World Cement (WC): What was the purpose of creating the World Cement Association (WCA)?
Norman Greig (NG): The global cement industry has faced major global issues over the last decade, such as new emerging players, significant overcapacity, sustainability and climate concerns, and digital disruption. This is on top of the need to improve the global image of the industry and position it as a worldwide contributor to growth and social welfare. Since global problems require global solutions, the association thinks that the need for an effective global organisation providing leadership and guidance to the cement industry worldwide is clear. The WCA was established in 2016 to meet this need.
WC: What do associations such as yourself offer the cement industry?
NG: The WCA is an independent association whose main mission is to represent the cement industry and its stakeholders on a global basis. To fulfil the role of global representation, we create platforms of cooperation and joint analysis, and share best practice with the industry on a global basis. The outcome of these actions allows the WCA to add to the discussion on crucial issues in the industry and to have a seat at the table of international forums, where issues of the industry are discussed. We think the cement sector needs global representation that shows it is a responsible industry committed to fair practices in its dealings with all stakeholders.
One of the important characteristics of the WCA is that the structure of the association does not allow a few companies or countries to dominate any discussions or decisions. All corporate members have equal rights regardless of size and origin.
WC: What challenges does the cement industry face and how can we combat them?
NG: The global cement industry, employing 1.2 million people and having a production capacity of around 6.2 billion t, suffers from substantial overcapacity.
Since the turn of the century, and driven in large part by China’s domestic boom, global cement capacity has exponentially increased, nearly tripling over the last two decades. Meanwhile, the number of producers has grown to more than 5000.
Although increased capacity was mostly absorbed in periods of high demand, a longer than expected global recession following the 2008 global financial crisis, combined with major regional, political, and economic instability and sluggish demand, has ended up with significant global excess capacity in recent years.
Currently, China has the greatest excess capacity with 895 million t, representing 45% of global overcapacity. Of this, only a fraction is earmarked for export due to higher inland logistics costs.
Meanwhile, Europe has a capacity:consumption ratio of 200%, the highest in the world. In addition to low demand in the region, political pressure to reduce CO2 emissions has kept capacity utilisation rates at low levels.
After the recent mergers of LafargeHolcim and Heidelberg/Italcementi, the European market looks relatively consolidated; LafargeHolcim, HeidelbergCement, and CRH have a more than 60% market share. However, due to anti-competition regulations, it is unlikely that these groups will be able to further consolidate the market.
Developing regions, such as India, Southeast Asia, and Sub-Saharan Africa, have seen significant capacity growth over the last decade – more than twice the growth in consumption. Despite a capacity:consumption ratio of more than 150% in these regions, further capacity expansion is still anticipated.
Political turmoil and low oil prices over the past three years have severely reduced domestic cement demand in the Eastern Mediterranean and Middle Eastern countries, resulting in large excess capacity. In addition, the lack of export markets in neighbouring countries across the Eastern Mediterranean region has created a regional exportable surplus.
Cement, with its cost efficiency, energy efficiency, and very long durability is a unique product and has no real substitute. Moreover, the industry is very capital intensive, meaning that it has a lower return on capital employed than other industries and is highly regional in nature, due to relatively high land-based transportation and distribution costs. As a result, strategies for the cement sector can differ from other industries.
In China, the national industry target for 2020 is to concentrate at least 60% of Chinese overall capacity into the top 10 manufacturers, as well as to increase utilisation rates to 80% from 68% by reducing 390 million t of capacity. This will be made by a shutdown of idle capacity to ensure efficient resource allocation. Chinese producers are very likely to benefit from a massive increase in cash generation, giving them greater resources to embark on more aggressive overseas expansion.
While China is taking immediate and drastic measures to optimise production capacity and reduce the environmental exposure of the cement industry, Europe, the Mediterranean Basin, and the Americas still seem unable to decide upon fast and efficient solutions to implement themselves.
WC: Tell us more about WCA’s Climate Action Plan.
NG: The WCA’s Global Climate Change Forum, held in Paris in June 2018, acknowledged the crucial importance of climate change. It revealed the extent of the technological gap that the cement sector must bridge if we are to have any hope of delivering our contribution to the central goal of the 2015 Paris Climate Change Agreement, limiting global warming well below 2°C compared to pre-industrial levels. Simply put, existing technologies are adopted too slowly, while the technologies currently available and being deployed by the global cement industry can only deliver 50% of the CO2 emission savings required to achieve this 2° scenario. The entire cement industry now has an historic responsibility to put greater focus on innovation. Standards and building codes have to be adapted. The WCA is committed to supporting its members in their efforts and to contributing to sharing knowledge on innovative processes and products (including the use of digital technologies). The WCA’s Climate Action Plan is focused on knowledge sharing, transparency of emissions, climate-friendly standards, and material efficiency.
WC: How do you see the cement industry developing?
NG: On 5 December 2018, the second General Assembly of the WCA and the WCA World Cement Conference (in association with Intercem) was held. The event discussed the future of the cement industry and was followed with great interest by the industry and international press.
Alongside existing global issues, a longstanding overcapacity problem in the industry, and higher CO2 emission prices in the Eurozone, the general sentiment regarding the sector is that the year ahead will be a challenging one for the cement industry.
The WCA has recently reported global cement demand growth to slow in 2019. In the face of rising downside risks in 2Q18, the positive outlook and signs of recovery seen in 2H17 started to fade away.
We forecast that global demand for cement will grow by 1.5% next year. China’s dwindling needs are a significant factor but, even excluding this, the overall demand will rise by only 2.8% in 2019, down from a 3.3% rise in 2018.
This means that if the global industry does not take any immediate and drastic measures, the overcapacity problem will continue to exist in the industry in the years ahead.
On the other hand, in terms of industry leadership much has changed in the last ten years and there are new, emerging leaders in the global cement industry today. The Chinese domestic boom that has been taking place since the 1980s has seen Chinese company CNBM/Sinoma capture the world’s number one spot, replacing LafargeHolcim as the largest cement producer. With a capacity of more than 400 million t, it single-handedly exceeds the total production of several countries. Compared to 2005, when Conch was the only Chinese producer in the top ten globally, five more Chinese cement players, including CNBM, Jidong, and Shanshui, have made it to the list in 2018.
It is clear that we are approaching a turning point for the global cement industry and there is no doubt that Chinese and other independent cement companies, in particular, hold the keys to the future.
Furthermore, the industry still appears to be slow in following the rising trends of the era: building sustainability and digitalisation. Therefore, these areas still offer big opportunities and are likely to be central to achieving a better public image of the industry, as well as greater cost efficiency, and promoting concrete more generally.
WC: What is WCA’s plan up to 2030?
NG: The WCA has continued to expand its fast-growing membership network in the last two years. We are also delighted to further expand our presence in China by opening our WCA Beijing and President’s office.
Our ultimate target is to strengthen our membership network further and represent all of the cement industry at international platforms, in order to position the sector as a global contributor to growth and social welfare, promote concrete as a material of choice in sustainable construction, achieve our climate action plan targets, and improve the global image of the cement industry.
WC: Does WCA have any upcoming events?
NG: We will be organising several events for 2019, such as the WCA Global Climate Change Forum in June, the WCA World Cement Technology Conference in September, and the WCA World Cement Conference in December 2019.
WC: What is your final message for the industry?
NG: The WCA, currently representing a total cement capacity of nearly 1.3 billion t, is the largest independent multinational cement network, having a footprint in 38 countries with its 72 members.
We aspire to engage with all stakeholders of the cement industry, both upstream and downstream, in order to shape the future of the cement industry together.
About the author
Norman Greig is Secretary General of the World Cement Association.
Read the article online at: https://www.worldcement.com/special-reports/11012019/collaborating-for-change/