The headline from the cement section of FLSmidth’s first quarter results summed up what may be the current situation for many companies supplying the sector: “service relatively stable – cautious on capex.” The general picture across both its mining and cement businesses was ‘significantly’ increased demand for local resources, remote support and digital products. On the mining side FLSmidth pointed out that it was impossible to assess the impact of coronavirus on its business because of the difference between government policies. Some places continue lockdowns or impose additional restrictions but others are starting to ease them. This point has ramifications for multinational cement producers and other suppliers too. It seems likely to continue during the coming months as lockdowns ease at different rates in different countries.
On cement specifically, FLSmidth provided a good global view of what the pandemic and government responses are actually doing to the industry. It reports that around 80% of the world's cement plants (excluding China) are currently in operation with some operating at reduced capacity. It described the market for services as ‘relatively stable’ in the first quarter but that cement consumption was being reduced by lower construction activity, plant shutdowns and restricted access to sites leading to reduced demand for technical services and commissioning. By region it identified the biggest impact to its business from coronavirus in India and the Middle East. Generally, it says that cement producers are suspending capital investments until the impact of coronavirus on economies is clearer. There has been some good news though, with the supplier noting that several of its customers have been looking for services that can reduce their operational costs.
The European Commission tackled this pervading sense of uncertainty in its roadmap towards lifting coronavirus containment measures that was published on 15 April 2020. The Committee for European Construction Equipment (CECE) was keen to share this with its members this week, pointing out how the European Union (EU) plans to lift border controls and re-start economic activity.
The plan is to ease travel restrictions between border regions for cross-border and seasonal workers, and then between European areas with low coronavirus infection rates. External borders can later be reopened with access by non-EU residents to the EU scheduled for a second stage. To re-start economic activity the EU recommends, again, a phased approach focusing on sectors that are ‘essential’ to facilitate economic activity such as transport. The commission says it will also create a rapid alert function to identify supply and value chain disruptions, relying on existing networks such as Enterprise Europe Network (EEN), clusters, chambers of commerce and trade associations, small and medium enterprise (SME) envoys and more. Whether the EU can actually coordinate a return to normality following its poor response in aiding Italy at the start of the European outbreak of coronavirus remains to be seen. Yet, its historical roots as an economic community dating back to the Treaty of Rome in 1957 suggests it may be more successful when coordinating technical aspects of trade.
Detailed above are the views and plans of just one supplier and one continental organisation, although they are both prominent. The takeaway from this is that uncertainty is a major problem so far for the cement industry in the wake of the coronavirus outbreak. Companies have faced a cash crunch in the short term as economies slowed down and they are reluctant to release cash until the future becomes clearer. Large parts of the cement industry and its suppliers are very international, which exposes it to even more uncertainty. Different countries enforcing different restrictions and different easing strategies at different times create a major headache for everyone and a block to investment. Making cement is undeniably an essential industry and this realisation by legislators can be seen in some countries that at first shut down their plants before understanding that they needed them open after all! Suppliers should benefit from this too, although at reduced activity levels. We don’t know what kind of recovery will come – hopefully one releasing plenty of pent up demand. Yet one thing is certain. The work of the regional cement associations and those representing suppliers is going to be crucial in the coming months.