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Ready-mixed fortunes

Despite the uneven state of the global economy, cement trades continue to expand where the world chooses to build.

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Versatile and cheap, cement can be found almost everywhere, allowing for much of the world’s construction activity and infrastructure development. Ubiquitous and readily available, its production and consumption goes hand-inhand with economic growth, although the trade often remains local or regional.

 

Despite the uneven global recovery, the volume of cement produced continues to grow alongside an expected 3.1% expansion in the global economy this year and again in 2017. The worry for global cement remains overcapacity,
a supply glut and low prices.

 

But the outlook for the world economy and cement trades remains in the balance. Global growth stalled at the close of 2015, hitting economic confidence and lowering forecasts for 2016. Low commodity prices and falling demand from oil-producer economies led to a slowdown in global trade last year, recession in Brazil and Russia and a further loss of pace for China’s growth. An end to ultra-loose US monetary policy pushed up interest rates and the dollar, pulling capital into the US and out of emerging markets.


Emerging restraint


Uncertainty in the cement trades has focused on the emerging markets, despite their outperformance of the advanced economies. The contraction in domestic demand due to the fall in the price of commodities held back emerging market economies, with the International Monetary Fund (IMF) reporting a 4% growth last year, down 0.6 percentage points from 2014. Meanwhile, the US economy grew by just 2.4% in 2015, and is expected to slow slightly this year, as is the moderate 1.7% rate of the euro area recovery and Japan’s meagre 0.5% growth.


Global cement production has continued to grow amidst this mixed economic picture, up 6.3% to 4.6 Bt last year, and this despite the global economic slowdown in the final quarter of 2015, according to the European Cement Association (Cembureau).


As China’s economic takeoff slowed in 2015, its cement production shrank by 3.6% to 2.35 Bt. But the scale of China’s economic growth, which was just below 7% last year, means it remains the world’s largest cement producer, with just over half of global output. Moreover, world production, excluding China, increased by 19%, partly driven by activity in the developed economies.

 

Cembureau figures for the cement production in emerging countries show the extent of the hit last year. Emerging countries recorded an 11.6% fall in output in 2015 (compared to a 12.6% increase back in 2013), while the advanced economies increased 2.1%.


The highest cement production growth rates among emerging economies last year were in Argentina and Saudi Arabia, while India’s production contracted, according to Cembureau. In the advanced nations, levels remained flat, but fell back in Canada and Japan.


Continental drift


Overall European Union (EU) cement production growth was moderate at around 3.7% to 172 Mt in 2015, reflecting the slow recovery across its member states. The EU’s third and fourth largest economies, Italy and France, underwent a further reduction in production as their economies struggled to deliver growth of around 1% each. Stronger growth in Eastern Europe, which the IMF estimates at around 3.4% last year, spurred production levels including in Romania.

 

The Spanish economy’s bounce-back to 3.2% growth last year from 1.4% in 2014 was reflected in increased cement consumption of 5% to 11.4 Mt in 2015.


However, this is still well below average annual consumption, which was around 25 Mt in recent decades. The low levels of cement consumption in Spain have led its cement industry to increase exports, to alleviate the drop in their activity. Spain is the leading exporter of cement and clinker in the EU, reaching 9.23 Mt in 2015.


Positive economic conditions in the UK boosted cement production by around 4% last year. Prior to the Brexit vote, Cembureau expected cement sales to increase by around 2.4% in 2016. The jury remains out on what the decision to leave the EU will do to business confidence and the UK economy.

 

But Cembureau had forecast growth of 2% or more if the UK had voted to remain a part of the bloc. Prior to the July referendum, the UK enjoyed a pickup of construction activity in the first half of 2016.


Question marks also hang over Turkey’s economic trajectory following this summer’s attempted military coup and the resulting backlash. Turkey is the world’s fifth largest cement producer and the industry contributes a turnover of €2.9B a year. The country enjoyed 4% economic growth in 2015 and produced 73 Mt of cement, slightly up from the previous year. Strong domestic demand, including for housing construction and major projects, such as the Yavuz
Sultan Selim Bridge (Third Bosphorus Bridge), offset a slight 4% fall in the smaller export market that resulted from political and economic tensions in the Middle East and Russia.


But there are some major infrastructure projects ahead, including a US$7B third airport for Istanbul, a US$10B canal linking the Black Sea and the Sea of Marmara through Thrace, and a Turkish section of the Baku-Tbilisi-Kars
railway.


With this level of activity, Turkey is an important market for Europe’s bulk handling equipment manufacturers. Beumer, the German group, recently won an order to supply Bilim Makina’s 5,000t/day greenfield plant at Elazig in eastern Turkey with elevators, conveyors and silo discharge systems. German group Aumund is supplying 24 conveyor and elevator units for Çimsa Cimento plants.


Italian bulk handling group Bedeschi has also been awarded a cement export terminal contract in southeastern Turkey near the Syrian border. With a loading capacity up to 1,000 t/h, the integrated cement plant will be based in the Adana Yumurtalik TAYSEP Free Zone (Turkey). The shiploader, slewing, luffing and travelling systems will be installed at the plant’s port terminal.

 

Nearby in Cyprus, Bedeschi is developing an export terminal for Vassiliko Cement. A new bulk handling system with a capacity of 550 t/h will be installed along the quay of the cement plant’s port terminal, and this will include a rubber tyre-mounted shiploader and a surface feeder.

 

German industry is also strengthening commercial links in the Middle East, with Saudi Arabia among the world’s top 10 cement manufacturers, producing 54 Mt in 2015.

 

Aumund is delivering elevators and conveyors to the Arabian Cement Co mill at the Red Sea port of Rabigh, which has a production capacity of 10,000t per day. ThyssenKrupp, the German engineering conglomerate, has won a contract from Yamama Saudi Cement for two production lines with an overall capacity of 20,000 tpd, near the capital Riyadh. Yamama and ThyssenKrupp have worked together since the 1960s and aim to start the operation in 2018.


Meanwhile, geopolitical tensions and international sanctions have hit business in Russia and weighed on its cement sector following strong growth in recent years. State statistics show that cement production in Russia fell by 9% to 62.1 Mt in 2015, with this decline accelerating by a further 9% or 4.8 Mt over the first quarter alone of this year. Falling commodity prices have put pressure on the Russian economy and forced industry to delay or cancel projects. However, with international oil prices making a gradual rally, the IMF expects the retraction to stabilise this year.


Brazil’s cement sector has also suffered since the oil price collapse of 2014. The South American sleeping giant has been in recession since it was hit by falling commodity and oil prices, with the economy shrinking by 3.8% in 2015. The IMF anticipates further retraction by a similar amount in 2016.


Moreover, Brazilian industry has been reeling from the Petrobras corruption inquiry and President Dilma Rousseff’s suspension. Brazil’s construction industry contracted by 7.6% in 2015, and cement production fell by 9.6% to 64.4 Mt, with output down 11% in the first quarter.

 

Urban growth

 

However, it is not all gloom ahead. Freedonia Group, the US consultancy, expects global construction activity to boost cement demand by 7.2% each year to the value of around US$24B by 2019. Urbanisation and infrastructure projects will power China’s demand, despite its slowdown, but its role as the prime driver of global cement trade could diminish as other developing countries grow. Urban expansion across the AsiaPacific, Africa and Middle East regions is expected to drive demand. Growth in the US, the second largest cement market, is expected to outpace most developed countries.

 

CW talks of “monumental” global economic challenges holding back growth. China’s domestic market remains under pressure, with export prices likely to be unable to compete with Mediterranean producers in the long term. Russia will have lower volumes as economic output declines, as will Brazil. However, the Indian market has the boost of strong construction investment, CW concludes.

 

The main drivers of the cement industry will be Asia, excluding China, with an expected 5% increase to 2020, according to CW. Africa’s cement sector is expected to grow at 4% to 2020, although this is slower than previously anticipated due to the decline in the prices of oil and other commodities. CentralEastern Europe is expected to grow at a similar pace. Iran is also expected to drive regional growth as it benefits from the lifting of sanctions, increased investment and a growth in consumption of cement.

 

Beyond China


Investment bank Morgan Stanley is also optimistic for markets outside China. The US group expects worldwide demand for cement, excluding China, to grow at an overall annualised growth rate of 4% to 2020. India, southern Asia and sub-Saharan Africa are future bright spots, with Indian demand expected to expand by 6.7% each year through to 2020. Chinese demand is expected to fall by 1.2% each year to 2020, but overcapacity is expected to give rise to restructuring in China, rather than dumping on the global market.


Irrespective of China’s slowdown, the country’s rate of production and consumption of cement remains colossal. Last year, historian Vaclav Smil, who claims that cement is “the most important material in terms of sheer mass in our civilisation”, was much quoted, including by billionaire Bill Gates in his GatesBlog, for his observation that China used more cement between 2011 and 2013 than the US did in the entire 20th Century. All of America’s cement consumption during the last century adds up to around 4.4 gigatons (1 gigaton is roughly 1Bt), while China used around 6.4 gigatons of cement in the three years of 2011- 2013.


Alongside China’s support of its huge cement production capacity, Chinese investment is also flowing into building up foreign cement capacity to cater for local construction projects. In May, Chinese investors signed an agreement to build an industrial park at Oman’s southern port of Duqm. The Omani government wants to develop a major business zone around the port, in a bid to diversify the economy away from oil. The Omani state authority developing Duqm plans to build a cement plant at the site, which it predicts will attract US$10B of investment by 2022, including US$370M from the Chinese for infrastructure.

 

Cement set


However, a global supply glut, which has put pressure on prices, during the post-financial crisis economic slowdown, has focused the corporate activity of the big cement conglomerates on a renewed phase of merger and acquisition activity. Faced with a decline in some markets and oversupply, the major European cement majors have responded by pursuing consolidation and offloading assets. In May, HeidelbergCement AG completed the €1.7B acquisition of a 45% stake in Italcementi from Italmobiliare, making HeidelbergCement the world number two producer of cement.


But the merger that dominates the global cement business this year is the €41B tie-up of Switzerland’s Holcim with France’s Lafarge. The new Zurich-based LafargeHolcim has already started to divest parts of its merged business to slash costs, debt and energy prices. Faced by sluggish 1-3% growth in 2016, LafargeHolcim plans to sell SFR5B of assets by the end of 2017. Operations have been sold in India, Sri Lanka, China and Vietnam. The global cement majors are shaping themselves ready for more slow growth for the rest of the decade.

 

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