What does 2015 have in store for the cement sector? After three relatively poor years in terms of global construction expansion, Morgan Stanley (UK) predicts a tentative recovery in world consumption in spite of a significant slowdown in China, according to new analysis published in International Cement Review.

Morgan Stanley expects global cement demand, inclusive of China, to rise to 2.8 per cent in 2015, marginally up from the 2.5 per cent growth recorded in 2014, which was the lowest rate since 2001 (outside of the Great Recession).

The sharp deceleration in demand in China, the world’s largest market, where volume growth fell last year to 2.8 per cent from 10 per cent in 2013, is a major change to global consumption trends. However, in 2015 this slowdown will be more than offset by the incremental consumption volumes in the rest of the world, which will rise by 3.7 per cent in 2015, up from 2.2 per cent last year.

Over half of this global growth will come from just five markets. India, where the election of Narendra Modi’s development-focussed government is expected to signal a turning point for the country’s underperforming market, is expected to take the lead. India is forecast to see consumption expand by 8.4 per cent in 2015 and therefore, be solely responsible for a third of global incremental growth this year.

The United States is another market highlighted by Morgan Stanley for a strong performance in 2015. This view is supported by Ed Sullivan, chief economist of the PCA, who predicts a re-acceleration of the US housing market, which is expected to underpin annual cement demand growth of eight per cent in 2015.

In Latin America, Mexico’s economy is due to reap the benefits of last year’s economic reforms, which are now expected to support significant public investment and feed through to stronger cement consumption levels, having returned to growth of 3.5 per cent in 2014.

Over in the Middle East, Saudi Arabia had been poised to make a strong recovery following the difficulties in 2014, when new regulations for foreign workers severely restricted construction activity. With rules on expatriate labour now appearing to be softened, the resumption of rapid construction is now anticipated, though much will depend on the extent of the ongoing oil crisis, which could create headwinds, notes Morgan Stanley.

In Asia all eyes are on Indonesia, where recovery in the economy is expected to inject new dynamism into the cement market, buoyed by strong demographic trends and a reform-minded president committed to infrastructure development.

In terms of the supply-demand balance, which is a major determinant of cement prices, Morgan Stanley observes that for eight years in a row, during the 2008-15 period, the growth in capacity additions in emerging markets (ex-China) will have exceeded the growth in cement demand. While this situation is now rebalancing, these capacity trends will place a continued downward pressure on cement prices during 2015, with an equilibrium and price recovery restored only by 2016.

LH merger market forecasts
Meanwhile, on the corporate landscape, June 2015 is the target date for the completion of the Lafarge-Holcim mega-merger. Further definitive news on the related asset disposals is expected in mid-January.

Meanwhile, in the countries where disposals will be made, consumption growth over the 2014-19 period will be strongest in India (6.4 per cent), Romania (5.4 per cent) and the Philippines (5.3 per cent), while the weakest performances are forecast for Serbia (-8.0 per cent), Slovakia (-1.0 per cent) and Germany (0.4 per cent). Read the full set of forecasts and commentary in the January issue of International Cement Review.