In search of stabilisation
After reaching a peak in 2011, Moroccan cement demand has weakened and since 2012 initiated a slowdown that has continued through 2014. Mohamed Chaïbi, president of the Association Professionnelle des Cimentiers (APC), speaks to ICR about the current status and expected trends for the domestic market and production base.
Growth rates close to 10 per cent between the 2006-08 period are a distant memory for the Moroccan cement industry, as Mr Chaïbi explains. Per capita consumption reached a peak in 2011. Accordingly, and given the current status of the economy, the consumption curve is expected to stabilise over time after the current downturn. The key factors which will influence cement demand growth in the future are household purchasing power and population growth.
ICR: How is the Moroccan cement industry performing overall?
Mohamed Chaïbi (MC): When the last decade is taken into account, cement consumption increased from 9.796Mt in 2004 to 14.047Mt in 2008, followed by two years of stabilisation when it fluctuated only slightly. In 2011, thanks to an exceptional increase of 11 per cent, consumption reached its highest level at 16.13Mt, followed by a decrease in the last three years. Per capita demand has developed from 279kg in 2007 to 520kg in 2011 and settled down at 472kg in 2013. The cement sector continues to be the engine of the national economy. This is evidenced by a turnover of MAD15bn (US$1.7bn), of which 33 per cent is earmarked for investment and 50 per cent is paid in taxes – representing three per cent of the state’s receipts. The construction sector as a whole contributes some 15 per cent to GDP while processing industries account for eight per cent. The Special Tax on Cement (TSC) has contributed 75 per cent to the Fonds de Solidarité Habitat [Habitat Solidarity Fund] with MAD25bn collected since 2002. To date around 1.5m households have benefitted from FSH-supported housing.
ICR: Moroccan cement sales fell by 4.4 per cent in 1H14. Do you foresee any recovery in the second half and what factors might stimulate a recovery?
MC: Following 2011 – an abnormal year with unexpected growth – cement demand decreased by 1.6 per cent in 2012, with the fall accelerating to 6.3 per cent in 2013. In the first half of 2014 it was down by 4.4 per cent.
For this reason, and given the circumstances that have characterised the end of the year (ie a period of rain, the halting of projects due to weather and transport difficulties, etc), we expect a decline of five or six per cent at least. Therefore, it will be the third-consecutive year of negative growth.
The factors that might stimulate a recovery are the same that are currently depressing demand. The main reasons are the slowdown in construction and housing development, the delay in the start of a new programme for middle-class housing, the unsold stocks in real estate, the scarcity of cash for both developers and buyers as well as credit issues. If these obstacles disappear, there will be an improvement in sales.
ICR: What are the current strengths and weaknesses of the construction sector?
MC: The situation in the cement sector has impacted on the building materials sector, which is weighed down by taxes, higher production costs and declining demand.
However, the strengths of the construction materials segment are obvious and in line with those of the cement sector: a structured industry, a major contributor to the national economy, supporting SMEs, contributing to the efforts of public authorities to protect the environment (utilisation of waste, plastics), paying attention to subcontractor safety, respecting highway regulations – including respecting the total vehicle weight (PTAC) in cement transport.
In addition, the cement sector is active in developing new product lines, innovating and improving the quality of its cement, integrating alternative resources and fuels and using renewable energy in the form of windpower for the generation of electricity.
Social aspects relating to local communties and the national population are also taken into account. As such, the added value of actions taken by the cement sector reached MAD3.5bn in 2013, of which 80 per cent has benefitted the nation and its economy.
In terms of the weak points, these are essentially the (cyclical) factors previously mentioned, as well as the informal activities which negatively affect sectors using cement for their products.
Their disappearance would, in general, reactivate the building materials market, and consequently, the cement sector but at a normal and moderated rate, linked to population growth and purchasing power.
ICR: The Moroccan cement sector comprises 12 integrated plants and three grinding units. What are the industry’s achievements in terms of environmental performance? What investments are being made to modernise facilities and reduce environmental impact?
MC: The cement companies’ concern for environmental protection dates back to 1995-97. Contacts established with the Ministry of Environment led to the signing of an agreement, the first of its kind in Morocco, with a six-year moratorium granted by the ministry to the cement companies to upgrade their facilities based on thresholds and gas emissions set by the government, and in anticipation of regulations that were not yet in place at the time.
In 2003, following a positive assessment by Swiss firms as part of an audit commissioned by the Ministry of Environment, the APC urged the evaluation of cement kilns for the use of industrial wastes (tyres, oils, plastics).
The sector has invested MAD2.5bn to upgrade its operations for the treatment and co-processing of wastes, and for the generation of wind power by exploiting its own windparks which equal a total installed capacity of 37MW.
In short, the industry has improved its technical and environmental performances in terms of water consumption (60 per cent reduction), thermal energy (-47 per cent), electrical energy (-33 per cent), emissions of SO2 (-62 per cent), NOx (-41 per cent) and CO2 (-25 per cent).
ICR: Is there a trend towards higher levels of alternative fuels (AF) utilisation, and if so, which fuels are being considered? Do national regulations support AF utilisation?
MC: The use of substitute fuels has reached an average 12 per cent with 25 per cent achieved by certain cement companies.
Notwithstanding the limits on imported tyres and pending the start-up of tyres, oils, plastics and wastes under the framework agreement signed with the Ministry of Environment on 20 June 2014, the use of alternative fuels is currently 7-8 per cent. The agreements with the environment ministry provide for a replacement rate of 40 per cent.
To accompany the contractual commitments made by cement companies, the regulations and their implementation are gradually being put in place.
The use of alternative fuels is justified by the high cost of energy (two-thirds of the cost of cement production) and the dependence of Morocco on imports for 97 per cent of its energy. Some cement producers are involved in domestic waste processing projects to produce alternative fuels.
ICR: What new capacity investments are being considered by the industry?
MC: New investment projects, due to the economic conditions in the past few years, remain under study. Those units are planned in the north (Tanger-Tétouan region), in the east (Nador) and in the south.
ICR: How do you expect the Lafarge Holcim merger to play out in Morocco? Do you envisage any competition issues?
MC: The announced merger is the result of the strategy determined by the parent companies of the two Moroccan subsidiaries. This does not change the country’s cement requirements and the capacity of the sector to meet these but will surely impact the role of each player.
ICR: What is the experience of Moroccan cement producers in respect of fuel and energy costs?
MC: Cement companies have experimented since the 1980s with different fuels, from fuel oil, via coal to petcoke. This development has been subject to production optimisations, fuel availability in international markets and purchasing prices, impacting directly on cement production costs, of which energy represents two-thirds.
ICR: How much import/export activity takes place in Morocco?
MC: Given the availability of different cement types, both in terms of volumes and qualities demanded by different users, the Moroccan market is largely supplied domestically, making imports unnecessary.
The location of plants away from ports and infrastructure that is insufficiently geared towards dedicated cement exports limits exports from Moroccan cement facilities. Exports are estimated to amount to around five per cent of the market. Despite these shortcomings, some players are nevertheless exporting some cement and clinker.
ICR: What is the long-term outlook for the cement sector in Morocco? What do you consider to be the maximum per capita cement consumption in Morocco?
MC: The outlook is linked to the demand generated by the housing construction sector, which consumes 80 per cent of the cement produced, and by the infrastructure segment, which uses 20 per cent. For the first segment, latent need is between 600,000-800,000 housing units, to which the requirements of 150,000-200,000 households annually have to be added. Per capita demand has been affected by the economic conditions of the past few years, falling from 520kg to 479kg/capita. I don’t think this indicator will rise again to the optimum of 2011 for several years.
Article first published in International Cement Review, November 2014.