Global growth outlook
The head of the International Monetary Fund, Christine Lagarde, said this week at a World Economic Forum (WEF) that 2013 will be a defining year in terms of finally getting beyond the economic crisis. Her keynote address came hours after the IMF trimmed its growth forecast by 0.1 per cent for the world economy for 2013 to 3.5 per cent this year, from 3.2 per cent in 2012. With the IMF warning that the overall recovery will be slow, how is this likely to reflect on some of the global key cement markets?
With Barack Obama seeking to renew optimism at the start of his second term, stronger economic momentum is indeed being recognised in the USA. While big challenges remain, there are pockets of strength in the years ahead and the revised IMF report forecasts the US economy to grow by two per cent in 2013 (down 0.1 per cent on previous projections). In light of improving underlying economic fundamentals and more optimistic assessments of housing construction activity, last week the PCA revised its 2013 cement demand prospects upwards. It now expects growth of 8.1 per cent in consumption this year, significantly higher than the tepid growth projected in its autumn 2012 report. Accelerated consumption should carry into the following year, it says, with an increase of 8.3 per cent. The PCA has also upwardly revised its long-range projections for 2015-2017 with annual growth during that period expected to be as high as 9.2 per cent.
The euro area continues to pose a large downside risk to the global outlook. Instead of a 0.1 per cent increase in the Eurozone economy in 2013, the IMF now forecasts a contraction of 0.2 per cent this year, after shrinking by 0.4 per cent in 2012. Spain and Italy will both endure a second year of recession, while Germany and France are expected to post slight advances. Many of the Eurozone nations remain in the midst of austerity programmes which are reducing cement demand levels. The latest figures from Spain are a painful case in point. In 2012, consumption fell by 34 per cent to just 13.5Mt, representing the largest contraction since 1936. Given the current decline in demand, recovery is even further away than expected and domestic association Oficemen forecasts a further drop of 30 per cent this year.
Along with United States, the IMF expects emerging markets and developing countries to remain the main sources of growth in 2013. Among the star performers in terms of global cement demand is Indonesia, which is expected to continue its high growth trajectory in 2013. Analysts at PT Sucorinvest Central Gani last week forecast another double-digit increase this year, which would mark the third annual such increase for country.
India's economy is gradually expected to pick up in 2013 after its worst performance in a decade. The cement industry in turn has been affected with subdued demand and rising input costs, as stressed by market leader UltraTech Cement who reported a 2.6 per cent decline in 3Q net profit earlier this week. It expects input costs to increase in line with general inflation and the burden of overcapacity to continue over the next three years. However, backed by some positive fundamentals, the company expects eight per cent growth in the long term with housing, infrastructure and allied spending being the key drivers.
After experiencing a "soft landing" last year, China’s main economic challenge in 2013 will be to prevent overheating while still promoting growth, the head of China’s National Economic Research Institute said during the WEF. The cement sector also experienced weakness in 2012 due to sluggish demand and a tough pricing environment. Average selling prices are anticipated to improve this year with Deutsche Bank expecting a revival in property starts and a modest earnings recovery for producers. A key focus for the industry continues to be promoting efficiency, and with this in mind government ministries announced a plan on 22 January 2013 to further consolidate the industry. As a result, it is envisaged that China's top 10 cement enterprises will control 35 per cent of industrial capacity by 2015.
The situation is also expected to move in favour of the cement industry in the GCC countries of the Middle East. Thanks to sound economic fundamentals and huge budgeted construction programmes, analysts at Global Investment House (Kuwait) forecast demand in the region to cross the 86Mt mark, up from 82.2Mt in 2012. Growth will mainly be driven by Saudi Arabia but several other countries, most notably Qatar and Kuwait, have also announced large infrastructure projects going forward. Oman and the UAE are also witnessing a revival with consumption predicted to increase by 9.7 per cent and 15 per cent in 2013, respectively.
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