Global cement markets – current and future trends: Yuri Serov, Morgan Stanley (UK)

Recorded at Cemtech MEA 2015, 8-11 February 2015, Grand Hyatt Dubai, UAE.

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So morning everyone. Lets just dive straight in, so we're talking about global cement here. To begin with I would like to take a look at just basic economics right? What you have on this page is global GDP history and forecast for the most important countries. The World Economy is continuing to grow, but the growth remains unsatisfactory in many regions.

The Morgan Stanley Economist called this BBB recovery which they call Bumpy Below-par and Brittle. However the growth is gradually becoming better, thus providing an improving back drop for the cement industry. Tom mentioned the US growing strongly with more than 3% growth focus for this year and many of the countries in the world are getting better to say.

Risks however are bound, two of them top my list which are shown here on the chart. One is around interest rates, the US is growing however another spike in US growth may push the interest rate further up and that has the tendency of impacting what's going on in other countries in the world. And the second big risk obviously is China.

China is re-bouncing, its putting quite a lot of impacts on commodities already and have to see whether it will have further, influence on the world. So turning to cement now, there's lots of numbers on this page, I will let you look at them for a bit but not for too long because we need to press on.

So in
Global Cement 2014 was not a good year. The final number may change, as we don't yet have actual data for many countries, but it appears that 2014 showed the lowest growth rate in global cement consumption excluding China for more than 10 years, outside of the great recession. However, supported by improving global economics we see generally brighter prospect ahead for global cement demand.

We forecast particularly notable improvement in Western Europe, where a long correction is coming to an end in India, in South Asia, where Indonesian Thailand stand out and in the Middle East where Saudi Arabia that as Tom has already mentioned is trying better growth now and then we see better prospects for the countries like the countries like Iraq and Iran. Although obviously the oil risk is something that needs to be watched in this region, they will still be trouble spots. Russia is the most obvious example, where we expect double digits demand for in 2015 and Brazil is doing fairly badly as well. And then as I mentioned price of oil is something that needs to be watched carefully, it has increased risk for oil exporting countries, although for the rest of the world it will be a positive influence.

A quick
check verses what we casting before and this chart shows you that we have more or less maintained our forecast for the out years, however 2014 got trimmed because of mostly developing due political events in the world and 2015 got a just a down as well. Lower oil prices in our focus had positive effects in some countries like Thailand, Chile, Turkey but negative in others, obviously Russia, Mexico and some sub Saharan African countries as well starting with Nigeria. In later years there were limited changes to our focus as I mentioned.

This a complex chart and I have shown a version of this before. What the bars on this chart show, is the difference between incremental global cement volumes and new cement capacity in each year. So bars going up is good as that means that there is more demand world than capacity coming in so demand exceeds supply, and bars going down is bad as new capacity overwhelms demand. So the main message here, is that we're going to through a period of eight years when additional capacity, has exceeded global demand putting continues pressure on global capacity utilization.

We don't have enough data, but this well may be truly unprecedented in history, such a long spell. The line going across is the change in real cement prices that is price excluding inflation as you can easily see the correlation here.

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