Poland: leading Europe’s growth

Poland was one of the countries that did not experience an economic downturn during the global crisis of 2007 and central Europe’s largest economy has been on the rise ever since, supported by an expanding construction sector. As a result, the output of the Polish cement industry is at an historic high with cement sales of 18.9Mt in 2018. By Wojciech Roszczynialski and Grzegorz Wolski, Eurocement Consulting LLC, and Zbigniew Pilch, Polish Cement Producers’ Association, Poland.

The economic downturn bypassed Poland, which was the only country in the EU that did not record a contraction in its GDP. Moreover, Poland has enjoyed a stable GDP growth rate of 4-5 per cent annually since its politico-economic transformation in 1989. GDP per capita has expanded eight-fold, twice the rate of other former Eastern Bloc economies such as Hungary and Romania. A further milestone was achieved in 2004, when it joined the EU. This enabled access to Western markets as well as support from the EU budget. Poland has been the largest beneficiary of EU funds, receiving EUR208bn between 2007-20. In addition, its strong domestic market with consumption exceeding the EU average (over 61 per cent of GDP) has also supported the country’s economy. In 2018 GDP increased by 5.1 per cent, underpinned by a 5.5 per cent growth in domestic demand, a 4.6 per cent increase in household consumption and a 7.3 per cent rise in investment.

Booming construction

Due to the country’s strong and stable GDP growth, Poland’s construction market has expanded rapidly in the last decade, increasing its value from PLN254bn (US$66bn) in 2010 to PLN352bn in 2018. The construction sector was one of the fastest-growing economic sectors, expanding by 17 per cent YoY, when compared with industry (+5.5 per cent) and transportation (+9.2 per cent).

In addition, increasing wages and purchasing power have combined with historically-low interest rates (the Bank of Poland’s reference rate is at 1.5 per cent), to boost the housing sector. In 2018 banks approved 212,000 mortgages, worth around PLN45bn. Furthermore, the number of construction permits issued to developers rose by 15 per cent and construction starts were up by 17 per cent in 2018. However, apartment completions fell by 6.5 per cent.

The main limitations for the sector remain unchanged. These include growing supply bottlenecks, resulting in a consistent and dynamic increase in land prices, caused by the booming market, the introduction of new regulations and the reluctance of the state to sell off parcels due to its “mieszkanie plus” public housing programme. A further factor is the increase in construction costs, both in terms of wages and building material prices.

Rising cement demand

The boom in the construction sector has resulted in a surge in cement demand since 2005. Domestic cement consumption increased from 12.6Mt in 2005 to 18.7Mt in 2018 (with the previous peak at 18.6Mt in 2011). The rise in 2011 has been attributed mainly to the completion of many infrastructural projects for Euro 2012, the European football championship that Poland co-organised with Ukraine.

The cement industry

The buoyant construction market signalled good times for the Polish cement industry and production of cement increased from 12.6Mt in 2005 to 18.9Mt in 2018 (see Figure 1).

Furthermore, the politico-economic changes that came in the wake of the fall of communism also affected Poland’s cement industry. From 1992 a wave of privatisation swept the country’s cement companies and at present all domestic cement plants are owned by international groups with access to substantial investment, state-of-the-art research and development facilities and human resources back-up when needed.

There are currently eight global companies operating in the market with 14 cement plants (see Figure 2). Total capacity is around 22-24Mta and at present, and the capacity utilisation rate hovers around 75 per cent.

HeidelbergCement, which owns the Górażdże integrated and Ekocem grinding plants, is the largest. In addition, LafargeHolcim operates production facilities at Malogoszcz, Kujawy and Kraków-Nowa Huta while CRH owns the Ożarów and Rejowiec works. Cemex is the parent company of Rudniki, Chelm and Gdynia. Together, these four groups control 80 per cent of the domestic market.

These global cement producers have invested considerably in the Polish cement industry since entering. For example, HeidelbergCement has invested over PLN3bn in Górażdże since acquiring the plant in 1994. Key investments include a new clinker line, completed in 2011, and new cement grinding system, completed in 2012. This has resulted in Górażdże becoming the largest cement plant in Europe with 7Mta of cement capacity.

Poland’s second-largest cement producer, LafargeHolcim, has invested over PLN400m in the Kujawy unit, including the building of closed storage halls for clinker, cement and fuels. In addition, it created an alternative fuels (AFs) platform, enabling the plant to achieve a thermal substitution rate of 80 per cent. It also installed a new vertical cement mill and an inline calciner with a longer fuel burning time.

The industry as a whole has significantly improved its AF use as it replaced coal with AFs (see Figure 3). The industry is now able to use as much as 1.5Mta of refuse-derived fuel.

Bright but uncertain future

In the next few years, the rate of economic growth in Poland is expected to slow, according to Marcin Peterlik of the Institute of Forecasts and Economic Analyses (IPAG). In 2019 GDP growth is forecast to decelerate to 4.3 per cent as domestic demand slows to 4.3 per cent and investments increase by only 6.7 per cent. However, Poland’s GDP continues to expand at nearly twice the rate of GDP growth in the EU (2.4 per cent). Moreover, while a slowdown is expected, at present there are no economic indicators that anticipate this. 

The main threat to the Polish economy is the forecast weakening of the global and in particular the EU economy. In addition, Brexit and USA-China trade war tensions present further downside risks. However, the country is also expected to benefit from opportunities such as increasing social transfers, stimulating household spending and growing infrastructural investment, due to the parliamentary elections scheduled to take place in the autumn of 2019.

In terms of the construction sector, local public investment is expected to stabilise after a sharp increase caused by the council elections in 2018. However, while national investment is forecast to rise as the parliamentary elections approach, it is predicted to taper off in the medium-term (3-5 years).

The private construction markets are also expected to see a deceleration, particularly in the housing sector. While it is premature to talk about the overheating of the housing sector, the cooling has been attributed to supply and cost factors. The availability of parcels of land for new developments is decreasing while shortages in terms of the construction workforce are becoming apparent. This results in wage increases as well as material price rises. In addition, construction companies, particularly small firms, face payment delays to the extent that in 2018 some 140 companies were forced into bankruptcy, up by four per cent YoY. These supply factors are expected to limit construction growth for years to come. While in 2018 the sector reported a record-high growth of 17 per cent in terms of value added, growth in 2019 is forecast to be significantly lower at 10 per cent.

Economic growth and a buoyant construction market resulted in a nine per cent increase in Polish cement consumption to reach 18.9Mt in 2018. Going forward, the moderate expansion of the country’s construction market is expected to see the growth in cement sales decelerate to reach 19Mt in 2019. In 2020 demand is forecast to be around 19.4Mt, promising continued but more modest sales growth for the country’s cement producers.

This article was first published in International Cement Review in September 2019.