FLS bullish on capacity growth

FLS bullish on capacity growth
24 August 2007


FLSmidth has increased its estimate of the amount of new annual cement capacity that would be ordered in 2007, outside of China. It now expects it to be 125-150Mta, up from 100Mta previously. Its revised total is similar to its estimate of the 140Mta of new capacity ordered in 2006.

FLS estimates that 24% of the cement capacity ordered in H1-07 was for India and a further 24% in the Middle East. Africa, mainly North Africa accounted for a further 20%. On its conference call FLS reported that the order pipeline remained strong both overall, and specifically in the Middle East. Management also highlighted the increasing amount of capacity being ordered in Europe, particularly in Eastern Europe, but also in Spain. FLS highlighted three countries/regions where it expected new orders to increase. These were the former USSR, Indonesia and South America.

FLS also increased its estimate of the long-term demand for new capacity outside China from an average of around 50Mta to 60-70Mta There are two components to this estimate. First, it estimates that 50-60Mta of additional capacity will be required; based on the existing capacity outside China of 1,300Mta, GDP growth of 3-4% per annum, and the historic multiplier effect of cement consumption to GDP growth of 1.2 times. Second, FLS estimates that around 10Mta of new capacity will be required to replace the 500Mta of capacity outside China that existed 30-50 years ago, assuming that 2% is replaced each year – note analysts at JP Morgan in London.
Published under Cement News