What characterised the cement world in 2019?

This week ICR looks back at a big year for the cement sector when news centred on several core themes. Prominent trends in our news flow have been the evolution of cement volumes, overcapacity and CO₂ reduction measures.

Cement volumes
There were a number of positives for cement demand in the 2019, with key markets on the whole performing robustly.

At the start of 2019, SNIC President, Paulo Camillo, was suggesting that Brazil would see a change in domestic volumes "After four years of decline, we believe that 2019 will be our first positive year. We expect growth close to three per cent for this year." His predictions seem to be borne out by YtD volumes, with demand in Brazil up 3.6 per cent in the year to November.


Similarly, in the United States, the latest statistics reported by the USGS indicate demand is on track to reach almost 100Mt in 2019, with YtD growth of 3.6 per cent in September, well ahead of the PCA forecast of 2.4 per cent.

Over in Europe, Poland has been the star performer, with first-half demand expanding by around eight per cent, even taking into account the high performance of the market in 2018, when it grew by 10 per cent to 18.7Mt.

The dramatic collapse of the local market in Turkey continues, with demand down a massive 37 per cent in 2019 over the first eight months of the year, forcing the country to enter the export market aggressively. Meanwhile, Russia has enjoyed a solid year as demand is forecast to finish 2019 up five per cent.

The African continent saw a mixture of performances, with some weakness in the Nigerian market where growth is only just positive, and in Kenya where demand is likely to tip into negative territory for the full year. On the other hand, Morocco is back in expansionary mode with as consumption advanced 2.5 per cent in November.

The Middle East has struggled in recent years, beset with oil price volatility and political challenges. In the largest GCC market of Saudi Arabia, the three-year market contraction may be coming to an end as volumes start to stabilise with expected year-end consumption likely to be flat.

Moving east, Vietnam has continued to expand local sales, but with skyrocketing exports to China, production is set to approach 95Mt in 2019. Indonesia on the other hand has struggled to realise its great potential and after the 4.9 per cent growth in 2018, is expected to finish 2019 down by 1-2 per cent.

Not so for China, where the expected steady decline in consumption did not materialise. YtD volumes are were up six per cent in October, to reach an impressive 1907Mt.

Overcapacity
While the demand-side held up in 2019, the supply-side remains a problem. Overcapacity continues to impact many regions, with stress points in Asia and the Middle East particularly apparent. These markets were prime candidates for acquisitions, takeovers and divestments.

One of the main events of the year was to see PT Semen Indonesia (SMGR) become the successful bidder to buy an 80.6 per cent shareholding in PT Holcim Indonesia for US$917m. While this gave LafargeHolcim an exit strategy from a market that was suffering from low margins and high overcapacity, Bloomberg reported that SMGR and PT Indocement (HeidelbergCement) controlled 70 per cent of the Indonesian cement market and that a merger between the number one and three players was not a solution to help the market.

LafargeHolcim's decision to exist southeast Asia has been followed up with speculation that the company is now actively seeking to exit the Middle East and Africa markets, where overcapacity is also a major issue.

The example of Egypt demonstrates the precarious position of cement producers operating in oversupplied markets. While National Cement had already closed in 2018, HeidelbergCement reported in June that its Tourah Cement plant was facing liquidation. "Estimated cement consumption during 2019 will end around 50Mt, while total capacity of all competitors stands above 85Mt," said Tourah Managing Director, Jose Maria Magrina. "This extra capacity is more than the total consumption in one year of countries like Italy, Spain, Morocco or South Africa." 

China's cement industry continues to be a main point of interest. Domestically, industry consolidation and reforms have rebalanced supply and demand to restore profitably on the back of resurgent prices. Chinese producers are now generating significant financial firepower and have the resources to expand overseas, either organically or via acquisition, with the support of the government. This is already evident in the activities of companies such as Anhui Conch, who are expanding in southeast and central Asia, while the African continent remains a prime target for Chinese investment.

CO₂ reduction
Carbon reduction has climbed decisively up the international agenda in 2019, highlighted by the policy developments worldwide but particularly in Europe. The incoming European Commission President, Ursula von der Leyen, is committed to the ambition of Europe becoming the first climate-neutral region. This will have significant impact on cement producers, especially as the more stringent Phase IV of the EU Emissions Trading Scheme comes into effect in 2021.

In response, the cement majors have been stepping up the investment in CO₂ reduction initiatives. LafargeHolcim made the first big announcement of the year in February, when it announced that its Exshaw plant in Canada would receive funding for environmental improvements from a new Emissions Reduction Alberta innovations fund. "The Exshaw low-carbon fuels project will go a long way in helping us reach our ambitious corporate goal to reduce 40 per cent less net CO₂/t of cement by 2030," said Kate Strachan.



LafargeHolcim also went on later in the year to state that its CO₂ emissions in Europe would be cut by 15 per cent (3Mt) like-for-like by 2022.



HeidelbergCement was not to be outdone, reporting that its CO₂ reduction targets for 2030 had been validated against the Science Based Targets initiatives criteria. "Our goal is to realise the vision of CO₂-neutral concrete by 2050 at the latest," said Dr Bernd Scheifele, chairman of the Managing Board of HeidelbergCement.



A step in that direction would be taken by the company's subsidiary Lehigh Cement and the International CCS Knowledge Centre which launched a feasibility study for a full-scale carbon capture and storage (CCS) project at the Edmonton cement plant in Alberta, Canada.

Indian cement producer Dalmia Cement (Bharat) Ltd responded to CO₂ challenges by claiming it would become carbon neutral by 2040. This was despite aims to increase the company’s own cement capacity to 50Mt by 2022.

Meanwhile, December saw the COP25 talks held in Madrid where the Global Cement and Concrete Association, along with FICEM, Oficemen and CEMBUREAU offered their advice on the path to carbon neutrality by 2050 for both cement and concrete.



Finally, not forgetting the inaugural year of ICR Awards, ICR presented its first 'Plant of the Year Award' to Yanbu Cement and part of its recognition was because it has achieved 1Mt of carbon reduction in the past two years. ICR’s 'Environmental Award for 2019' went to w&p Zement GmbH in Austria that managed to reduce its carbon footprint well below the Austrian average of 563kg of CO₂/t of cement, along with many other environmental improvements.