Imran Akram, IA Cement, analyses the demand prospects of the global cement industry for the year ahead.
London-based IA Cement has published its Cement 2022 research report, a comprehensive document looking at expected trends in 2022. 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 the coronavirus on cement consumption. This article presents a summary from the report, analysing 2022 demand prospects by region.
2022 cement demand outlook.
Global cement consumption in 2021 has grown solidly across much of the world, and is projected to increase by 6%, excluding China. Momentum has slowed sharply in H2 however, due to a more challenging comparison basis. Cost pressures have resulted in a margin squeeze as selling prices have not been able to keep up with the sheer scale of underlying cost increases.
In 2022 a slowdown in demand towards a more normal 4% growth excluding China is projected. The coronavirus picture is steadily improving, with rising vaccination rates and the rollout of new drug treatments. Growth in housing is predicted to slow down, with a recovery in commercial construction and ongoing public works. Higher selling prices and easing cost pressures will combine to eventually restore industry margins. Mature market cement demand is supported by stimulus packages. In China, volumes are predicted to fall as the property sector declines. Elevated commodity prices will provide a strong economic boost to multiple emerging market regions, particularly in Africa and the Middle East. Southeast Asia is expected to recover after being hit particularly hard by the delta variant.
Seaborne trading markets have faced a volatile year in 2021. Strong import demand early in the year was not fully met, due to limited availability of freight. Shipping costs have dropped in recent weeks. Rising input costs have forced some exporters to reduce shipments, and producers with subsidised energy costs are expected to take market share. Exporters are pushing for significant price increases on 2022 contracts to recover high input costs. Volumes are also expected to decline due to a mixed import demand picture.
Western Europe – A solid recovery
After a poor start to its vaccination rollout, Western Europe has enjoyed a solid economic rebound during 2021. Cement consumption in 2022 will be strongly underpinned by the EU stimulus plan. The central bank is signalling that interest rates will not be increased, which will support housing demand. With carbon prices more than doubling from their pandemic lows, cement companies have announced hefty price increases.
Cement markets hit by harsh lockdowns in 2020 – the UK, France, Italy and Spain – have staged a strong rebound this year. Italy and Spain – the largest recipients of the EU stimulus – are expected to see a further demand increase of 4 – 5% in 2022. The French cement market is expected to be aided by a solid recovery in commercial construction. Moderate growth is predicted in the UK, as rising interest rates cool housing demand. The German cement market is likely to be relatively stable, with private demand impacted by supply chain bottlenecks and reduced immigration.
Eastern Europe – A steady outlook
Construction markets are well supported by public works and strong housing demand, partly offset by supply chain bottlenecks and energy insecurity. IA Cement expects a solid 2 – 3% growth in 2022 regional cement consumption. The Russian cement market is expected to slow down after a buoyant 2021, due to higher interest rates and moderation in public works. Markets in Central and Eastern Europe are forecast to experience strong demand. Key drivers include EU funding, strong wage increases and a pre-election housing stimulus in Hungary. Interest rates are climbing upwards, however, labour shortages are growing and Poland faces major challenges to wean itself away from coal-fired power plants.
US – Healthy growth
The US cement market has enjoyed strong demand throughout 2021, driven by low interest rates and numerous stimulus programmes. Cement imports have risen dramatically, due to local production being impacted by supply chain shortages. There is considerable pent-up demand that is expected to feed into 2022 consumption. Housing demand is expected to slow, as surging prices affect affordability and homebuilders struggle to complete homes. Commercial construction is expected to post a solid growth driven by warehousing, urban distribution facilities and data centres. The new US$1.5 trillion infrastructure bill is expected to impact volumes from mid-2023. Overall, a 3 – 4% growth in 2022 cement demand is predicted. Prices are expected to rise significantly to offset higher input costs, with local production ramping up after a difficult 2021.
Latin America – Further improvement
After six consecutive years of falling cement demand, Latin America is expected to post a remarkable double-digit growth in 2021. This has created a much tighter cement market across the region, making it easier to pass on price increases. In 2022, IA Cement expects a more normal 3% cement demand growth, against a tougher comparison basis. Argentina is expected to maintain a positive momentum, building on a dramatic recovery in 2021. In Colombia, a solid 4% growth is anticipated as a number of new infrastructure projects begin. Brazilian demand is forecast to slow sharply due to a rapid rise in interest rates. A healthy 3 – 4% growth is forecast in Mexico. The housing market has begun to moderate after five quarters of double-digit growth, however both industrial construction and public works are improving.
Middle East – Underpinned by oil prices
The oil price recovery has led to a sharp rebound in regional cement demand, which is predicted to be up 5% this year and 3% in 2022. In Saudi Arabia a 3 – 4% growth is expected. A new building code, labour shortages and a slowdown in housing loans have all affected the housing market recently. Several mega projects are expected to underpin demand, however. Negative real interest rates have fuelled a boom in Turkish housing. In 2022, IA Cement expects a 2 – 4% growth in Turkish cement consumption, supported by a strong infrastructure pipeline with high-speed rail and renewable energy projects at the forefront. In Qatar, a 4 – 5% growth in demand is predicted. The final year of soccer world cup construction is supplemented by major LNG expansion. UAE cement demand is expected to grow moderately, helped by a recovery in tourism and a nascent recovery in the property sector. Cement prices fell to an all-time low in June, due to chronic overcapacity.
Africa – Strong growth
In Africa, IA Cement expects a broad-based 4% growth in 2022 cement demand, driven by low interest rates and high commodity prices. Selling prices rose sharply in most markets in 2021, and are expected to remain elevated. North African demand is forecast to accelerate, as rising oil prices help the Algerian economy to recover despite budget cutbacks. In Egypt the state-approved production cuts have helped to restore a supply-demand balance, leading to better pricing. Subsidised interest rates for homeowners are expected to fuel a recovery in cement consumption. Sub-Saharan African countries have been major beneficiaries of high commodity prices this year. In 2022, IA Cement expects solid growth in all major cement markets, albeit at a slower pace than in 2021. South African cement demand growth is being driven by higher public works, strong housing demand and increased investments in the power and mining sectors. In Kenya, growth is forecast to slow to a 5 – 6% range as pre-election spending this year creates a challenging base effect. Nigeria is forecast to post further strong growth, as multiple infrastructure projects and strong housing demand result in cement growth far outstripping the wider economy.
China – Real estate uncertainties
The Chinese economy has faced a number of recent headwinds. Cement consumption has fallen sharply in the last six months, and is expected to close 2021 broadly flat. A decline of 0 – 3% is predicted in 2022. Housing is the main area of weakness, with the fallout from the debt problems of developer Evergrande Group impacting the whole sector. The authorities are taking steps to stabilise the market, and are expected to manage an orderly restructuring of Evergrande. Infrastructure spending is expected to increase to partly offset weaker private demand, although a widescale stimulus is not on the agenda. Production curbs remain very tight, and low inventories have allowed selling prices to increase recently despite a backdrop of falling demand. Clinker imports have declined in H2 2021 and are projected to fall further next year.
India – Urban housing revival
India is expected to see a strong GDP growth of 7 – 8% in 2022, aided by low interest rates and herd immunity in most major cities. Cement demand is forecast to increase 6 – 6.5%. Infrastructure spending is projected to be the key driver of demand, together with solid rural consumption and a long-awaited recovery in the urban housing segment. High input costs are prompting producers to raise selling prices, although margins have been squeezed in Q3. Labour shortages are still prevalent in urban areas.
Asia – Outlook improving
Far Eastern markets were badly impacted by the delta variant in 2021, with cement demand struggling across several countries. With lockdowns now mostly lifted, IA Cement expects a solid rebound in 2022 resulting in regional growth of 4%. The strongest recovery is expected in Vietnam and Indonesia. Vietnam is expected to lift its lockdowns in January, after which pent-up private demand is predicted to bounce back sharply. The Indonesian economy is a major beneficiary of high commodity prices, and housing is supported by VAT cuts and an easing of lending criteria. Producers have raised prices by a double-digit percentage in recent weeks, and now have a price cap on coal in place. Demand in Japan and Thailand is expected to be moderately higher, driven by public works. Demand is expected to slow in the Philippines as 2021 was boosted by pre-election spending, and in Pakistan where a rising current account deficit will bring higher interest rates and renewed austerity.
Cement demand growth has slowed sharply in recent months, while rising input costs have squeezed industry margins. In 2022 the coronavirus picture is generally expected to improve, despite the emergence of the new Omicron variant. Global cement consumption excluding China is predicted to slow down to a more normal range, with housing demand projected to moderate. Mature markets stand to benefit from further stimulus. High commodity prices will increase demand in a number of emerging market economies. Demand in China is expected to decline moderately due to the fallout of debt concerns at Evergrande. Selling prices are expected to increase, while some easing of energy costs and freight rates appears likely. New carbon taxes will maintain a focus on emissions reduction, particularly at the major multinationals.
About the author
Imran Akram founded IA Cement Ltd in 2011, a firm which provides market intelligence and advisory consulting services to the global cement industry. Imran has over 12 years of experience as a Global Cement Research Analyst. Most of this time was spent at Deutsche Bank in London, where he worked for 10 years as a Director and Head of European building materials. Imran qualified as a chartered accountant with Deloitte, and is a graduate of the London School of Economics. He is based in London, UK.
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Read the article online at: https://www.worldcement.com/special-reports/11012022/trends-in-2022/