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CEE Re-Emerges

World Cement,

The EU10 countries include, Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia. Senior Economist, Kasper Richter, predicted that economic growth in emerging Europe could accelerate to 3.2% this year after last year’s growth of 1.8%. However, the rebound in the EU10 (Eastern) countries is reliant on external demand and faces a number of risks, of which the main one is a weak recovery in the rest of Europe, as their prospects for exports, credit and jobs depend foremost on a strong recovery in the EU15 (western Europe). It is worth noting that Central Europe accounts for nearly a tenth of Germany’s foreign trade.

Growth drivers

Poland, the region’s largest economy and the only EU member state to avoid recession and actually record growth in 2009, may grow by 4.1% this year, up from 3.5% in 2010.“What makes Poland’s economic rebound different from that of the other EU10 countries is that it was not based solely on exports but on multiple factors, namely increased public investment, strong domestic demand with consumption now back at pre-crisis levels, and of course exports,” explains Richter. More than 40% of the country’s exports go to Germany, France, Italy, the Czech Republic and the UK.

The World Bank is optimistic that private investment in Poland will increase next year. Poland’s Foreign Investment Agency (PAIiIZ) has recently reported that in 2010 the country became an attractive investment target, since it managed to avoid the major problems connected with the world economic crisis. The largest foreign investor in the country is the USA, which accounts for 30% FDI, with the UK the second largest followed by Germany.

The Polish Cement Association reports that this year the country’s cement market will need 16.7 million t of cement. In the long term (2018 – 2020), demand is expected to increase to 22 – 23 million t.

Poland and its neighbour Ukraine will be staging Euro 2012 (the European football championships) in June – July 2012. This is providing a major boost for the construction industry of both countries, and for their respective cement producers. The value of construction investments in sports, hotel and transport infrastructure (including roads, railways and airports) in the two countries will be about e38 billion. Ukraine’s cement industry is predicted to increase by 10 – 11% this year.

One of the largest financial investors in Ukraine is the European Bank for Reconstruction and Development (EBRD) and, in November 2010, it launched a programme to finance alternative energy in the country. Called the Ukraine Sustainable Energy Lending Facility, or USELF, it will be able to issue credit worth e50 million to Ukrainian companies that are investing in renewable sources of energy. An additional e20 million will be provided by the international Clean Technology Fund. Specifically, the programme is also offering e15 million to finance power generation from renewable energy sources such as water, wind, biomass and solar energy. Last year, the EBRD earmarked e5 billion to cover 197 energy projects in Ukraine.

The other growth driver in the region is Slovakia, which relies heavily on car and electronics production for export. It is recovering strongly after its economy shrank 4.7% in 2009. It is also benefiting from EBRD aid, whereby the Bank has earmarked e90 million to approved projects on energy efficiency in the country as part of the Slovsef II credit facility. Cement consumption in the country remains quite static at about 1.7 million tpa.

Modest improvements

Exports are continuing to drive recovery in the Czech Republic in real GDP, which is set to grow by 2.8% this year. Cement consumption is expected to increase by 3% to 4 million tpa this year.

Bulgaria’s economy is expected to grow by 2.6% this year and may even reach 3.8% in 2012, following a dip at the end of last year. One of the largest private sector investments in Bulgaria over the past 20 years is being executed by the Italcementi Group. It involves the complete revamping of the Group’s Devnya cement plant, by converting it from wet to dry process. In September 2010, Holcim Bulgaria announced that it would be closing the Plevin plant by the end of this year. Titan Cement, which has a presence in Bulgaria with the Zlatna Panega cement plant, recently invested in a new cement mill, and feeding and storage systems for additives.

Still struggling

It is still tough in some countries, for example Romania, which the World Bank describes as the only country in the EU10 that was still in recession in the third quarter of 2010.

The country’s transport infrastructure is still in a poor state. After more than 20 years since the fall of the communist regime, Romania still has only about 300 km of motorway. There have been big delays linked with motorway construction plans chiefly due to a lack of funding and to legal problems caused by expropriation.  Romania’s railways have also been under-funded since 1990.

The cement and building materials industry in general has been experiencing difficult times. In 2009 these industries declined by 25 – 30%, depending on the areas and their specificity. Cement consumption is estimated to be about 7.6 million t for 2010 and the prediction for 2011 is for a very slight increase.

At long last, after nine consecutive quarters of decline, Latvia, has begun to recover. “The Latvian economy, which was the hardest hit by the credit crisis, has gradually moved up and we expect that it will continue,” comments Violeta Klyviene, a senior analyst at Danske Bank A/S.

The construction industry in Hungary has been struggling. Cement consumption this year is expected to rise by only 1% to 3.3 million t this year.

Boost for Russia

Russia’s victory in winning the race to host the 2018 World Cup will spark off a major infrastructure programme.

The two top cement producers in Russia are the Eurocement Group and Sibersky Cement Holding, while foreign participants include Lafarge, HeidelbergCement, Holcim and Dyckerhoff. Cement consumption this year is expected to be about 51 million t.

For the full article, see the January 2011 issue of World Cement.

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