Cement Distribution Consultants’ Ad Ligthart outlines the latest cement trade trends.
GC: How have cement and clinker trade volumes changed over the past few years?
Ad Ligthart (AL): There has been a gradual increase in seaborne cement and clinker trade in recent years. Our figures for 2015 show that 110Mt of cement and clinker was traded internationally by sea in that year, with a further 93Mt transported by sea domestically. That gives a total of 203Mt of seaborne cement and clinker movements.
Fast-forward to 2019, our preliminary data shows that seaborne trade has risen to 131Mt, with a further 105Mt of seaborne domestic shipments. The seaborne cement total has grown to 236Mt, a rise of around 16% compared to 2015. We estimate that ~38Mt of supplementary cementitious materials - slags, fly ash, etc - were traded by ship in 2019.
GC: What is driving the increase?
AL: There is only one factor that really affects clinker and cement trade: Demand. In the light of the huge global clinker overcapacity, countries with shortages have a good selection of exporters. The changes we saw from 2015 to 2019 are due to rising demand. This is particularly noticable in the US and Africa.
US seaborne imports have increased from around 1Mt in 2014 - 2015 in the aftermath of the financial crash, to around 11.5Mt in 2019. Texas is a large and growing export destination, with Houston likely to have imported 3Mt in 2019. New York City likely imported 1.5Mt. San Francisco and Seattle will have imported 1.2 - 1.3Mt of cement and clinker each.
Africa, particularly West Africa has also witnessed a major increase in demand. Indeed, 28 - 30Mt of cement and clinker was imported by Africa in 2019 compared to 19Mt in 2015. Only a few places in Africa actually have excess clinker capacity: Morocco, Tunisia, Algeria and Egypt in the north, Nigeria and Senegal in the west and South Africa in the south. The remaining countries all have clinker shortages and a few, for example Tanzania, are about even. African clinker imports are rising fast, while bagged cement volumes to Africa are falling, as each market prefers its home-ground product. The proportion of clinker as a total of all African imports has risen from 55% in 2015 to more than 80% in 2019. There is a trend towards grinding plants in other regions too, for example Central and South America, but not to the same extent as Africa.
There has also been an increase in volumes of clinker and cement exported from and traded within Asia, with an incredible 17 - 18Mt of cement imported into Bangladesh. There have been noticable increases in domestic distribution in Indonesia and the Philippines and, of course, a previously unthinkable situation: imports to China. More than 15Mt of clinker moved to China from Vietnam in 2019.
GC: What limits cement and clinker shipments?
AL: Within the main restriction - demand - without which cement and clinker would not be traded, there are a few other considerations that affect trade patterns. There are some limits on trade due to the size of ships that certain terminals can receive. The majority of ships used to trade cement and clinker are Handysize and Handymax vessels, which can take up to 40,000t. Not many ships of this size are being manufactured these days. Instead they are being replaced with Supermax (50,000 - 60,000t) and Ultramax (60,000t - 70,000t) vessels.
Very few US terminals can receive these large vessels fully loaded, so they are already receiving partly-loaded Supermax vessels, which means cement trade is not efficient in many places at present. This can raise prices. We will have to wait and see whether or not terminals increase their storage capacities and drafts to make the most of the trend towards larger vessels.
Of course, the fact that cement can be transported to virtually anywhere in the world at low cost is very helpful for the sector, especially global operators. The driver behind seaborne trade is not just transportation cost, but its combination with the willingness of producers to export cement and clinker for just a few Dollars above their production costs. Exports are used to increase the utilisation factor of plants. If you can operate, for example, a 1.0Mt/yr integrated plant ‘flat out’ instead of on a campaign basis by exporting some 0.2 - 0.3Mt of cement, this can lead to a reduction in production costs of US$10 - 12/t over the full production of the plant.
GC: What is happening in the Mediterranean?
AL: Europe has historically been a major cement exporter to West Africa, as well as to North America. However, some of its volumes are now supplemented, and are being partly replaced by, North African suppliers. Turkey also remains a prolific cement and clinker exporter. Between them, the EU, North Africa and Turkey supply around 90% of West Africa’s cement and clinker imports. This region has a large and increasing appetite for cement, so a lot of exporting nations can be accommodated at present.
Facing the future
GC: Has the rising EU Emissions Trading Scheme (ETS) CO2 emission price changed trade patterns?
AL: Up to now, the EU ETS has had a minimal effect on clinker and cement trade patterns. Producers have generally received a large number of excess allowances. However, with Phase 4 of the ETS beginning in January 2021, this will start to change. In Phase 4, it looks likely that only ~80% of the cement sector’s CO2 emissions will be covered by free allowances. The remaining 20% will have to be bought on the open market.
With prices such as they are (Euro23.67/t / US$25.16/t as at 30 January 2020), this will raise EU cement production costs to a point that they will be too expensive for exports to West Africa. Once all factors are considered, this could easily add Euro15 - 20/t on the import prices. This lost EU material will be replaced with flows from North Africa. However, North African cement will not replace European exports to North America, due to both quality and logistical reasons. The US requries a fairly specific CEM I/II low-alkali cement, which is only made in a limited number of plants worldwide. This product will be more tolerant of price changes, providing EU manufacturers with more headroom on prices.
GC: What other effects could the EU ETS have?
AL: The EU has a cement plant utilisation factor of around 60% at present. It is inevitable that many plants will be closed in the years beyond 2021 in a consolidation drive that is perhaps long overdue. Going forward CO2 emissions taxes and schemes will have an impact on many world regions, not just the EU.
GC: Will Iran and Pakistan continue to export cement and clinker to southern Africa?
AL: For Pakistan and Iran the whole east coast of Africa is a natural market, but Iran is hampered by sanctions. Countries that lack clinker, for example Tanzania, Kenya and others in East Africa, will likely welcome this. However, there are others, most notably South Africa, where the domestic sector is obviously being damaged by imported cement being sold below fair value. It would be fairly easy to place anti-dumping levies in this situation, but South Africa seems to have chosen not to take this step to date.
GC: What do you think will happen to US imports in the future?
AL: If you look back at the pre-recession seaborne import levels of 30Mt or more, you might conclude that there’s a lot of potential for imports into the US to head higher and higher. Others would point out that growth may slow down in the future. I’m afraid we’ll have to wait and see. US imports are very much controlled by US manufacturers and, as such,
follow demand.
GC: How has the new McInnis Cement plant affected the Eastern Seaboard of the US?
AL: McInnis has definitely had an initial effect on pricing in the North East US. However, its volumes have now been absorbed into the region, perhaps replacing other imports.
GC: How will the new ISO 2020 regulations governing ship SO2 emissions affect cement trade?
AL: These regulations only came into force in January 2020 and so the full effects are not yet known. Most of the ships used to trade cement have not fitted scrubbers but have instead converted to low-sulphur fuel. This means an increase in fuel cost, which will translate into increased transport costs. For a typical trip from the Mediterranean to the US this might mean an extra cost of US$2.00 - 2.50/t.
GC: What will be the largest change in cement trading patterns over the next 1 - 5 years?
AL: The biggest change in the next few years will be the EU going from a major cement and clinker exporter to a relatively minor one. Much of this lost supply will be replaced by North Africa, but we will also see the Middle East exporting more, as well as Turkey, which will remain a major force. West and Central Africa will be the major importing region to increase in demand. Africa still has enormous unrealised potential in terms of cement demand.
GC: Based on all of the above, where would you build a ‘Ligthart Cement’ plant if you had to choose a location?
AL: Given the abundance of clinker and relatively low cost of shipping, I would not want to build an integrated plant in any location close to a coast for the forseeable future. A stand-alone grinding plant is a far more interesting proposition. However, you have to be clever to choose the right location. The market, as always, is the key!
GC: Thank you very much for your time today!
AL: You are most welcome!