It’s the end of the year so it’s time to look at trends in the sector news over the last 12 months. It’s also the end of a decade, so for a wider perspective check out the feature in the December 2019 issue of Global Cement Magazine. The map of shifting production capacity and the table of falling CO2 emissions per tonne are awesome and inspiring in their own way. They also point towards the successes and dangers facing the industry in the next decade.
Back on 2019 here are some of the main themes of the year in the industry news. This is a selective list but if we missed anything crucial let us know.
European multinationals retreat
LafargeHolcim left the Philippines, Malaysia and Indonesia, HeidelbergCement sold up in Ukraine and reduced its stake in Morocco and CRH is reportedly making plans to leave the Philippines and India, if local media speculation can be believed. To be fair to HeidelbergCement it has also instigated some key acquisitions here and there, but there definitely has been a feel of the multinationals cutting their losses in certain places and retreating that bit closer to their heartlands.
CRH’s chief executive officer Albert Manifold summed it up an earnings meeting when he said, “…you're faced with a capital allocation decision of investing in Europe or North America where you've got stability, certainty, overlap, capability, versus going for something a bit more exotic. The returns you need to generate to justify that higher level of risk are extraordinary and we just don't see it.”
The battle for the European Green Deal
One battle that’s happening right now is the lobbying behind the scenes for so-called energy-intensive industries in Europe as part of the forthcoming European Green Deal. The cement industry is very aware that it is walking a tightrope on this one. The European Union (EU) Emissions Trading Scheme (ETS) CO2 price started to bite in 2019, hitting a high of Euro28/t in August 2019 and plant closures have been blamed on it. The rhetoric from Ursula von der Leyen, the new president of the European Commission, has been bullish on climate legislation and the agitation of Greta Thunberg internationally and groups like Extinction Rebellion has kept the issue in the press. Cembureau, the European Cement Association, is keen to promote the industry’s sustainability credentials but it is concerned that aspects of the proposed deal will create ‘uncertainty and risks.’ Get it wrong and problems like the incoming ban on refuse-derived fuel (RDF) imports into the Netherlands may proliferate. What the Green Deal ends up as could influence the European cement industry for decades.
The managed march of China
Last’s week article on a price spike in Henan province illustrated the tension in China between markets and government intervention. It looks like this was driven by an increase in infrastructure spending with cement sales starting to rise. Cement production growth has also picked up in most provinces in the first three quarters of 2019. This follows a slow fall in cement sales over the last five years as state measures such as consolidation and peak shifting have been implemented. The government dominates the Chinese market and this extends west, as waste importers have previously found out to their cost.
Meanwhile, the Chinese industry has continued to grow internationally. Rather than buying existing assets it has tended to build its own plants, often in joint ventures with junior local partners. LafargeHolcim may have left Indonesia in 2018 but perhaps the real story was Anhui Conch's becoming the country's third biggest producer by local capacity. Coupled with the Chinese dominance in the supplier market this has meant that most new plant projects around the world are either being built by a Chinese company or supplied by one.
India consolidates but watches dust levels
Consolidation has been the continued theme in the world's second largest cement industry, with the auction for Emami Cement and UltraTech Cement’s acquisition of Century Textiles and Industries. Notably, UltraTech Cement has decided to focus its attention on only India despite the overseas assets it acquired previously. Growth in cement sales in the second half of 2019 has slowed and capacity utilisation rates remain low. Indian press reports that CRH is considering selling up. Together with the country's low per capita cement consumption this suggests a continued trend for consolidation for the time being.
Environmental regulations may also play a part in rationalising the local industry, as has already happened in China. The Indian government considered banning petcoke imports in 2018 in an attempt to decrease air pollution. Later, in mid-2019, a pilot emissions trading scheme (ETS) for particulate matter (PM) was launched in Surat, Gujarat. At the same time the state pollution boards have been getting tough with producers for breaching their limits.
Steady growth in the US
The US market has been a dependable one over the last year, generally propping up the balance sheets of the multinational producers. Cement shipments grew in the first eight months of the year with increases reported in the North-Eastern and Southern regions. Imports also mounted as the US-China trade war benefitted Turkey and Mexico at the expense of China. Alongside this a modest trade in cement plants has been going on with upgrades also underway. Ed Sullivan at the Portland Cement Association forecasts slowing growth in the early 2020s but he doesn’t think a recession is coming anytime soon.
Mixed picture in Latin America
There have been winners and losers south of the Rio Grande in 2019. Mexico was struggling with lower government infrastructure spending hitting cement sales volumes in the first half of the year although US threats to block exports haven’t come to pass so far. Far to the south Argentina’s economy has been holding the cement industry back leading to a 7% fall in cement sales in the first 11 months of the year. Both of these countries’ travails pale in comparison to Venezuela’s estimated capacity utilisation of just 12.5%. There have been bright spots in the region though with Brazil’s gradual return to growth in 2019. The November 2019 figures suggest sales growth of just under 4% for the year. Peru, meanwhile, continues to shine with continued production and sales growth.
North and south divide in Africa and the Middle East
The divide between the Middle East and North African (MENA) and Sub-Saharan regions has grown starker as more MENA countries have become cement exporters, particularly in North Africa. The economy in Turkey has held back the industry there and the sector has pivoted to exports, Egypt remains beset by overcapacity and Saudi Arabian producers have continued to renew their clinker export licences.
South of the Sahara key countries, including Nigeria, Kenya and South Africa, have suffered from poor sales due to a variety of reasons, including competition and the local economies. Other countries with smaller cement industries have continued to propose and build new plants as the race to reduce the price of cement in the interior drives change.
Changes in shipping regulations
One of the warning signs that flashed up at the CemProspects conference this year was the uncertainty surrounding the new International Maritime Organistaion (IMO) 2020 environmental regulations for shipping. A meeting of commodity traders for fuels for the cement industry would be expected to be wary of this kind of thing. Their job is to minimise the risk of fluctuating fuel prices for their employers after all. Yet, given that the global cement industry produces too much cement, this has implications for the clinker and cement traders too. This could potentially affect the price of fuels, input materials and clinker if shipping patterns change. Ultimately, IMO 2020 comes down to enforcement but already ship operators have to decide whether and when to act.
Do androids dream of working in cement plants?
There’s a been a steady drip of digitisation stories in the sector news this year, from LafargeHolcim’s Industry 4.0 plan to Cemex’s various initiatives and more. At present the question appears to be: how far can Industry 4.0 / internet of things style developments go in a heavy industrial setting like cement? Will it just manage discrete parts of the process such as logistics and mills or could it end up controlling larger parts of the process? Work by companies like Petuum show that autonomous plant operation is happening but it’s still very uncertain whether the machines will replace us all in the 2020s.
On that cheery note - enjoy the winter break if you have one.
Global Cement Weekly will return on 8 January 2020