Displaying items by tag: Forecast
Cement and the Coronavirus
04 March 2020The Coronavirus Disease 2019 (COVID-19) took on direct implications for the international cement industry this week when an Italian vendor infected with the virus visited Lafarge Africa in Ogun state, Nigeria. The cement producer said that it had ‘immediately’ started contact tracing and started isolation, quarantine and disinfection protocols. This included initiating medical protocols at its Ewekoro integrated plant, although local press reported the unit’s production lines were still open. Around 100 people were thought to have had contact with the man.
Global Cement has been covering the epidemic since early February 2020 when the virus’ effect on the construction industry in China started to become evident. First, an industry event CementTech was postponed, financial analysts started forecasting negative financial consequences for producers and plants started going into coronavirus-related maintenance or suspension cycles. Then at least one plant started to dispose of clinical waste and now China National Building Material Group (CNBM) is considering how to restart operations at scale. Also, this week Hong Kong construction companies reportedly laid off 50,00 builders due to a lack of cement due to the on-going production suspension in China.
The major cement companies have identified that their first business risk from coronavirus comes from simply not having the staff to make building materials. LafargeHolcim’s chief executive officer Jan Jenisch summed up the group’s action in its annual financial results for 2020 this week when he said, “We are taking all necessary measures to protect the health of our employees and their families.” Other major cement producers that Global Cement has contacted have placed travel restrictions for staff and reduced access to production facilities.
The next risk for cement companies comes from a drop in economic activity. The Organisation for Economic Co-operation and Development (OECD) forecasts a global 0.5% year-on-year fall in real gross domestic product (GDP) growth to 2.4%, with China and India suffering the worst declines in GDP growth at around 1%. The global figure is the worst since the -0.1% rate reported by the International Monetary Fund (IMF) in 2009. The OECD blamed the disease control measures in China, as well as the direct disruption to global supply chains, weaker final demand for imported goods and services and regional declines in international tourism and business travel. This forecast is contingent on the epidemic peaking in China in the first quarter of 2020 and new cases of the virus in other countries being sporadic and contained. So far the latter does not seem to have happened and the OECD’s ‘domino’ scenario predicts a GDP reduction of 1.5%. All of this is likely to drag on construction activity and demand for cement and concrete for some time to come.
Moving to cement markets and production, demand is likely to be slowed as countries implement various levels of isolation and quarantine leading to reduced residential demand for buildings directly and as workforces are restricted. Business and infrastructure projects may follow as economies slow and governments refocus spending respectively.
The UK government, for example, is basing its coronavirus action plan on an outbreak lasting four to six months. This could potentially happen in many countries throughout 2020. This has the potential to create a rolling effect of disruption as different nations are hit. Assuming China has passed the peak of its local epidemic then its producers are likely to report reduced income in the first quarter of 2020. The effect may even be reduced somewhat due to the existing winter peak shifting measures, whereby production is shut down to reduce pollution. Elsewhere, cement companies in the northern hemisphere may see their busy summer months affected if the virus spreads. The effect on balance sheets may be visible with indebted companies and/or those with more exposure to affected areas disproportionately affected. The wildcard here is whether coronavirus transmits as easily in warmer weather as it does in the cooler winter months. In this case there may be a difference, generally speaking, between the global north and south. Exceptions to watch could be cooler southern places such as New Zealand, Argentina and Chile. Shortages, as mentioned above in Taiwan, potentially should be short term, owing to global overcapacity of cement production, as end users find supplies from elsewhere.
The cement industry is also likely to encounter disruption to its supply chains. Major construction projects in South Asia are already reporting delays as Chinese workers have failed to return following quarantine restrictions after the Chinese New Year celebrations. As other countries suffer uncontrolled outbreaks then similar travel restrictions may follow. Global Cement has yet to see any examples of materials in the cement industry supply chain being affected. On the production side, raw mineral supply tends to be local but fuels, like coal, often travel further. Fuel markets may prove erratic as larger consumers cut back and suppliers like the Organisation of the Petroleum Exporting Countries (OPEC) react by restricting production.
On the maintenance side cement plants need a wide array of parts such as refractories, motors, lubricants, gears, wear parts for mills, ball bearings and so forth. Some of these may have more complicated supply chain routes than they used to have 30 years ago. On the supplier side any new or upgrade plant project is vulnerable if necessary parts are delayed by a production halt, logistics delayed and/or staff are prevented from visiting work sites. Chinese suppliers’ reliance on using their own workers, for example, might well be a hindrance here until (or if) international quarantine rules are normalised. Other suppliers’ weak points in their supply chains may become exposed in turn. This would benefit suppliers with sufficiently robust chains.
Chinese reductions in NO2 emissions in relation to the coronavirus industrial shutdown have been noted in the press. A wider global effect could well be seen too. This could potentially pose problems to CO2 emissions trading schemes around the world as CO2 prices fall and carbon credits abound. This might also have deleterious effects on carbon capture and storage (CCS) development if it becomes redundant due to low CO2 pricing. In the longer-term this might undesirable, as by the time the CO2 prices pick up again we will be that much nearer to the 2050 sustainability deadlines.
COVID-19 is a new pandemic in all but name with major secondary outbreaks in South Korea, Iran and Italy growing fast and cases being reported in many other countries. The bad news though is that individual countries and international bodies have to decide how to balance the economic damage disease control will cause, versus the effects of letting the disease run unchecked. Yet as more information emerges on how to tackle coronavirus, the good news is that most people will experience flu-like symptoms and nothing more. Chinese action shows that it can be controlled through public health measures while a vaccine is being developed.
Until then, frequent handwashing is a ‘given’ and many people and organisations are running risk calculations on aspects of what they do. It may seem flippant but even basic human interaction such as the handshake needs to be reconsidered for the time being.
India: Production capacity utilisation in the cement industry is expected to remain below 70% in the 2020 – 2021 financial year due to new plant projects in the next two years. Credit ratings agencies ICRA, India Ratings and Crisil all forecast relatively low demand for cement compared to a decade-high of 13% in the 2019 – 2020 period, according to the Press Trust of India. Cement production rose by 0.7% year-on-year in the first nine months of 2019 – 2020 period. However, production growth has hastened since then. The ratings agencies offer different outlooks on anticipated profits look forward.
Russian consumption rises by 9.6% year-on-year in January 2020
11 February 2020Russia: Russian producers sold 2.4Mt of cement in January 2020, up by 9.6% from 2.2Mt in January 2019. This is in line with Unioncement’s optimistic forecast of 6% year-on-year demand growth. The coming construction season promises sustained growth due to the planned renovation of housing stock, the implementation of integrated development projects and an increased share of roads built using cement concrete, in line with the country’s 2020 Housing and Urban Environment programme and President Putin’s social initiatives.
PCA forecasts 1.7% growth in US cement demand in 2020
05 February 2020US: On 4 February 2020, PCA Senior Vice President and Chief Economist Ed Sullivan predicted that US cement demand would rise by 1.7% in 2020 and may rise by as much as 2.7% if residential construction exceeds expectations. Sullivan stated that demand would maintain moderate growth through at least to 2022. “As long as the economy continues to grow and create jobs, the economy will remain on solid ground and continue to support cyclical portions of the cement market,” he said.
Vietnam’s bloated cement sector reliant on exports
22 January 2020Vietnam: Maintaining exports will be critical for the Vietnamese cement industry amid rising production output and anticipated sluggish domestic sales in 2020, according to Nguyễn Quang Cung, President of the Vietnam Cement Association (VCA).
Cung also reported that two new cement plants will go into operation during 2020: a 2.5Mt/yr plant in Tân Thắng Commune in the central province of Nghệ, and a 4.6Mt/yr plant in Bỉm Sơn Commune, Thanh Hóa. These new facilities will give the domestic cement industry a total production capacity of more than 100Mt/yr, with local demand estimated to be closer to 70Mt/yr. “Maintaining exports will be critical for the cement industry this year,” said Cung, but domestic projects are likely to remain ‘sluggish’ due to stagnant infrastructure projects.
Over the medium term, Cung said that cement exports would fall to 25Mt in 2021 form 34Mt in 2020, based on an expectation that domestic sales will increase.
Brazil reports 3.6% year-on-year sales rise in 2019
09 January 2020Brazil: Brazil has reported a growth in annual sales volumes for the first time since 2014. Producers sold 54.5Mt of cement – up by 3.5% from 52.8Mt in 2018 and exceeding SNIC president Paulo Camillo Penna’s January 2019 forecast of 3.0% growth. Penna has predicted a 3.6% increase to 56.5Mt in 2020. Valor newspaper has reported that Penna bases his assumption on favourable interest rates and low inflation of the Brazilian real as well as the government’s implementation of anticipated industrial policies favourable to production.
PCA forecasts moderate consumption growth to 31 December 2021
25 November 2019US: The Portland Cement Association (PCA) has releases a two-year forecast of moderate growth in cement consumption between 1 January 2020 and 31 December 2021. It projected growth of 1.7% in 2020, slowing slightly to 1.4% in 2021, corresponding to 2.1% and 1.7% GDP growth annually. Speaking at the 38th International Cement Seminar in Atlanta, PCA senior vice president and chief economist Ed Sullivan projected consumption growth of 1.6% - 2.3% in 2019 against GDP growth of 2.4% over the period, with consumption bolstered by the 2018 Federal Budget, which allowed for US$20bn in infrastructure investments in 2018 and 2019. He noted growing uncertainty (21% in 2019) with the expiry of the ‘pent-up demand zip that invigorates the initial stages of economic recovery long past.’
Rising house prices and mild inflation signify the continuation of the US economy’s longest expansion post-World War Two, with 161,000 net new jobs generated so far in 2019. With a forecasted population increase of 60m by 2040, US cement producers appears still have their work cut out in keeping up with demand.
Carthage Cement points to positive future
09 October 2019Tunisia: Carthage Cement has announced a general improvement in its financial indicators as it forecast a gross operating income of US$25m for 2019. This would represent a 123% improvement from US$11.2m in 2018. Ibrahim Sana, Carthage Cement’s CEO anticipates a gross operating income as high as US$55m in 2023, with a targeted turnover of US$140m.
The company also announced a 0.1Mt export contract for cement to be sent to Spain.
James Hardie points to strong 2020 earnings
09 August 2019Australia: James Hardie Industries, the world's largest fibre cement producer, highlighted the potential for higher earnings in the 2020 fiscal year, citing an improved performance for its North American fibre cement segment.
The company said it expected full-year adjusted net operating profit to be US$221-248m, compared with US$204m a year earlier.
"Our North America Fiber Cement segment delivered very good volume growth in a down market while generating an earnings before interest and tax (EBIT) margin at the top end of our target range," said CEO Jack Truong in a statement.
India: CARE Ratings has identified Telangana, Andhra Pradesh, Odisha, Rajasthan, West Bengal and Uttar Pradesh as the key states expected to lead cement production capacity additions over the next decade to 2030. In a sector report the credits agency forecast growth of 120Mt in this period. It noted that Rajasthan, Karnataka, Madhya Pradesh, Tamil Nadu, Andhra Pradesh and Telangana were among the top states in installed capacity at present. It said that the southern region led with highest installed capacity of 33% followed by the North, East, West and Central regions. Rajasthan, Karnataka, Telangana, Madhya Pradesh and Maharashtra are among the states with highest limestone resources.
India is the world’s second largest second producer but its per capita consumption is low, at 210kg. This is well below the global average of around 575kg/capita.