In the twelve months since our previous World Review in July 2008, the downturn phase in the cyclicality of the world cement industry has been dramatic. Just consider what has happened to orders for new cement capacities.
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In the twelve months since our previous World Review in July 2008, the downturn phase in the cyclicality of the world cement industry has been dramatic. Just consider what has happened to orders for new cement capacities. Leading equipment supplier FLSmidth reminds us that, in 2001, orders were placed for only 14 million t of new capacity, which at that time was the lowest level since 1986. By 2003, it had increased to 33 million t, and in the following year the level rose to 53 million t; in 2005 it was 75 million t but then almost doubled to 140 million t in the following year. Soon after this peak, the level began to slide: 125 million t in 2007 and 123 million t in 2008. New orders this year are expected to be between 25 and 50 million t (excluding China), i.e., back to less than the 2004 figure. At the end of 2008, FLSmidth estimated that about 3% of its order backlog had been cancelled and 10% had been put on hold.
The PCA’s Chief Economist, Ed Sullivan, addressing this year’s IEEE/PCA Cement Industry Conference, ‘told it as it is’: so-called green shoots were a long way off; the economic fundamentals were weak and still haemorrhaging, 16 cement plants had been closed and more were on the way. While the new administration’s stimulus had brought some relief, it was really only providing for repair and maintenance contracts, and not for the much needed traditional infrastructure spending on new projects. No wonder one delegate was heard to say: “I think I’ll just go and jump off the top of the hotel now!”. Looking long term and well after the recovery, Sullivan predicts a cement supply gap of some 68 million t by 2030 and the need to import cement at something like 40 – 45 million t, but by 2020 the existing storage capacities in the terminals will be full and 25 million t of new storage facilities will be required. With a domestic cement shortfall, how will these be built? Another problem for the North American cement industry will be the US Environmental Protection Agency’s (EPA) announced amendments to the national emission standard for hazardous air pollutants. This requires new emission standards for mercury, total hydrocarbons, hydrochloric acid and particulate matter. Put briefly, the stringent and costly requirements, if adopted, would lead to forced closures of plants, with the US becoming more dependent on cement imports. Bad news for the US, good news for exporters, especially from the emerging countries. Will the emerging markets lead the world out of the current recession? Mark Mobius, Portfolio Manager of Templeman Emerging Markets Investment Trust, seems to think so. He points out that while global growth has slowed, emerging markets are expected to grow at a much faster rate than developed markets. The accumulation of foreign exchange reserves puts the emerging economies in a much stronger position to weather external shocks. In a recent article he cited Latin America, where greater interregional trade has offset some of the lower export demand from the US. One of Latin America’s main attractions is its huge consumer market, with pent- up demand for goods and services, and world-class companies that are under-leveraged and inexpensive. In addition. the region’s natural resources are among the largest in the world. Asia is the largest emerging market region and despite the worldwide recession, economic growth remains relatively high. Per capita incomes have been rising, valuations remain attractive and reforms continue, thus improving the region’s business and investment environment.
Good to hear something positive!