A rejuvenated Kazakhstan cement market?

This week Steppe Cement reported its 1Q19 business results with an exceptionally-strong performance when compared with the 1Q18. The market leader increased its market share to 17.4 per cent on the back of strong cement demand and price rises. Steppe Cement reported ex-works prices rising to KZT13,614/t (US$35.93/t) of cement.

Ambitious construction projects drive cement demand
Underlying the sudden upward trend in Kazakh cement demand is the country’s housing boom and investment in large infrastructure projects.

In January 2019 Yerlan Koshanov, governor of the Karaganda region, said that the value of the region's building works is expected to rise by 1.7 times to KZT275.8bn by 2023 when compared to the base year (2018).

In Kyzylorda the value of construction works increased 122.1 per cent YoY to KZT93.3bn in 2018. Around 699,600m² of housing was built in the region in 2018.

Moreover, throughout the country, investment in housing construction expanded by 31.5 per cent YoY to KZT818.9bn  by November 2018, according to Kazakh Minister for Investments and Developments, Zhenis Kassymbek. The increase was attributed to a 53 per cent rise in construction financing by private developers and a rise of 43.2 per cent in the population’s participation in construction investment.

The largest housing programme currently under construction, the Nurly Zher scheme, was launched in 2017 and will provide affordable housing across the country for 77,000 families. In the 9M18, some 8.8Mm² of housing was commissioned, representing a 11.6 per cent rise when compared with the commissioning rate in 2017. Residential construction under the scheme was the highest in Nur-Sultan, Almaty and the Mangistau region.

In terms of infrastructure, Almaty is will see a KZT180bn boost to its road network with the 66km-long, six-lane Big Almaty Ring Road (BARR). BARR Consortium’s Director General, Abbas Shahin, said local building materials will supply the project. "We will use 99 per cent of supplies used in Kazakhstan. There is domestically-made bitumen, crushed stone, cement, fence [and] road marking available in Kazakhstan."

Cement price rises
While inflation was running at 7.7 per cent towards the end of 2018, the country’s cement companies gradually increased their prices. In November the price of a 50kg bag of M400 rose to KZT1252, representing a 0.3 per cent MoM and a 5.7 per cent YoY advance.The strongest price rises were reported in Semipalatinsk, where prices were up by 31.3 per cent YoY to KZT1469/bag.

Export opportunities
In addition to a buoyant domestic market, Kazakh cement producers are also benefiting from improved export opportunities. Doubling its export volume of 2017, Kazakh became a net exporter by the 9M18 when it exported 1.4Mt of cement.

Expanding cement industry
Attracted by Kazakstan's expanding cement market and improved export opportunities, current cement producers are expanding their facilities and new entrants are keen to participate in the domestic cement industry.

The 0.5Mta LLP Rudnesky Cement plant in Rudny, Kostanay region, came on-stream at the end of 2018 and was forecast to produce 17,200t of cement before the end of the year. The producer has already been awarded an export order for 200,000-300,000t of cement, or half of its annual output, to Russia.

China's Ghezouba Group built the 1Mta Sheili cement plant in Kyzylorda region and is now planning a second, 0.75Mta works in the region’s Zhanakorgan district. By March 2019, the Sheili facility had already produced more than 11,000t of clinker, according to the region’s governor, Krymbek Kusherbayev.  

Furthermore, Aktobe Cement has teamed up with Turkey-based Dal Holding to build a 1.8Mta with construction to start this month while Alacem Cement is building a 1.2Mta plant in the Almaty region.

Outlook
With domestic and export demand showing robust growth, the cement industry in Kazakstan is expected to see further gains in 2019.

Moreover, Chinese investment is flowing into the Eurasian country. An agreement of cooperation with China was signed in April 2019, which will see several Chinese companies, such as CNBM and CITIC Construction, carry out new capacity projects. However, the current pace of cement capacity additions could result in an oversupplied market in the next few years.

In addition, the decision to call a snap presidential election by the country’s new President, Kassym Jomart Tokayev, is expected to cause short-term uncertainty. But the election of a new president could potentially speed up reforms and put Kazakhstan on an even faster path of development.  

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