction from the February 2023 earthquakes.

Africa – recovery underway

Several major cement markets experienced falling demand in 2023, as high inflation led to increased interest rates and elevated cement prices. A modest recovery is projected in 2024 with demand increasing in the range of 1.5 – 2%. A further decline is expected in Egypt due to economic weakness, with producers looking to increase exports as a result. The Algerian market is in a strong recovery mode, boosted by government plans for housing, urban development and public works. In South Africa the crippling power shortages are set to ease, with many companies investing in captive power. This is expected to underpin a demand recovery, although political uncertainty and constrained government finances are significant headwinds. Kenya and Nigeria both faced a difficult year in 2023, with a moderate recovery projected in 2024. Demand could accelerate in Nigeria if talk of a cement price war translates into reality.

China – relatively stable

The pace of decline in the Chinese cement market has moderated during 2023, as rising public works have been offset by ongoing weakness in the real estate segment. Cement prices have fallen significantly however, reducing profit margins to below the industry average. Imports have almost completely dried up. Looking forward, IA Cement anticipates a stable rate of cement consumption in 2024. Public works spending is expected to increase, although a large-scale stimulus is not on the agenda. Real estate has not yet bottomed out, with unit sales and prices still under pressure. There are also concerns that cement is losing market share as the Chinese construction industry becomes more developed.

India – solid conditions

The cement market in India has been one of the very few globally to experience red-hot demand in 2023. The key catalysts have been pre-election spending ahead of Q2 2024 elections, a recovery in urban real estate and a slow monsoon which allowed for more working days. These drivers will make for tougher comparisons in 2024 – public works are likely to slow after the elections and rural demand may stagnate. Urban housing is projected to remain robust however, pointing to an overall cement demand increase of 5 – 6%. Ambitious industry expansion plans suggest the supply-demand balance is unlikely to improve.

Asia – a slow recovery

Regional cement demand has proven disappointing in 2023, with consumption falling sharply in several markets. Slow disbursement of public works and high interest rates have resulted in cement demand growth significantly underperforming GDP. A tepid rebound is forecast in 2024, with cement demand increasing by only 1%. The Philippines market is poised to recover as public works offset sluggish private demand. Growth in Indonesia is expected to be modest due to the election cycle and lacklustre housing. Cement producers in Vietnam have endured a very difficult year in 2023, with rising interest rates and scandals crushing the housing market at the same time as clinker exports to China dried up. Given the pace of decline, it seems likely that the first half of 2024 will remain challenging with stimulus measures potentially bringing stability in H2. In Thailand, public works have supported cement demand despite months of political uncertainty, and are expected to be the main driver of modest demand growth in 2024. Japan is predicted to be relatively stable as urban redevelopment and spending ahead of the Osaka Expo are offset by labour shortages and high raw material costs. Prospects in Malaysia are bright as all segments of demand have returned to growth. In South Asia, Sri Lanka has emerged from its economic crisis and demand has stabilised at a low level. Recovery in Bangladesh has recently been derailed by industrial unrest, which has upended the transportation sector for weeks. Pakistan has seen cement shipments recover on the back of economic stabilisation, although political uncertainty remains high.

Conclusions

After two years of decline, the industry can look to a mild recovery in 2024 global cement demand. The Middle East and India stand out as relative bright spots, for the second year in succession. The interest rate cycle appears to have peaked, with a gradual easing likely in the coming months. A number of housing markets have crashed however, most notably in Germany and Vietnam. Cost pressures have abated, with profit margins generally returning to normal levels after the 2022 squeeze. Seaborne trading volumes are predicted to stabilise, as mild demand growth returns in several import markets.

Note

The full report is priced at US$650 from IA Cement.

Details are available at www.iacement.com or by emailing: publications@iacement.com

Click here for free registration to World Cement

Read the article online at: https://www.worldcement.com/africa-middle-east/11012024/cement-2024-stagflation/