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A review of ASEAN cement markets: Martin Wilkes, Independent Consultant (Indonesia)

Filmed at Cemtech Asia 2015, 21-24 June, Grand Hyatt, Bangkok, Thailand

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Okay, good morning ladies and gentlemen. As its just been indicated, I'm going to try and give an overall view of the ASEAN cement markets. Obviously, you've got some other speakers talking about particular countries, you've had Thailand, later on you've got talk on Indonesia, you've got on Vietnam, on Myanmar, so I don't propose to go into all the detail, but just give an overview of the ASEAN cement market. So as I've suggested here the scope is going to be, how does the ASEAN cement industry compare with the rest of the world? What is ASEAN? Because some people ask me, What is ASEAN?

People tend to get mixed up when you say ASEAN, and they say, Do you mean Asian? No, ASEAN is a separate group of countries, and how has the cement industry in ASEAN countries evolved since financial crisis of 1997/98? What is the recent cement performance of these countries, and the expectations for the next three years? And finally, look at the activities of new and existing regional players, and the impact of the Holcim and Lafarge merger.

So we just look at the global cement markets, and where does Asia stand? Well as you can see there in the red, Asia is 60% of the total world cement market. So, in Asia we're talking about it's the biggest single market for cement in the world. If we then just have a look at the Asia markets themselves, and of course, as we all know the biggest single player is China, as it is in all commodities.

If we go back pre-crisis you can see in 1997, the Chinese market had about 60% of the market in Asia, today you can see it's 80%. So the Chinese market is still a very major party as far as Asia is concerned, and one would expect that to continue, but if you look at what's happened elsewhere you can see that North Asia, which is mainly Japan, Taiwan and Korea has dramatically reduced, and you can see there if you go back to '97 that area, that region had 19% of the total market for cement in Asia, whereas today it is only 4%. So you can see there have been a lot of changes, and if we look at how that has actually happened you can see North Asia has reduced over that period of the time by 73%, whereas as we know the other markets, South-East Asia, has gone up dramatically 190%. South Asia, which is mainly India, Pakistan, Bangladesh has also gone up dramatically, but of course, China as we know is now nearly 2.5 billion tons of cement per annum. So what are we going to be looking at? We're going to be looking at basically the blue area on this map, so we'll be looking at what I call is ASEAN, and as I say, what is ASEAN? ASEAN is an association that was formed in 1967. The original five members were Indonesia, Malaysia, Philippines, Singapore and Thailand, and their aims were economic growth, social progress, cultural development, protection of peace and stability, and non-interference with each others' activities. They expanded between 1995-99, and now include Brunei, Myanmar, Cambodia, Laos and Vietnam. The total population is about 625 million people, which is 9% of the world population.

So we're talking about a big grouping of countries as well as people. What have they done? Well, they've set up procedures for ASEAN Free Trade Area, which was done in 1992, and this was followed with various trade agreements with other nations and trading blocks. They're ranked as the eighth largest world economy.

Their GDP of $2.2 trillion, but what's happening now, this has been going on for some time, is they've set up what they call the ASEAN Economic Community, which will start at the end of this year, and that will allow the free flow of goods and services, investments, skilled labor and capital with a single market and production base. So that basically means there won't be duties between different countries' flow of cement.

And obviously many other commodities, it will be interesting to see how this does affect the trading of cement within the region. So we look at this ASEAN cement market, it represents about 5% of the world market, similar in fact to Africa or Latin America. Now, the following slides will indicate the situation in each country, in fact showing as a whole, as well as the performance and expectations in four of the main ASEAN cement manufacturing countries.

If we look at this, this is vital information there and I won't go into a lot of detail because as I say some of the countries, people will be talking about later, but if we look at each country as we go through, but first of all if you look at the different colors, and the colors here are significant because if we look at the ones in red here, here, these are all countries which are importing cement or clinker, so they are importing countries. The ones here in blue are the major exporters of either cement and clinker, and the ones here in yellow are the ones which are both importing and exporting.

So, if we look at Myanmar up here, you're going to have a lot more information later on that, but Myanmar has been growing recently, see per capita is fairly low, 155. Consumption is estimated about 8 million, and as we heard earlier, there are new cement plants being built, and Siam Cement as you heard before, are putting in a new plant, and there are other new plants going in as well, so that is a major developing area for the cement industry in South-East Asia. We come on here to Thailand. Again, you've heard a lot about Thailand, so I don't think I need to go into all the detail on that, but it is a major exporter, and of course, this morning we heard about the export from Siam Cement, but of course, with the other exporters in Thailand, of course, the total exports out of Thailand are more like 10 million tons, half of which roughly is going from SCC.

Singapore, they keep selling about 5-6 million tons, the market never seems to go down, they seem to continually pour in concrete into the country, but again is a major importer. They have one small grinding plant, otherwise it's all imported bag cement. We come down to Indonesia. Indonesia, the biggest player at the moment in South-East Asia, and again, I'm not going to go into detail, but at the moment they are both exporting and importing, and you'll hear a lot more about that later after the coffee break. We come on here to Cambodia. Cambodia, as we heard, Siam Cement have built one plant and they're putting in another plant.

They're still importing a certain amount of cement, but obviously I think once the new second line goes in for Siam Cement, you'll probably find they won't need to import any further. Then coming on here to Malaysia. Malaysia, some growth last year, continues to be quite a major importer for their grinding plants, but at the same time they're exporting, so they're doing a bit both, but the grinding plants particularly on the east, in Sabah, Sarawak, they tend to import clinker, not from the mainland, but they're importing it from Vietnam, or Taiwan, or Japan.

And if we come on over here, we have Brunei. Brunei is a very small market. They have a grinding plant, they also import bulk cement, just a small market, but again will continue to be an importer of either cement or clinker. Up to the Philippines. The Philippines, in fact they have it would appear to be major overcapacity, you can see 21.3 million tons of demand consumption, 28 million tons of cement capacity, but in fact they are importing about 2 million tons of product a year going to their grinding plants, but last year they did an export. And then up here you have Laos. Again, Laos is a small market. Siam Cement, as you heard earlier, is also building a cement plant there, and I think their imports are likely to reduce once that new plant is in operation. And lastly Vietnam. Vietnam, you're going to be hearing a lot more about later.

We know that Vietnam has over many years been building up their capacity. They've been reducing their old wet process kilns and their vertical kilns as the new capacity, modern capacity has been coming online, and it will be interesting to see whether that continues because at the moment they have a lot of excess capacity, and as we know they're exporting something like 20 million tons of cement and clinker.

So, we just look at the general per capita usage in these various countries. You can see here, if you look at this sort of typical bell chart, you can see that other than Malaysia and of course, Singapore, and then basically Singapore and China in fact are off the scale here, but you can see if we look at Vietnam, Thailand, Indonesia, Philippines, Myanmar, and obviously the same would apply to Laos and Cambodia.

You can see there's a lot of potential yet in those markets to develop with the demand for cement. And just looking at what's happened since 1997, the last financial crisis, and you can see here, if we take the six major cement manufacturing countries in ASEAN, you can see that the graph looks very nice. Anybody who had a graph like that as a business would be very happy, and you can see overall there's been steady growth, and there's no reason to think that that growth in fact is not going to continue.

If we just look at some of the four major manufacturers in ASEAN, you can see here if we look at last year and three years of growth. You can see there has been growth in Indonesia, also in the Philippines in a small way, Thailand in a bit of a dip, but again as we heard earlier, we expect that to continue to grow. Vietnam, again, some growth after a dip, but you can see the yellow in all cases is well above the consumption, and you can see that that situation is likely to continue as you see in this map which is showing the 2017 expected capacities, and what is expected this year and the next two years up to 2017, you can see that situation is only going to get worse.

As new capacity in Indonesia comes on, new capacity in Vietnam, and new capacity in Thailand is all coming on, but the market is not keeping up with that capacity. So, what does that mean? Well, this is just a rough indication of what we expect the overcapacity to be. So if we take this year, something over 300 million tons of cement capacity, if we assume 85% effective capacity, that gives you 260 million tons for the consumption expected this year or something like 220. So in round terms, we're talking about something like 40 million excess capacity in ASEAN countries this year, and next year a similar amount, and the following year going down slightly. Obviously dependent on what sort of growth projections you indicate, but I think we've heard some indication earlier of what's going to happen in those countries, and we think there's still going to be that growth continuing, but at the same time you got all the countries are expanding their cement production.The two major players, the biggest players in the cement business obviously are Indonesia and Vietnam, what's going to happen there? We know that Indonesia, and we'll hear more about it later, but we know Indonesia has gone down fairly dramatically this year, which wasn't expected. We thought after three months it will start going up again, but at the moment it's still going down. Everyone is indicating next year will be different with all the infrastructure, we'll see what happens, but that could make a difference as to these figures here, and Vietnam likewise, they're still expanding their capacity, will they shut down some of the old plant or not? So this is, as I say, a rough indication now, and also obviously with their excess, it does depend on what happens with exports. At the moment if we take exports and imports in ASEAN, you can see the main countries for exports at the moment are going to mostly within Asia, Bangladesh obviously being the biggest importer, but Indonesia's been taking cement, you can see even last year. If we take a look at last year, you can see Bangladesh, Myanmar, Cambodia, Singapore, Indonesia were the major importers within ASEAN, and from ASEAN cement manufacturers. The main importers were, you can see it here, again Singapore, Indonesia, Malaysia, Philippines, Myanmar.

Now the only thing that isn't shown here, it does look as if there's a lot of exporting going, therefore all that cement, there's going to be excess 40 million tons. You can see they're exporting most of it, and half of it is being imported, but of course, some of those imports are not coming from ASEAN countries. They're coming from Japan, they're coming from Taiwan, they're coming from Korea, and particularly Singapore.

Singapore market, although it's in ASEAN, most of their imports of five or six million tons are coming from outside ASEAN, so maybe someone needs to get together with Singapore and try and persuade them that they should take more of the ASEAN imports rather than bringing them in from outside, but that's obviously not a discussion we will have here.

So, what are the major import and export countries? If we look what happened, this is care of HC Trading, they indicated that the major importers in the world today are, as we said earlier, is Bangladesh, which is why Bangladesh is the biggest importer of ASEAN cement. Sri Lanka, again, they also buy from, but not so much, from ASEAN. Singapore, again, a big importer, and then Algeria and Australia.

Who are the exporters? Well as we said earlier, Vietnam is now the biggest exporter in the world, over 20 million tons, and this year they're talking about something like 25 million tons. China exported 15 million tons last year, and yet again, what is China going to do in the future? Are they going to have a lot more export capacity? We don't know, but that could well happen.

Japan exported nearly 10 million tons, and many years ago they used to export a lot then they went down, and now they started coming up again. South Korea also exported a similar amount, and you've then got Turkey. So, worldwide if we look at who is going to be the major importers in the future, and the suggestion is the US.

The US, which where the market has gone down, and you can see here it went down dramatically, if we actually go back to this period over here, which is sort of 2005/6/7/8 there was about up to 6 million, between 4-6 million tons of cement was exported from ASEAN countries to US. Now, it may well be that the ASEAN countries have to start looking at shipping to the States because the indication today is that the market in the States is going to start dramatically increasing over the next few years, and they're going to be importing maybe back to what they were before which is something like 20/25 million tons of cement per annum. So maybe for those people looking at exports, maybe that's the area that people should start looking at today as far as the ASEAN cement manufacturers are concerned. Certainly I know that from Thailand here, which was the major exporter to US back in 2006/7/8. They had 60,000-ton vessels loading at Koh Si Chang, and no doubt that could happen again.

So, let's just go on to what has happened within Asia. If we go back, as we said earlier I think that, why has it taken the cement companies within ASEAN so long to actually start investing in each others' countries. Well that is happening now, and you can see here what's happened is, if you look at Indonesia, you got Siam Cement, as we heard earlier, investing in Indonesia. They've got Conch, okay which is not ASEAN, but Conch is investing in Indonesia, Pan Asia, which is a new investor in Indonesia. Wilmar based in Singapore, got a subsidiary now investing in an Indonesian cement plant. You've got other players also looking at the potential to invest in Indonesia.

So there's now a lot of new players looking at the potential in Indonesia, but of course, for the latest situation with the market going down, it'll be interesting to hear later what is happening there. Cambodia, as we heard again, Siam Cement, one million tons and there is another plant going in. Laos, again, Siam Cement looking to set up a plant, which has already started construction, which is due to completion in 2017. Vietnam, Semen Indonesia invested there in 2012, and they're looking at expansion of that plant. In Singapore, YTL recently to took over in Malaysia, recently took over the cement terminal from Sin Heng Chan. In Myanmar, you got Conch again, but you've got also Siam Cement and you've got Semen Indonesia, who have been looking there, but as yet have not found a successful plant to take over, and in Malaysia, you've got a new player Hume Cement, and may be others because I believe there are other potential new players looking at Malaysia as a potential expansion area. So we just look lastly, I thought I'd just mention Lafarge/Holcim merger, and not because I used to work for Lafarge, but I think it's a major, as far as the cement industry worldwide is concerned, is the largest merger that's ever happened, and is significant worldwide for the cement industry.

So, what's happening in ASEAN? Are they in Malaysia? You have both Lafarge and Holcim, but Holcim only has a grinding plant, so the major player is Lafarge. Indonesia is the other way round, where Holcim/Lafarge there, Lafarge is having a small plant, Holcim has 11 million tons capacity, and is assumed that they would just be merged as one company and we don't expect any changes there. In Thailand there's only Holcim, but in fact they are now selling their interest in Thailand, not sure what the reason behind it is, but they're selling that to local partner.

Philippines, again you have both Lafarge and Holcim. Together they would represent a very high percentage of the total market and they are having to sell off some of the plants, and they're being sold off to CRH. In Vietnam, you've got Holcim and Lafarge, but in fact Lafarge is only a grinding plant, so it's very small.

So I don't expect any changes there, and in Singapore and Myanmar you only have terminals. In fact those worldwide situations, I think the only area that's affected mainly is got to be Philippines. So I think the Lafarge/Holcim merger will not have a big impact on the ASEAN region. So I think that's enough said from me, if you got any questions please let me know. Thank you very much for listening.

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