Uncertain times

ICR reflects on the rollercoaster of 2020 and 2021 in terms of COVID-19 and its impact on global cement production, consumption and trade. It also looks ahead to 2022 and beyond as cement manufacturers juggle ongoing disruption from the pandemic, environmental commitments and escalating costs.

As of 22 November 2021, the WHO has reported over 256m confirmed cases of COVID-19 and just over 5.14m deaths in the world. Although the global economy has recovered in 2021, the pace of that growth has weakened as uncertainty due to the pandemic continues to hamper progress. According to the IMF, the global economy contracted by 3.1 per cent in 2020 with the opening months seeing the rapid spread of the virus to all corners of the globe (see Figure 1). Growth of 5.9 per cent is forecast for 2021, but this has been revised down marginally as the pandemic continues to affect critical links in global supply chains, resulting in longer-than-expected supply disruptions and feeding inflation issues in a number of advanced economies.

In 2022 the global economy is expected to expand by 4.9 per cent with rises of as high as 8.5 per cent in India and as low as 1.5 per cent in Brazil. This divergence of economic prospects between countries is of particular concern as many still struggle with not only vaccinations but also policies to support their economies against a backdrop of record-high debt levels. 

2020

Although COVID-19 had an immediate impact on construction activity, as measures were lifted construction recovered quickly, fuelled by a surge in homebuilding and renovations due to the work-from-home trend. Governments also introduced an unprecedented wave of stimulus packages to help drive the recovery. In 2020 annual global cement consumption contracted by 0.2 per cent YoY to 4143.7Mt, according to The Global Cement Report, 14th Edition. China remained the largest cement market with 2377.68Mt of demand, equivalent to 57 per cent of the global total. Demand excluding China reached 1766.04Mt in 2020, down from 1826.15Mt in the previous year.

The world’s top 15 cement-consuming nations used 3400.477Mt of cement in 2020 with China, India and the USA  claiming the top three spots, followed by Iran, Indonesia and Vietnam (see Table 1). The regional share of global cement consumption in 2020 can be seen in Figure 3. Average per capita cement consumption redged up in 2020 to 549kg, having fallen each year between 2010-19 (see Table 2). Levels ranged from 1695kg in China to just 18kg in Burundi.

Table 1: Top 15 cement-consuming countries, 2020
Ranking	Country	Cement consumption (Mt)
1	China	2377.7
2	India	288.7
3	USA	104.2
4	Iran	63.3
5	Indonesia	62.7
6	Vietnam	62.1
7	Brazil	60.5
8	Turkey	58.4
9	Russia	56.0
10	Saudi Arabia	51.1
11	South Korea	47.0
12	Egypt	46.0
13	Pakistan	43.2
14	Mexico	40.3
15	Japan	39.2
Source: The Global Cement Report, 14th Edition

Table 2: total and per capita cement consumption by region, 2020
Area	Total cement consumption (Mt)	Per capita cement consumption (kg)
Africa - north	96.2	394
Africa - east	39.2	88
Africa - central	10.1	58
Africa - west	58.0	145
Africa - south	14.9	221
Africa - total	218.3	164
America - north	114.0	310
America - central	58.4	264
America - south	107.7	491
America - Latin	166.0	377
America - total	280.0	346
Asia - north	2485.9	1515
Asia - south	217.2	358
Asia - total	2703.2	1202
Australasia	12.8	316
Europe - west	128.8	303
Europe - central	55.2	459
Europe - east	166.5	442
Europe - total	350.5	380
Indian subcontinent	388.5	201
Middle East	190.4	723
WORLD	4143.7	549
Source: The Global Cement Report, 14th Edition

Global cement production in 2020 fell 0.04 per cent YoY to 4170.13Mt as the pandemic stunted growth and many producers were forced to close facilities temporarily. While Chinese output expanded by two per cent, global production excluding China fell by 2.4 per cent to 1793.22Mt. The top 20 cement-producing nations accounted for 3605Mt, or 86.5 per cent of total output.

Cement capacity in 2020 rose to 7051.67Mta, 61 per cent higher than in 2010. The majority of this expansion was in China, but the pace of expansion worldwide has fallen steeply with just 149.33Mta added in 2018-20. Global capacity utilisation levels, which fell from 77 per cent in 2010 to 58 per cent in 2018, stabilised at 59 per cent in 2020. The top 25 cement companies controlled 2831Mta of capacity in 2020, representing 40 per cent of worldwide capacity. Nine of the top 25 are based in China, led by CNBM (514Mta) and Anhui Conch (369Mta). Outside China the majors are led by Holcim (287.8Mta), HeidelbergCement (184Mta), UltraTech (114.8Mta), Cemex (92Mta) and Taiwan Cement Corp (74.7Mta).

When it comes to trade in cement and clinker, 2020 recorded volumes of 226.06Mt, up from 225.35Mt in 2019. Just over 232Mt of cement and clinker was exported by 111 countries, up YoY by 1.1 per cent (2019: 229.42Mt). The top 10 countries accounted for 62 per cent of global volumes, led once again by Vietnam (38.02Mt), Turkey (28.42Mt) and Thailand (14.04Mt). A total of 157 countries imported cement and clinker in 2020 with volumes reaching 220.12Mt. The world’s top 10 importing countries accounted for 107.13Mt, or 48.7 per cent of the total. China was the leading importer with 36.96Mt.

Although cement capacity in 2020 was up YoY, many projects were delayed or put on hold during the pandemic as construction sites were closed and workers were unable to travel to complete projects. Despite this, new capacity was brought on-stream across the world (see New plant completions, ICR January 2022, p20), including Dangote’s new US$1bn, 6Mta plant in Edo State, Nigeria; Dalmia Cement’s 4Mta Bengal Cement Works, which has now become the largest plant in West Bengal, India; and Cemento Melón’s new Punta Arenas grinding plant, which was delayed twice when construction had to stop due to COVID-19 restrictions.

2021

So, where are we now? From a regional perspective, although the pace of growth slowed in 2021, some markets are still recapturing lost growth from the previous year. Mexico posted 1H21 growth of 19 per cent, while the US market expanded over the same period by 4.8 per cent. Italy saw an advance in demand of 32 per cent over the same six-month period, while Spain reported a 19.1 per cent expansion. Africa’s cement markets also enjoyed sustained growth in 2021 with the construction sector remaining the key driver of economic output. In Senegal volumes advanced by 15.7 per cent YoY in the 9M21, while Kenya reported growth of 25.5 per cent in the 1H21. Tunisia saw a 42.5 per cent expansion in the opening seven months of 2021, while the Uganda market increased by 16 per cent in the 9M21.

However, in Asia, China’s energy shortages and real estate crisis has caused GDP growth levels to be revised down and cement output to decelerate each month between May and August 2021. Following real GDP growth of 2.3 per cent in 2020, China’s economy is projected to grow by 8.5 per cent in 2021, but the growth momentum is slowing due to the lagged impact of policy measures and further virus outbreaks. Although this is expected to be offset by robust foreign demand, according to The World Bank, the risk of recurring variants could lead to significant economic disruption.

Southeast Asia has also seen a slower economic recovery due to recurring waves of COVID-19 with markets such as Thailand and Sri Lanka, which reported growth in the 1H21, now seeing volumes decline.

In the US November 2021 saw President Biden finally sign into law his US$1.2trn infrastructure bill, delivering US$550bn of new federal investments over the next five years, fixing everything from bridges and roads to the nation’s broadband, water and energy supplies. According to the IMF, the US economy is forecast to grow by six per cent in 2021 and 5.2 per cent the following year, compared to a contraction of 3.4 per cent in 2020.

Meanwhile, the UK has announced a once-in-a-generation investment in infrastructure with nearly GBP650bn (US$890bn) of public and private investment being ploughed into infrastructure activities over the next decade, with a strong emphasis on housing and transport. The lynchpin of the country’s recovery from the pandemic is its successful vaccination programme, but again this at risk from new variants and its construction industry is being severely hit by rising raw material costs and supply issues due to both COVID-19 and Brexit.

The rising cost of production is one of the key challenges facing cement producers today. The second half of 2021 in particular has been marked by significant pressure on operating margins, a trend that is expected to continue well into 2022. Record-high energy (see Figure 4), logistics, raw materials and labour costs are forcing producers to adopt cost-cutting measures and halt non-essential capex. Many international players have also undertaken some form of portfolio rotation, disposing of unwanted assets and using the proceeds to pay down debt or enter new, more profitable, market segments. Dry bulk freight rates also surged in 2021 as economies re-opened, causing a spike in demand for sea transportation. However, bottlenecks at Chinese ports due to re-introduced COVID-19 restrictions have limited the availability of tonnage, driving freight rates even higher.

2022

According to The Global Cement Report, 14th Edition, worldwide cement growth is expected to see a V-shaped recovery with consumption forecast to increase by 2.45 per cent to 4442.69Mt in 2022, following an estimated 4.65 per cent uptick to 4336.41Mt in 2021, although predictions are difficult to make due to the ongoing pandemic situation. Global cement production is forecast to advance to 4471.70Mt in 2022, compared to an estimated 4358.80Mt in 2021, while global cement trade is predicted to come in at 249.00Mt in 2022, compared to 240.25Mt in the previous year.

There is no shortage of new capacity due on-stream in 2022 either, including OYAK Cimento’s new grinding station for calcinated clay and cement in Kribi, Cameroon; UltraTech’s 12.8Mta expansion plans starting with its new integrated plant at Pali in Rajasthan, India; Jericho Cement’s plans to build the first cement plant in Palestine with a capacity of 1.1Mta; and Hoffmann Green Technologies’ second plant (H2) for the manufacture of clinker-free cement in the Vendée region of France.

But all this must be achieved against a background of not only rising costs but heightened concerns over climate change. 2021 saw all the leading cement groups publish environmental commitments to substantially reduce CO₂ emissions by 2030 and reach net-zero carbon by 2050. This is being achieved by accelerating the use and development of low-carbon and carbon neutral products, recycling waste, scaling up the use of calcined clay, and increasing the use of alternative fuels and carbon capture and usage or storage (CCUS) technology. Many companies have been actively launching new green products, such as Holcim’s ECOPact and ECOPlanet, while CCUS projects are underway across the globe. The challenge for producers is to respond to new rules and regulations regarding decarbonisation, whilst also meeting stakeholder expectations.

With production costs set to put an ongoing squeeze on margins well into 2022, many producers have decided to raise prices, a trend that began in mid-2021. Cemex, for example, reported its highest YoY cement price percentage increase since the 4Q19 in the 3Q21, raising its grey cement prices by six per cent. Two further price increases are expected in 2022 as an uptick in the energy cost per tonne of cement of around 14 per cent in 2021 will require a pricing policy that reflects these inflationary costs, according to the company. In November 2021, Vietnam’s Bim Son Cement announced a six per cent price rise due to coal costs, which have jumped by as much as 10 per cent recently.

With cost inflation predicted to hit 12 per cent YoY in 2022, double-digit price increases in cement are expected as the industry tries to pass as much of the cost on as possible. Importers, who are being hit by soaring shipping costs, seem willing to push prices much higher than producers, with increases of up to 15 per cent forecast for 2022. According to HSBC, cement prices are forecast to rise by 5.9 per cent globally excluding China in 2022, with the US seeing prices advance by seven per cent and 10 per cent on average in Europe. These increases are unprecedented so only time will tell if they will stick.

And beyond

Looking beyond 2022, global economic growth is projected to moderate to around 3.3 per cent over the medium-term, although the rapid spread of the Delta variant and the threat of new variants have increased uncertainty about how quickly the pandemic can be overcome. Access to vaccines remains the principal driver of fault lines in the global recovery with around 58 per cent of the population in advanced economies being fully vaccinated, compared to just 36 per cent in emerging market economies and less than five per cent in low-income developing countries. For cement producers, between their commitments to climate change, the ongoing need for cost efficiencies to offset rising prices, and supply disruptions due to the ongoing pandemic situation, 2022 is going to be anything but just another year.

This article was first published in International Cement Review in January 2022.