While cement pricing power is generally strongest during the construction up-cycle, it has remained remarkably resilient in the recent downcycle, particularly when considering the overall economic environment. For instance, in 1H11, Cemex US sales volumes fell by 7% while the company was able to limit its price slide to 1%.
However, the US cement industry has been in for a difficult time. While prices rose by an average 10% over 2004-07, during 2008-1H11, they contracted 2.8%. The USGS noted a US$1.00 price erosion to US$91.00 during 2011 after the average price came off by US$7 the previous year. At the same time, input costs steadily climbed, putting pressure on margins. Moreover, new capacity additions did little to help cement prices regain their historical above-inflation growth rate.
Over in Europe, research shows that price hikes were limited to 2.3% (against 15.3%) for the eastern states while in the western part of the region, gains shrank from 3.9% to 0.4% during 2008-1H11. However, on the whole, cement prices have been able to keep up with cost inflation during the up-cycle and declined at a slower rate during the downturn. After a downward price trend since mid-2009, they finally appear to have turned the corner in the middle of last year, although for some countries such as Italy there appears to be only a bottoming-out of the falling cement price.
However, price performance has been mixed. Average cement prices in South America showed strong growth with Bernstein Research reporting a substantial increase of around 7.5% for the region between 2008 and 1H2011 against a 3.1% advance in the four years prior. Nevertheless, this acceleration of price inflation appears to be the exception to the “rule” of generally more modest price increases that have occurred in the rest of the world. For example, the Middle East and Africa registered a 4.5% rise in cement prices (against a previous period figure of 9.9%). Meanwhile, in Asia Pacific cement producers saw their 7.5% price advance of 2003-07 erode to 3.9% during 2008-1H2011.
The ongoing pressure by rising input costs, particularly fuel and electricity, has forced cement makers to raise prices to protect margins or at the very least, prevented them from dropping prices too much despite falling sales volumes. While fuel prices made their biggest leap in 2010 and early 2011, mid-2011 saw some easing, particularly in terms of petcoke and coal prices. However, prices for oil rose again in February 2012 due to the ban on Iranian oil imports. In addition, considerable local increases have been noted in some areas, impacting on cement producers. “Energy and raw material prices have significantly increased across the globe as a result of the economic recovery. In India and Indonesia, for example, there were considerable increases in coal prices after state suppliers adjusted the price level of local coal to bring it more in line with the higher international market price,” said HeidelbergCement. And while in 2011 price hikes at the start of the construction season went some way to preserving profits, these generally eroded later in the year, having little effect in the end.
However, a change toward a more positive 2012 appears afoot. For example, in India, a 50kg bag of cement cost INR250 (US$45.21) before June 2011 after a substantial increase in the first quarter. While the monsoon and lower growth due to the government’s slowdown in spending brought a softening of price levels, in the autumn prices recovered so that by March 2012, cement producers were able to enjoy a price rise to INR300/bag on average. A similar price trend scenario was played out in neighbouring Sri Lanka, which saw prices recede from SLR785 (US$7.07)/50kg to SLR750 in August 2011, but more recently, prices recovered with a bag of cement moving back to SLR785 in February 2012. In Thailand, cement prices have firmed by a total of 20% in three jumps in the period leading up to August last year. The general expectation is that prices will rise further although Siam Cement said last January that it had no intention to raise prices. The temporary suspension of key infrastructure projects in 1H2011 by the Philippine government affected prices but these subsequently stabilised in the second half of the year, suggesting a more positive way forward this year.
Cemex VP of corporate communications and investor relations Maher Al-Haffar said Cemex boosted its prices by US$5/t in January, mostly in the US Midwest. The company is expected to initiate another increase of between US$5-6 for April, effective in a larger number of US markets.
Fernando A González, Cemex’s Executive Vice President of Finance and Administration, said: “The favourable performance in most of our regions [in Q1Q12] leads us to believe that we are in the initial stages of a turnaround. …Consolidated prices for cement, ready mix, and aggregates also increased on a quarter-on-quarter basis both in local-currency and U.S.-dollar terms. In fact, all of our regions showed stable to growing prices on a quarter-on-quarter basis in all three products with the exception of our aggregates business in Asia. We are particularly pleased with the quarterly performance of our operations in the United States and the South, Central America and Caribbean region.
HeidelbergCement expects cement prices to advance in North America, Eastern Europe, The Mediterranean, Central and Pacific Asia and Africa. Only in its Western and Northern Europe sales region the company forecasts nothing more than a stabilisation of price levels.