Coronavirus' impact on cement
The coronavirus (COVID-19) has already made a leap out of China and is rapidly affecting international communities and stock markets around the world. The cement sector has not been immune from being caught up in events and not just at the point of origin in Wuhan, China.
While not widely reported, China's Hubei province was quick to try and expunge any spread of COVID-19 in February 2020 when it started taking medical waste from hospitals to be incinerated at cement plants. Four fully-enclosed and leak-proof container dump trucks, equipped with GPS, transported the medical waste around the clock. Some 55t were taken from Wuhan to Yangxin County for disposal at a Huaxin cement plant. The waste was disinfected before entering the cement kiln.
Meanwhile, CNBM has resumed operations following the early outbreak of the virus and released guidelines for resuming work and epidemic prevention. CNBM urged the full resumption of the cement business of its subsidiaries to enable the medical waste handling and disposal.
How well the Chinese cement industry has managed in the 1Q2020 is hard to tell. The Chinese National Bureau of Statistics has delayed the release of cement data for the first two months of the year. China will be a closed shop for a while on such news. The 21st China International Cement Industry Exhibition has also been postponed, having been due to take place in Anhui International Center between 25-27 March 2020.
LafargeHolcim's CFO, Geraldine Picaud, said, "We see delays and postponements but not slowdown in growth in China compared to 2019." She added that the coronavirus is unlikely to make a meaningful impact on 1Q20 aggregates and cement in China, as it is a low quarter. "If it is still occurring in May, it may have an impact on 2Q20 numbers," said Ms Picaud. "It’s difficult to predict the impact of the virus on 2020 results."
Outside China
There have not been that many hasty decisions made on international events outside of China. In the USA large gatherings have not been cancelled yet. The CONEXPO-CON/AGG and IFPE exhibition, for example, is still expected to attract 120,000 people in Las Vegas from 10-14 March 2020.
But things can change quickly and COVID-19 can travel fast. This is the case in Nigeria where Lafarge Africa PLC and its Ewekoro plant denied that production has been closed following the visit of an Italian equipment supplier, who had the illness, and had visited the company's guesthouse. Meanwhile, Aliko Dangote has pledged NGN200m (US$0.54m) to support the federal government's efforts to contain the virus.
The global economic stage
While many Chinese workers in industries have stayed at home, there are growing fears that supply chain lines for goods and industry could soon be affected worldwide. The US Federal Reserve rate has been cut on the back of the virus as cases of infected people in the US passed 100. It was the risk to the economy that forced the Fed chairman's hand with a half-point cut.
The impact in Italy is already biting hard. In the epicentre of Europe's COVID-19 outbreak, recession is about to hit for the fourth time since the Financial Crisis and the coronavirus is expected to push Italy's economy over the edge.
Meanwhile, the IMF is making US$50bn available through its rapid-disbursing emergency financing facilities for low-income and emerging-market countries that could potentially seek support from the organisation. The IMF announced that COVID-19 is a global health issue, calling for a worldwide response and expects global growth to drop well below last year's level.
Economic outlook
Morgan Stanley has assessed the likely outcomes of the coronavirus for investors under three scenarios. Scenario 1: containment by the end of March and global growth dips by just 2.5 per cent in 1Q20, recovering in 2Q20. Scenario 2: escalation in new geographies extends disruption before peaking by the end of May and global growth of 2.4 per cent in 1H20. Scenario 3: persisting into the 3Q20, escalating recession risks. Global growth would remain weak, below 2.5 per cent for the 9M20.
Summary
Construction activity is expected to experience delays with a knock-on effect for cement demand certainly through the 1Q20 and perhaps well into the 2Q20. If cement consumption does fall, cement producers will have a fight on their hands to hold prices at current levels, although LafargeHolcim has indicated that it expects building material prices to rise in Europe and the USA in 2020. However, some producers could limit production in local areas if construction activity remains sluggish.
