Winter has come

London-based IA Cement has published its Cement 2023 research report, a comprehensive document looking at expected trends in 2023. 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 rising interest rates on cement consumption. This article presents a summary from the report, analysing 2023 demand prospects by region.

Global cement consumption is expected to suffer the biggest drop in for decades in 2022. The world economy has slowed sharply since the Russia-Ukraine conflict began, while a double-digit decline in China means global consumption is likely to close 2022 with a decline of over 5%. Soaring energy costs have squeezed cement margins, while efforts to raise prices have begun to cause demand destruction.

In 2023 cement demand is expected to stabilise. Western countries are already in a recession, predicted to be mild in the US and more protracted in Europe. Rising interest rates threaten a hard landing for housing bubbles everywhere, while public finances have been depleted by the pandemic and are now being diverted toward food and fuel subsidies. Policymakers have struggled to deal with these issues. The Chinese market is expected to stabilise due to a gradual economic reopening, additional support for real estate, and a modest increase in infrastructure spending. The Middle East will continue to benefit from elevated energy prices. Most other emerging markets are expected to see growth slow sharply due to rising inflation. The surge in inflation has raised the prospects of social unrest, industrial strikes, and currency crises in a number of countries.

Seaborne trading markets struggled in 2022, with volumes impacted by weaker demand and a steep rise in production costs. Imports are forecast to drop a further 5 – 10% in 2023, with export prices likely to drop as a result. Shipments to the US and China are expected to decline, with only modest growth elsewhere. Producers with subsidised energy costs are expected to take market share.

Global cement demand outlook, 2023E. Source: IA Cement Ltd.

Western Europe – dark times

The region faces a daunting task to shift away from Russian energy. A spell of cold weather this winter could lead to rationing. Most countries are already in recession, and are engaged in an energy subsidy race that will cost hundreds of billions. EU interest rates of 1.5% do not address double-digit inflation. Housing markets have already begun to decline sharply, while the EU recovery fund has been slow to disburse due to technicalities.

Norway is the only country where cement demand is expected to actually grow in 2023. Other countries are expected to see a further 3 – 6% drop in cement demand in 2023, with the UK faring the worst at 7 – 9%. France is expected to be relatively resilient; Germany faces a painful adjustment away from Russian gas but has the financial muscle to cushion the downturn; Italy has been hit with very high energy cost increases; while the UK has pivoted in spectacular fashion from tax cuts to severe austerity.

Eastern Europe – the war continues

Cement consumption in the region was initially strong despite the onset of the Russia-Ukraine conflict. Cement demand is expected to drop 5% in 2023 however, as inflation and sanctions begin to bite. Central and Eastern European countries have seen inflation climb to 15 – 20%. As a result, interest rates have risen sharply bringing an end to long-running housing booms. Hungary and Poland are expected to see a moderate decline in 2023 due to support from public works, while the Czech Republic is predicted to lag due to its previous reliance on Russian energy. Russian cement demand is expected to fall sharply as sanctions have a greater impact, although the recently agreed oil price cap is largely ineffective in its current form.

US – a modest, temporary drop

The US is expected to undergo a mild recession, supported by energy exports and the Reshoring Initiative. Housing may go through a protracted downturn due to stretched affordability, but with starts already very low most of the pain will be felt in terms of house prices. This limits the impact on cement volumes, where IA Cement anticipates a decline of 2% in 2023. Local production is expected to increase as supply chain bottlenecks ease and more Portland Limestone Cement (PLC) is used. Imports are therefore likely to decline. The industry struggled to push selling prices up during 2020 – 21 when other material costs were surging, but increased success in 2022 has helped to underpin profit margins. Demand for cement is likely to pick up strongly from 2024 onwards, as the US$1.5 trillion infrastructure bill begins to deliver.

Latin America – a mixed picture

Cement consumption in the region is expected to experience a slight decline in 2023. Housing markets are slowing across the board, due to higher interest rates and the cost-of-living squeeze. Argentina is one of the few bright spots, with large private sector projects expected to support cement demand in a hyperinflationary environment. Colombia has seen a sharp slowdown in housing, but cement demand is expected to increase moderately due to public works. Mexico is predicted to be flat as the neighbouring US market enters recession, public works remain lacklustre and housing has already dropped from its pandemic highs. In Brazil, the dramatic rise in interest rates from 2% to 13.75% has crushed the housing market. The return of Lula as President will shift policy back toward social housing and state-led infrastructure, but this will take time. Overall, cement demand is projected to fall 3% in 2023.

Middle East – underpinned by oil and gas

Elevated energy prices continue to boost cement demand in the Middle East, where IA Cement expects a 2% growth in 2023. The average GCC budget surplus is forecast to reach 8% of GDP in 2022, following seven years of deficits. The Saudi market is expected to revive with 3 – 4% growth in cement demand, as mega projects including Neom begin construction. In the UAE, the delayed Expo was a great success and led to a strong rebound in both tourism and housing. Public works are set to increase and cement consumption to rise by a solid 3 – 4%, although selling prices remain low due to excess capacity. Demand growth in Qatar is predicted to dry up following the end of World Cup construction. In Türkiye, a further drop in local demand is expected as the country grapples with an unprecedented mix of hyperinflation combined with single-digit interest rates.

Africa – a sharp slowdown

Cement markets in Africa are struggling with housing demand being squeezed by the cost-of-living crisis. Regional cement consumption growth is predicted to slow to 2% in 2023, with cement growth lagging behind the wider economy in most countries. Egyptian demand is expected to increase slightly as public works offset a decline in housing demand. Selling prices have recovered strongly due to the official production cut, which has been extended. Algeria is forecast to see almost 3% growth in 2023 cement demand, boosted by higher public works ahead of the 2024 elections. Exports are likely to rise further as producers take market share from higher cost locations. Lacklustre demand growth is set to continue for another year in South Africa, with subdued public works, a slowing housing market, and new political scandals affecting the outlook. Kenya is forecast to slow to a moderate growth rate following the completion of a number of public works, while the lifting of interest rate caps will also impact construction demand. In Nigeria, IA Cement expects solid demand growth as the gas supply normalises, allowing cement output to pick up.

China – likely to stabilise

The Chinese cement market is likely to decline by a double-digit percentage in 2022, before stabilising in 2023. The zero-Covid policy and real estate downturn have been the key drivers of the market correction. Clinker imports have largely stopped in recent months. The outlook is now starting to improve. The comparison basis has eased significantly, the lockdown policy is being gradually eased, additional support measures have been announced for the property segment, and infrastructure spending remains supportive – even if there is no significant stimulus at present. Selling prices have come under pressure, reducing industry margins from being highly profitable to being more in line with the global average.

India – solid growth

The Indian economy has proven highly resilient. Inflationary pressures have been contained by reducing food exports and importing discounted Russian oil. Cement demand is expected to grow at a solid 3 – 4% in 2023, driven by pre-election spending and a further recovery in urban housing. Cement prices have struggled to keep pace with cost inflation, leading to a sharp decline in profit margins. Ambitious industry expansion plans in the wake of the Adani-Holcim deal do not bode well for the supply-demand balance.

Asia – Far East to outperform South Asia

Beyond China and India, other Asian cement markets have struggled to recover despite their economies reopening. South Asian countries are major importers of food and fuel, and have been badly hit by rising prices. Sri Lanka is now engulfed in an economic crisis, Bangladesh cement demand has dropped due to high material costs, and Pakistan is grappling with soaring inflation. Far Eastern countries are less dependent on food and fuel imports, and have fared better although cement industry margins have been squeezed in most countries. Solid demand growth is predicted in Vietnam, underpinned by very healthy GDP and an expected pick up in public works. Producers are struggling with a big drop in exports, however. Solid growth is expected in the Philippines as the new Bongbong Marcos administration resumes public works. Indonesia and Thailand are expected to show a modest growth in demand, driven by higher infrastructure spending. The cement industry in South Korea is currently affected by a trucker strike, with demand predicted to fall in 2023 due to public works cutbacks and a weaker housing market. The Japanese market is forecast to be stable at just below the 40 million t mark.

Conclusions

The cement industry faces a tough 2023. A deep recession in Europe seems inevitable. The Middle East and India stand out as relative bright spots. Elevated energy prices have already impacted industry margins. Passing these costs on to customers requires such high cement price increases that it causes demand destruction. Rising interest rates threaten both housing markets and the debt-fuelled capacity expansions in the cement sector. Public funds are being diverted to food and fuel subsidies. On a more positive note, high fuel costs have accelerated industry trends towards alternative fuels and carbon emission reduction.

Note

The full report is priced at US$620 and is available from IA Cement. For details, visit: www.iacement.com, or email: publications@iacement.com

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