Gloomy outlook for Germany's cement industry

The 2024 outlook for the German cement market is gloomy. According to the German Building Materials Association, Bundesverband Baustoffe, production of building materials contracted 15.3 per cent YoY in the first two months of 2024, adding to the 16.7 per cent YoY contraction recorded in 2023. The latest cement consumption figures from German cement association, VDZ, show a 18.9 per cent YoY contraction in the first nine months of 2023, amounting to 16.2Mt, compared to 20Mt in the same period of 2022. In turn, this gives a capacity utilisation rate for cement producers of just 46 per cent, on an annualised basis. 

Problems in the residential property market are a key drag. High building costs and weak demand due to elevated interest rates are weighing on the market, which has turned around sharply following a period of strong growth in the early 2020s. The value of house loans has more than halved from a recent peak of EUR32.3bn in March 2022 to just EUR14.2bn in February 2024, according to data from the German central bank, Bundesbank. At the same the average mortgage rate peaked at 4.22 per cent in late 2023, up from 1.35 per cent in early 2022. 

No quick improvement is expected in the housing market. Building permits contracted 25.7 per cent YoY in the 1Q24, according to German statistics agency, Destatis. German Building Materials Association general manager Matthias Frederichs notes that “building permits will only have an impact on demand in the medium term. In view of these figures, we have to assume that the crisis in construction cannot be overcome in the short term”. Meanwhile forecasts from the association suggest public construction work is unlikely to pick up any of the slack, amounting to 12 per cent of total construction investment in 2024, unchanged from previous years. 

At the same time, the outlook for cement exports is weak. Exports to key market The Netherlands dropped 11.2 per cent YoY in the first two months of 2024 to 301,000t, according to Destatis. The European Commission is forecasting the Dutch economy to grow just 0.4 per cent YoY in 2024, and sees just a 0.3 per cent YoY expansion for Germany. Weak external and internal demand indicates German cement producers will have to reduce production even more severely in 2024 as the downturn continues.