Imran Akram, IA Cement, reviews the impact of COVID-19 on the global cement sector and provides a forecast for recovery in 2021.
In 2020 global cement demand is expected to decline by more than 2% (and by more than 5% excluding China). The coronavirus led to a deep recession during Q2, followed by a generally strong recovery in Q3 as lockdowns were lifted. All regions apart from China are expected to decline, with the worst impact felt in India, North Africa, Western Europe and parts of the Far East.
In 2021 IA Cement predicts a modest recovery with cement demand increasing 3 – 4%. Key drivers include vaccine rollouts, strong housing demand, and an increase in the number of working days. Second and third wave lockdowns are proving to be relatively short, with construction markets typically remaining open for business. South Asia and those countries that had the most stringent lockdowns in 2020 are expected to record the strongest growth. The bright spots of this year – Brazil and Saudi Arabia – are likely to see growth rates moderating.
Industry dynamics have remained positive in 2020, with higher selling prices and sharply lower energy prices. In 2021 selling prices are forecast to increase by at least inflation, while energy costs remain relatively subdued.
A year of recovery from the coronavirus is predicted to result in across-the-board cement demand growth in 2021. In the majority of emerging markets, a 3 – 6% range for growth is predicted. The key positive driver is housing, as people working from home renovate. Low interest rates and the need for more space is driving demand for larger homes in more rural settings. The rate of urbanisation is expected to slow down. Infrastructure spending is a cause for concern. Budgets are being diverted from cement-intensive segments such as roads and bridges, towards broadband/5G and green energy schemes.
Seaborne trading markets were remarkably resilient during 2020, with strong import demand in China and Africa. As a result, the supply-demand balance has tightened considerably. There are some shortages of cement in Africa, while Turkish exporters are close to being sold out. In 2021 IA Cement expects a 3 – 5% growth in trading volumes, with exporters from North Africa, Nigeria, and Indonesia likely to increase shipments.
Western Europe – a slow recovery
The coronavirus hit much of Western Europe hard. A limited recovery is expected in 2021, with cement demand regaining around half of the losses from the previous year. Government support programmes are drawing to a close due to rising debt levels. Selling prices are expected to increase against the backdrop of high carbon prices. The new Carbon Border Adjustment Mechanism is due to be announced midway through 2021.
After double-digit declines in 2020, IA Cement expects cement demand to increase 4 – 5% in the major markets of the UK, France, Italy and Spain. In the UK, housing demand is strong, offset by weak government finances and a transitional year for companies as Brexit finally happens. Italy has a strong infrastructure pipeline, and is also the largest beneficiary of the EU bailout fund. France and Spain both face excess capacity in commercial construction, while tourism is likely to remain depressed. Germany handled the coronavirus successfully, and cement demand is projected to record a slight growth in both 2020 and 2021. The housing market is strong and the government is spending much more heavily than during the financial crisis.
Eastern Europe – solid outlook
The Eastern European cement sector was only mildly impacted by the coronavirus. IA Cement expects a solid 2 – 2.5% growth in 2021 cement consumption. Central European markets have seen a slowdown in their previously buoyant housing markets, although infrastructure spending will continue to support cement consumption. In Russia, a preferential mortgage scheme has led to soaring housing demand, helping to offset negative economic effects from a high number of coronavirus cases.
US – moderate growth
The US cement market proved to be highly resilient in 2020, thanks to government stimulus and strong housing demand. This limits the upside for 2021, where a 1 – 1.5% growth in cement consumption is forecast, coupled with solid price increases. The new Biden administration will be inclined to increase both spending and taxes, but will face political opposition in the Senate. A new Federal infrastructure bill to replace the FAST Act will take some time to be worked out, making any impact on 2021 cement volumes unlikely. Housing starts are projected to increase 5% in 2021, driven by low interest rates and strong demand for large single-family as well as holiday homes. State finances have been shredded by the coronavirus, which is likely to negatively impact infrastructure spending.
Latin America – healthy improvement
In Latin America IA Cement predicts a 2021 cement demand growth of 3 – 4%, after the coronavirus pushed the region into its sixth straight year of falling volumes in 2020. In Argentina, a 4 – 6% recovery is predicted, driven by strong bagged cement sales and an economic stabilisation after the debt restructuring. In Colombia, IA Cement anticipates growth of 5 – 6% following the stringent lockdown in 2020. Mexican cement demand has finally begun to bottom out in recent months. Projections are for a 2 – 4% growth in 2021, driven by a revival of public spending, healthy remittances and solid housing renovation. Brazil was one of the cement bright spots of 2020, with volumes likely to have increased in double digits. In 2021 a slowdown in growth to 4 – 5% can be expected, driven by a resumption of public works and record low interest rates supporting housing.
Middle East – rapidly stabilising
The region is likely to close 2020 with broadly stable cement demand, led by strong housing demand in Saudi Arabia and a Turkish bounce back in H2. This is an impressive achievement given the collapse in oil prices. In 2021 IA Cement expects a 3 – 5% growth in cement demand. Saudi Arabia emerged as the global hotspot in cement during 2020, due to accelerated spending by the Ministry of Housing. Growth is likely to normalise in 2021 at a 3 – 4% rate, held back by constrained government finances. The Turkish cement market is projected to increase 3 – 4% in 2021, with low interest rates underpinning housing demand, despite economic uncertainty. In the UAE a slower 2 – 3% growth is forecast. The Dubai Expo has been delayed until October 2021. This may help to revive housing, but not until the following year. Several segments – tourism, offices, and shopping malls – are expected to struggle during 2021.
Africa – major regional disparities
Africa escaped the worst effects of the coronavirus, with limited numbers of cases. As a result, sub-Saharan Africa has mostly experienced solid cement demand in 2020. IA Cement expects strong growth of more than 5% in 2021 in several countries including Kenya, Tanzania, the DRC and Nigeria. South Africa suffered a stringent lockdown, which added to economic problems including high public debt and electricity shortages. This is forecast to lead to a modest 3 – 5% recovery in 2021 cement demand, while selling prices have rebounded almost 10%.
In contrast, North Africa experienced a sharp double-digit collapse of cement demand in 2020 due to lower oil prices and a collapse in tourism. Neither of these variables are expected to fully recover in 2021, and a lukewarm recovery of 3 – 5% is predicted. Overcapacity compounds the problem. The only bright spot is Libya, where a truce has led to oil production dramatically rising tenfold to 1 million bpd in recent weeks.
China – impressive recovery
China has staged a rapid recovery from the coronavirus, and is likely to end 2020 with a broadly flat cement demand. Housing trends are strong, with prices picking up due to low interest rates. Authorities have retained cooling measures, while there are lingering concerns over property developer debt levels. Infrastructure spending is projected to remain stable in 2021, as the government is keen to avoid excessive stimulus spending. Commercial construction has struggled this year, but is expected to stabilise in 2021. Cement consumption is predicted to increase 2 – 3% in 2021.
Production controls have been tightened despite the pandemic, leading to a further strong finish in clinker imports towards the end of 2020. Stable selling prices and lower energy costs have helped to underpin margins, and most large Chinese producers now have strong balance sheets.
India – hopes pinned on public works
The sudden coronavirus lockdown led to a sharp downturn in cement demand, together with the dislocation of supply and labour chains. In 2021 a cement recovery of 8% is forecast – just over half of the coronavirus losses. Rural demand is increasing, led by population growth due to the return of migrant labour and good monsoon rains. The key to cement demand recovery is government spending, in the form of highways and social housing.
Asia – outlook improving
The remaining Asian markets are expected to experience cement demand growth of 4% in 2021, almost recovering the losses of the previous year. The Philippines in particular is predicted to bounce back strongly with 8 – 10% demand growth after a difficult year. IA Cement expects a moderate recovery in Indonesia, Vietnam, Malaysia and Singapore driven by increased public works, strong housing demand and more working days. Demand in Japan and Thailand is expected to be relatively stable. The most optimistic projection is for Pakistan, where IA Cement expects double-digit growth in 2021 driven by interest rate cuts, construction of new dams, more credit for home loans and an amnesty scheme for the construction sector.
The impact of the coronavirus on global cement demand has been milder than expected. In 2021 IA Cement expects a broad-based recovery with moderate growth in the vast majority of construction markets. Housing remains the key positive driver. Trading markets have tightened remarkably quickly since lockdowns were lifted, and export prices are predicted to increase in 2021. Energy costs are likely to remain relatively subdued. Cement selling prices are forecast to go up in most markets during 2021. Corporate activity will take time to recover. The coronavirus has raised government debt levels, which may usher in further austerity in due course. Sustainability is an important topic for governments, who will be tempted to raise revenue and cut emissions by bringing in new carbon taxes.
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.
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Read the article online at: https://www.worldcement.com/special-reports/18012021/a-cause-for-cautious-optimism/