Planning for a post-COVID recovery
This week Cemtech hosted a live webinar that considered the potential shape of post-COVID recoveries for cement markets around the world. Arne Burfeind, head of building materials (Central Europe, MEA) for Boston Consulting Group, delivered a presentation assessing the impact of COVID-19 on the major cement players, their crisis response, and looked at several countries that have been significantly affected by the virus to date, namely the US, India and those of western Europe.
Mr Burfeind started the presentation by noting the lessons we could learn from previous crises, such as the global financial crisis of 2008. In such a scenario, the residential housing market is a particularly-volatile segment of the construction sector post-crisis. While non-residential construction is similar, it is less volatile and has a delayed response to market downturn.
Another important aspect is the impact of crises on the price of construction materials. In 2008 key construction materials saw a large price drop in the US, with wallboard prices falling 30 per cent. Prices also took around 2-4 years to recover to the pre-crisis level. Mr Burfeind noted how similar situations have been seen in cement markets, with overcapacity another risk factor for prices.
However, we cannot fully rely on the lessons learned from 2008 to plan our reaction to the COVID-19 pandemic. This is because there will be both a demand- and supply-side shock caused by the enforced shutdown of construction works and cement plants. Furthermore, banks are expected to have issues supporting demand since interest rates are already close to zero.
Alternatively, the early flow of liquidity into the market is likely to stimulate consumption. The fast deployment of economic stimulus packages from governments should also be a positive factor, but the high debt level of some countries may limit options for further relief.
Construction markets
In assessing how construction markets are expected to perform in a post-COVID environment, there are a number of important factors to consider. This includes pre-pandemic construction growth, lockdown intensity, government stimuli and the status of COVID-19 in each country. Looking at these elements, the markets in both India and Poland are forecast to have a short dip followed by a quick recovery.
Elsewhere, Germany is expected to remain fairly solid after having a comparatively low lockdown intensity and showing flat construction growth prior to the outbreak. The US, UK and France are all expected to take a deeper hit and the length of recovery by each country remains uncertain. However, Spain and Italy are likely to be impacted the worst due to the severity of the pandemic in each country, with recovery having the potential to be a very slow process.
Cement company impact
Mr Burfeind then considered how some of the big players in the industry are forecast to perform in the years ahead. From both an optimistic and conservative viewpoint, LafargeHolcim is expected to see the fastest recovery due to its exposure to the strong market dynamics in India. The strength of HeidelbergCement’s diverse portfolio is also expected to assist the speed of its recovery, with German and Austrian markets offsetting results from the US and Italy.
Similarly, Cemex’s presence in the US could well inhibit the pace of the company’s recovery in a conservative outlook, but the Mexican market should provide stability as sales remain only slightly below 2019 levels. Since CRH will be restricted by its operations in the US, UK and Canada, a conservative prediction sees it posting a strong dip in sales for 2020 and a muted recovery going forward.
Of course, all of the main players in the cement industry have taken steps to lessen the impact of the pandemic and we will see how these actions take effect in the months ahead.
