2018 in review – the momentum is in Asia

2018 in review – the momentum is in Asia
21 December 2018

For International Cement Review, 2018 was a year of celebration as the magazine published its 30th anniversary issue in July. It’s incredible to think that since the publication of our first issue in 1988, global cement demand has increased by 3bnt.

In 2018, however, global cement demand faltered, falling by around four per cent to reach 3.97bnt. This contraction was largely down to the slowdown in China, whose market – which represents a remarkable 58 per cent of global consumption – contracted due to a scale back of construction sector activities after decades of rampant investment.

Cement markets in the rest of the world, however, registered a relatively strong performance, expanding by 3.6 per cent YoY, to reach a record 1.82bnt. The highest growth rates were seen in Asia, led by India, which has switched up a gear after a difficult 2017. Domestic producers are full of optimism as the market is on track to finish the year up 15 per cent YoY. However, high input costs and overcapacity continue to be an issue in terms of company profitability in the world’s second-largest cement-producing country. With over 500Mta capacity now installed versus annual consumption set to exceed 325Mt for the full year, balancing supply and demand will be the key challenge for India in 2019.

Elsewhere on the sub-continent, Pakistan, where Chinese investment related to the China-Pakistan Economic Corridor has supercharged cement demand in recent years, finally saw the tide change, with YoY demand for FY18 expected to drop to seven per cent, comapred to 11.3 per cent seen a year earlier. Over in Bangladesh, the market continues to grow rapidly, with 10 per cent YoY expected for FY18.

In southeast Asia, demand continued at a healthy pace in Indonesia, Vietnam and the Philippines, although the build-up of capacity has seen the region’s utilisation rates drop and has forced producers to increasingly seek markets overseas.

Elsewhere in the emerging markets, the picture was more mixed. On the African continent, West Africa performed well, with annual demand set to growth by nearly six per cent in 2018, led by strong consumption trends in Côte d’Ivoire and Ghana. Central and South Africa enjoyed only lacklustre growth of 1-2 per cent overall – far below expectations and what is needed serve the growing populations in these regions. East African demand contracted, creating difficult operating environment for companies, with ARM (Kenya) forced into administration. In North Africa, the markets slipped into negative growth territory, with Algeria leading the charge to export surplus volumes having recently turned into a net exporter.

Across the Mediterranean, Turkey has had a challenging year as the construction boom ended and the country suffered severe currency crisis. Local consumption remained positive for FY18, but forecasts for 2019 indicate a possible 7-10 per cent contraction, which will provide renewed urgency for the country to seek higher volumes in the export markets.

Over in the Middle East, war and economic upheaval continue to undermine the region’s cement sector. The situation in Syria and Yemen remains critical, while in Saudi Arabia – the largest regional market – demand was down by over 13 per cent in the first 11 months of the year, with clinker stocks now equivalent to one year’s supply. Economic reform and geopolitical headwinds continue to hold back the Kingdom from implementing major projects.

Latin America suffered another poor year, due to the underwhelming performance in the major markets of Colombia, Mexico and Brazil and the collapse of the region’s previously highest growing market of Argentina.

In North America, the United States managed to perform strongly, with demand growth higher at 2.9 per cent. Interest rate hikes, the cyclical downturn and the ongoing stand-off over trade with China, however, are expected to result in a weaker growth trend in 2019, with the PCA revising down its 2020 forecast from four per cent to just 1.6 per cent.

Finally, to Europe, where demand enjoyed a positive year overall, with particularly strong growth in Poland, and Spain continuing to recover, albeit from a low base. Demand remained positive in key markets of France and Germany, but faltered in the UK, there investment decisions have been delayed due to uncertainties surrounding Brexit. Over in Russia, cement demand picked up in the second half of the year, and is expected to finish up with one per cent growth, with momentum carrying on into 2019.

ICR expects world growth outside of China to continue to grow at a rate of 3-4 per cent in 2019, driven by continued strength of the Indian and southeast Asian cement markets, stable and growing demand in the Americas, recovery in Russia and a pick up across selected African nations. In the Middle East, energy prices look likely to soften in the year ahead, weakening the outlook for many of the oil-dependent economies. Post-war reconstruction in Yemen, Syria and Iraq provide tantalising opportunities, but these are for the long-term.

In 2019, China will continue to scale back its industry, removing large volumes of capacity which will keep the sector’s supply-demand balance in check. The new trading dynamic, with China out of the clinker and cement export market, will open up space for Vietnam and Indonesia to grow their export activities. Within China, the industry will continue to enjoy high levels of profitability, enabling it to accumulate surplus funds. The question for 2019 is whether the Chinese majors, including CNBM and Conch, will now seek to expand more aggressively outside of China, given their substantial financial firepower. Watch this space.

Out soon: January issue of ICR, featuring 2019 predictions from On Field Investment Research (UK)

Published under Cement News