2020 Vision

The Middle East is expected to begin to stabilise, led by a return to growth in Saudi Arabia. Moderate levels of cement demand growth are expected in all regions in 2020, with the exception of the Middle East. Cement makers have achieved significant price increases in Western Europe to address surging carbon credits, and this trend is expected to continue. In Eastern Europe, there is slowing demand in the Central European countries, but Russian demand is growing once more due to public works. In Latin America, a turnaround is forecast in Mexico in 2020. The supply-demand balance is likely to remain tight in China, mainly due to capacity closures. Demand is forecast to improve across the rest of Asia and Africa, driven by rising infrastructure spending.

Seaborne trading markets are supported by a high level of Chinese clinker imports; export prices in Asia are therefore relatively healthy. Turkish producers have cut prices aggressively in 2019, and have been able to take significant market share particularly in shipments to the US. Carbon taxes are leading to a reduction in cement exports from Europe and South Korea. Higher freight costs will promote more regional trading. Exports of cementitious products are predicted to decline due to a scarcity of supply.

Western Europe – further price increases

Economic growth has slowed in the region, with Germany narrowly escaping recession in 2019. As a result, IA Cement predicts a moderate cement demand growth of 1.5 – 2% in 2020. The key driver is likely to be housing, which is supported by very low interest rates and a price bubble in several markets. More importantly, the strong cement price increases of 2019 will continue into 2020 and beyond, as producers look to recover the future costs of buying carbon credits. European carbon prices are €24/t at the time of writing.

In the major markets, Spain offers the best demand growth prospects, with demand predicted to rise 6% in 2020. This is driven by strong demand for housing, offset by weak public works due to political instability.

In Germany, prospects are for a stable market next year, as solid housing demand helps to offset a sharp economic slowdown. Italian demand is sluggish, but the pricing environment is now much stronger following sector consolidation. Prices rose 10% in 2019 and are likely to rise above inflation again in 2020. The UK construction market is forecast to be flat due to Brexit uncertainty.

Eastern Europe – Russia returns to growth

A solid year of growth is expected in Eastern Europe, with demand increasing 3% in 2020. This is driven by a reversal of the trend seen in recent years – in 2020 strong growth in Russia is predicted to offset a slowdown in previously fast-growing Central European countries. Subsidies from the European Union are likely to fall sharply after 2020, following the loss of UK contributions post Brexit and as funds are diverted to Southern Europe. The key Russian cement market is predicted to grow by 4% in 2020, as a major new infrastructure programme boosts demand.

US – moderate growth

IA Cement expects a 2% growth in US cement consumption in 2020. Infrastructure spending is increasing at a solid rate in the final year of the FAST Act. The three recent interest rate cuts have significantly improved the outlook for the housing market, although high house prices and labour shortages remain a problem. Commercial construction is forecast to be stable ahead of the Presidential elections. Cement imports are likely to rise by a further 1 – 1.5 mt in 2020, with imports from Turkey increasing further at the expense of lower shipments from Europe and China.

Latin America – mixed picture

In Latin America, IA Cement predicts a turnaround in 2020 with projected cement demand growth of 2%. This follows five years of falling demand and is highly contingent on a turnaround in Mexico. Cement demand in Mexico is expected to experience a double-digit decline in 2019, as the first year of the AMLO administration has been faced with multiple challenges. There are signs that the market is nearing a trough, and the national infrastructure plan is expected to provide stability over the medium term. Argentina is still in the grip of an economic crisis, with a new president and the return of capital controls.

On a more positive note, there is a clear sign of recovery in Brazil and Colombia, and growth in cement consumption of 3 – 4% is anticipated in both markets in 2020. In Colombia, the long-delayed 4G concession projects have finally started, and work on the Bogota Metro line is due to start soon. Housing has begun to recover for the first time in three years. Brazil has finally passed its much-needed pension reform, a move expected to save the government US$195 million over 10 years. The housing market is also growing solidly, and will be the key driver of 2020 cement demand growth.

Middle East – stabilising

Cement consumption in the Middle East has fallen by 17% since 2014, and a further decline of up to 1% in 2020 is predicted due to weaker markets in Iran and Turkey. Iran is struggling under the weight of full sanctions. In Turkey, the economy has recovered well but the construction bubble has burst and will take longer to stabilise. The Saudi market is recovering well, with double-digit growth in demand in recent months, since the end of Ramadan. Combined with higher selling prices, 2020 is shaping up to be a much better year for Saudi producers.

Africa – recovery in sub-Saharan markets

Cement consumption in Africa struggled in 2019, as elections and political instability affected a number of countries. In 2020, IA Cement expects a modest return to cement consumption growth of 2 – 3%. This is driven by solid demand in sub-Saharan markets, an acceleration in Nigeria and a recovery in Egypt. The balance between supply and demand is unfavourable across most of the region, squeezing margins and selling prices. South Africa is expected to struggle in 2020, due to weak economic growth, rising cement imports and a new carbon tax.

China – moderating growth

The Chinese cement market has grown at its best rate in six years during 2019, driven by strong housing demand at the start of the year. The authorities are quickly changing policy in response to market growth or contraction, however. Housing growth is expected to moderate in 2020 due to recent cooling measures, but these are likely to be quickly lifted if the market enters a serious decline. In a similar vein, the authorities are increasing infrastructure spending to offset the economic slowdown but are prepared to spend more if needed. As a result, a relatively stable cement market appears likely in 2020 with a growth of 1 – 2%. Production controls and the closure of older plants have maintained a very tight supply-demand balance. Clinker imports are predicted to remain high with a further fall in exports in 2020. Chinese companies now have much stronger balance sheets and are well placed to invest overseas.

India – hopes pinned on public works

Cement consumption in India has slowed sharply since the elections, due to reduced infrastructure spending and a significant economic slowdown. The central bank has cut interest rates aggressively, but banks struggling with non-performing loans have been reluctant to pass these on fully. Urban housing is struggling with excess stock levels. In 2020 cement demand is predicted to increase 4 – 5%, with a resumption in public works acting as the main driver.

Asia – outlook improving

Cement demand growth slowed sharply in the rest of Asia during 2019, as trade tensions impacted nations that traditionally rely on exports. In 2020 a moderate recovery in cement demand is forecast, with a growth of 2.5%. This is well below the trend of recent years. A resumption of infrastructure spending is expected to boost cement demand in the Philippines and Indonesia. A recovery in Malaysia is predicted as Chinese-backed infrastructure projects are restarted. Japanese demand is expected to remain resilient following the Tokyo Olympics due to a number of large projects. Among more challenging markets, South Korea is struggling due to cooling measures in the property market, election uncertainty is expected to hold back growth in Myanmar, and much weaker demand seems likely in Hong Kong as the demonstrations take their toll.

Conclusions

The global cement industry enters 2020 with a mixed outlook. Cement demand growth is likely to be stuck at a moderate pace in most regions. Middle East demand is predicted to fall again, due to lower demand in Iran and Turkey. Rising selling prices are the main positive industry variable, with prices predicted to increase at least in line with inflation. Shipping costs are expected to increase due to the new IMO sulfur regulations. Corporate M&A has slowed decisively due to growing economic uncertainty, and access to credit has deteriorated in several markets. Pressure on the industry to curb CO₂ emissions has increased sharply, leading to a number of new initiatives to address this problem.

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 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.

Read the article online at: https://www.worldcement.com/special-reports/15012020/2020-vision/