Economic conditions have dramatically impacted cement consumption in Spain. In 2008 demand declined 24% and during the first 9 months of 2009 demand has dropped a further 35.4% according to the Spanish Cement Association.
Stimulus funds to reactivate the construction sector have been ineffective and there are still close to 1.5 million excess homes in Spain, which will not be absorbed until 2016.
According to industry players, cement demand will decline a further 10-15% next year.
In July of this year the Spanish Cement Association (Oficemen) anticipated closing the year with a reduction in the consumption between a 33% and a 35%. This would place Spanish Cement consumption back to 1997 levels.
Although the decline has moderated in the past few months (the decline in September was only 23.7%), the fact remains that Spain continues to suffer a deep recession. The accumulated consumption (Jan. - Sept.) in 2009 closed at 24.4 million tons vs. 37.8Mt in 2008.
The stimulus funds which the Spanish Government has allocated to reactivate the economy (primarily the construction industry) has been "wasted" by Municipalities in one-off projects such as fixing sidewalks and building soccer pitches.
Of the 1.5 million excess homes in Spain, banks now have approximately 100,000 on their balance sheets and this number is expected to grow dramatically in 2010. Projections suggest that 2009 will close with 150,000 new homes built (mainly projects initiated in 2008) against 650,000 new homes built in 2007.
Demand is expected to continue declining in 2010 and 2011, albeit at a much slower rate, reaching its trough at approximately 26-28Mta. This would place Spain’s consumption at around 650kg/capita versus a peak of 1250kg/capita in 2007. Consumption is expected to begin a moderate growth rate starting 2012 and should eventually settle at around 38Mta.
Although the cement industry has historically been good at maintaining price discipline through capacity reductions, the dramatic drop in demand has taken its toll and prices have also declined approximately 15% in 2009. In addition, some cement players are entering a dangerous road by extending payment terms.
Furthermore, on September 22nd the Spanish Competition Commission opened an investigation at the Corporate Headquarters of several companies under the suspicion of price fixing and market share agreements.
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.