Part 2 of 2. Read Part 1 here.
The aftermath of the Arab Spring is still highly visible in North African countries. IA Cement expects strong growth in Algeria/Libya in 2013, with falling demand in Egypt and Morocco.
The dominance of Egypt (circa 50 million t in 2013E) means that demand will rise only very slightly across the region this year.
Egypt continues to suffer heavy political instability. The business environment remains highly uncertain. Nevertheless, cement demand is showing resilience and is expected to shrink by only 2 – 5% for 2013. The outlook is very unclear – for instance, foreign aid (with very large commitments from Qatar in particular) is largely on hold due to the unrest. Prices are holding up well, which is helping to underpin cement margins. The key theme in cement is really on the supply side. Energy shortages remain a major problem, keeping utilisation rates capped at about 75%. Cement suppliers are trying to diversify their energy fuel mix. This approach is risky, as government policy may not approve moves to switch from gas to coal. ASEC Minya inaugurated its new 2 million t plant in September 2013. Following this there are no further capacity additions for the foreseeable future in Egypt.
In Libya demand is returning despite major political uncertainties and ongoing instability. Local consumption is predicted to reach 8 – 9 million t in 2013. Given that local production is currently less than half of this figure, the shortfall ensures a healthy demand for imports (mainly from Greece). Local producers face a range of issues, including erratic supply of fuel/electricity, scarcity of equipment and skilled labour.
The market in Algeria continues to be affected by shortages, as production struggles to match surging demand. Prices have been increasing sharply in recent months. Imports are expected to rise from 2.7 million t in 2012 to 3 – 4 million t in 2013, and will remain elevated for a number of years according to IA Cement’s calculations. The government agency GICA is planning 16 million t of new cement capacity by 2017, but less than half is likely to come through. GICA has not built a single new line since 2008 despite its plans. Energy costs remain low in Algeria and cement demand is likely to grow 7 – 9% pa in the medium-term. The central government is planning to build 1.5 million new homes, together with new rail and motorway programmes.
The cement market in Morocco saw plunging demand in the first quarter. Despite some stability in 2Q13, consumption still fell by more than 10% in the first half. Accordingly, a decline is expected over the year. The principal driver is a shortage of cash in the financial system in Morocco. Mortgage growth is slowing and companies are struggling to get loans. In addition, the government is looking to eliminate tax breaks on construction of low-cost housing. Earlier this year the government cut the public spending budget by 25%.
Looking ahead toward 2014
The MENA region has seen little impact of the recent currency and stockmarket turmoil affecting other emerging markets, particularly those in the Far East. Nevertheless, political unrest remains significant in many countries and is not far below the surface in others. This makes the outlook for 2014 a little difficult to predict, as there is a range of possible outcomes. At present, the following conclusions can be drawn:
- Oil prices remain well underpinned and as a result IA Cement is optimistic for cement consumption trends in the Gulf countries in 2014.
- Dubai has managed to put itself on a recovery path and cement consumption is beginning to recover. However, its oversupply is unlikely to be resolved at any time except in the very long-term.
- Imports into Saudi Arabia are likely to continue as these have clearly resolved the shortages while maintaining control in the market for existing cement producers.
- North Africa is likely to continue to absorb the surplus capacity of Southern Europe for a number of years to come.
- Major uncertainties remain in Egypt, Iran and Syria due to the unrest/sanctions in place.
Considering the above factors, it is expected that demand may recover from a 3 – 4% range in 2013 to a 4 – 5% range in 2014. The large capacity surpluses in Iran/UAE will likely keep export prices capped during 2014. The main risks include further unrest and a drop in oil prices.
Written by Imran Akram, IA Cement Ltd, UK. This is an abridged version of the full article, which appeared in the November 2013 issue of World Cement. Subscribers can view the full article by logging in.
Read the article online at: https://www.worldcement.com/africa-middle-east/24102013/mena_market_trends_part_2_336/