Analysts at Jefferies International have recently provided an update on their expectations for global cement markets. While prospects for the US are improving, emerging markets are beginning to face uncertainties and the outlook for Europe is weaker than it previously anticipated.
US markets have performed stronger than expected in 2012, having risen 15 per cent in the first half to 37Mt. While growth slowed in June and the rate is expected to ease to around three per cent for the remainder of the year, Jefferies expects full-year demand to be up by around 8.5 per cent from the six per cent forecast previously. Growth is being driven strongly by a recovery of private housing and non-housing construction, both of which were hit most by the downturn. For next year, Jefferies has retained its cement demand forecast of six per cent, taking into account a higher 2012 comparison base.
Over in Europe, the sovereign debt crisis continues to cast its shadow over construction activity, and concerns mount on possible further reductions in infrastructure spending as governments aim to reduce their deficit and net debts. Jefferies believes the outlook for Euro construction is poor for 2012 with further declines ahead for 2013. Consequently, it has lowered its construction output forecasts for most European markets in 2012 and all countries except for Germany and Ireland in 2013. The largest single cut has been in the UK where residential output has been reduced by six per cent in 2012. Western European cement forecasts are also down in most countries, except Ireland in 2012. According to Jefferies' estimates, Spanish cement consumption, which fell by an alarming 34.7 per cent in the first half, is now expected to be down 32 per cent in 2012 (previously -30 per cent), and 2013 figures have been cut from -10 per cent to -15 per cent. Italy, The Netherlands, France and the UK have also seen notable downward revisions for 2013.
So far this year, emerging markets have proved to be the main drivers of demand and, according to a number of leading producers, this trend is expected to continue for the remainder of 2012. Nevertheless, Jefferies highlights that the growth rate has eased, indicating a slowdown in these markets. In March 2012, 18 countries reported YoY growth in cement consumption, eight of which saw gains of over 10 per cent. In contrast, July 2012 statistics show that consumption rose in nine countries and only one market achieved growth above 10 per cent. Economic expectations by analysts for 2H12 have also anticipated a slow down with possible further trimming ahead particularly in relation to 2013 forecasts, signifying that there are more downside risks to cement volumes than upside potential.
Pricing has been the main bright spot for the industry in the year to-date with decent price increases matching (or fairly close to) inflation in the first half. For example, Holcim's domestic cement prices were up by an average of five per cent YoY, while others saw increases of around four per cent. Price increases could potentially start to exceed inflation in the second half, Jefferies notes, with prices rising by an average of three per cent in 2013. Furthermore, with a decline in solid fuel costs expected next year, the industry could see some of the margin recovery that was lost in 2011, provided is it able to achieve price increases in the range of 4-5 per cent.
