Displaying items by tag: data

Spain: Total domestic cement consumption was 6.19Mt in the first half of 2020, down by 17% year-on-year from 7.41Mt in the first half of 2019. Interempresas News has reported that the coronavirus lockdown caused consumption in the period to decrease. June consumption rose by 5.2% to 1.34Mt from 670,000t in June 2019.

Oficemen president Victor García Brosa said, “In June 2020 many of the works paralysed during the confinement, for example real estate developments, were resumed, but the monthly positive data should not make us think of a recovery in the sector." He added, “We continue to insist that construction is the driving force for the employment that our country needs right now and cannot continue to be forgotten by the administration. Other sectors such as the automotive or tourism sectors already have contingency plans activated, while ours continues to be largely forgotten, even though it could generate a significant volume of jobs.”

Russia: The railways transported 11.4Mt of cement in the first half of 2020, down by 11% year-on-year from 12.4Mt in the first half of 2019. Beton News has reported that the figure is the lowest in a decade, down by 33% from17.0Mt in the record first half of 2012.

Data is starting to emerge from South American countries for the first half of 2020 and it’s not necessarily what one might expect. Countries had different trends in play before the coronavirus pandemic established itself and then governments acted in their own ways with mixed results. Here’s a brief summary of the situation in the key territories.

Graph 1: Cement sales in selected South American countries in first half of year, 2018 – 2020. Source: Local cement associations and national statistics offices. Note: Colombian data is for January – May for each year.

Brazil’s cement sector looked set to become the big loser as global events seemed poised to dent the recovery of cement sales since a low in 2018. This didn’t happen. The Brazilian national cement industry union’s (SNIC) preliminary data for the first six months of 2020 shows that sales grew by 3.7% year-on-year to 26.9Mt. This is above the growth rate of 3% originally expected. Indeed, the monthly year-on-year growth rate in June 2020 was 24.5%. SNIC is not wrong in describing this kind of pace as being ‘Chinese.’ All this growth has been attributed to the home improvement market as people used their lockdown time to renovate their homes, renovations and maintenance in commercial buildings during lockdown and growing work on real estate projects. The government’s decision to implement weak lockdown measures clearly helped the sector but this may have cost lives in the process.

SNIC’s president Paulo Camillo Penna pointed out that producing and selling cement could co-exist with fighting coronavirus. However, trends such as a slowing real estate sector, less large construction projects and mounting input costs are all seen as potential risks in the second half of 2020. What SNIC didn’t link to the wider fortunes of the local cement industry was the economic consequences of coronavirus. The World Bank, for example, has forecast an 8% fall in gross domestic product in Brazil in 2020 due to its coronavirus, “mitigation measures, plunging investment and soft global commodity prices.”

Peru, in contrast to Brazil, implemented a strong lockdown early in March 2020. Unfortunately, it didn’t seem to work as well as hoped possibly due to informal and structural issues such as reliance on markets, the informal economy and residential overcrowding. This means that production and sales of cement are significantly down without any public health benefit. Both production and despatches fell by about 40% to around 2.9Mt in the first half of 2020 with close to total stoppages in April 2020. In terms of coronavirus, Peru is at the time of writing in the top 10 worldwide for both total cases and deaths, behind only Brazil in South America. It should be pointed out though that Peru’s testing rate is reportedly high for the region and this may be making its response look dire in the short term. All of this is particularly sad from an industrial perspective given that Peru was one of the continent’s strongest performers prior to 2020. One consolation though is that the economy is expected to recover more quickly compared to its neighbours.

Argentina started 2020 with a downward trend in its local market. Cement sales had been falling since 2017, roughly following a recession in the wider economy. Throw in a strong lockdown and sales more than halved at its peak in April 2020. So far this has led to a drop of 31% to 3.83Mt for the first half of 2020 compared to 5.51Mt in the same period in 2019. Unfortunately, a recent spike in cases in Buenos Aires has led to renewed lockdowns in the capital. Due to this unwelcome development and the general economic situation Fitch Ratings has forecast an overall decline in cement sales volumes of 25% for 2020 as a whole.

Finally, Colombia’s cement production fell by 24% year-on-year to 3.90Mt in the first five months of 2020 from 5.14Mt in the same period in 2019. April 2020 was the worst month affected. The country’s lockdown ended on 13 April 2020 for infrastructure projects and on 27 April 2020 for cement production and residential and commercial construction. On 5 May 2020 Cementos Argos said that domestic demand was at 50% of pre-lockdown levels. Data from DANE, the Colombian statistics authority, shows that local sales fell by around a third year-on-year to 0.71Mt in May 2020 from 1.06Mt in May 2019.

Most of the countries examined above follow the pattern of reduced cement production and sales in relation to the severity of the lockdown imposed and the resulting intensity of the coronavirus outbreak. Stronger lockdowns suppressed cement production and sales in the region of 20 – 40% in the first half of the year as governments shut down totally and then released industry and commerce incrementally. The exception is Peru, which has suffered the worst of both worlds: a severe lockdown and a severe health crisis. Local trends have continued around this, like the recovery in Brazil in the construction industry and the general recession in Argentina.

SNIC’s president has said that making and selling cement needn’t be exclusive with public health measures. He’s right but Brazil’s surging case load is an outlier compared with most of its continental neighbours and the rest of the world. Cement sectors in countries with growing economies like Peru and Colombia are expected to bounce back quicker than those with stagnant ones like Argentina. The risk for Brazil is what its government health strategy will do to the construction sector in the second half of 2020.

Brazil: The National Cement Industry Union (SNIC) has estimated a 3.7% year-on-year increase in total cement sales to 26.9Mt in the first half of 2020 from 25.9Mt in the corresponding six months of 2019. Export sales rose by 56% to 84,000t from 54,000t. Sales increased by 7.7% month-on-month in June 2020, however SNIC president Paulo Camillo Penna expressed worries about demand going forward into the second half of 2020.

“The cement industry is responsible for more than 70,000 jobs, generates an income US$4.94bn and an annual net collection of US$562m. We are very sensitive to the macroeconomic scenario and government stimuli. For this reason, the cement industry is anxiously awaiting the launch of the new government housing project, ’Casa Verde Amarela,’ which is expected to leverage the real estate and renovation market more strongly, and restarting works on 100,000 housing units,” said Penna.

Argentina: Producers sold 649,000t of cement in May 2020, down by 33% year-on-year from 965,000t in May 2019. Data from the Asociación de Fabricantes de Cemento Portland (AFCP) shows that the sharpest decline, of 80%, was in Buenos Aires. Total sales nonetheless grew by 61% month-on-month from 404,000t in April 2020. Five-month sales to 31 May 2020 fell by 35% year-on-year.

China: Cement companies produced 249Mt of cement in May 2020, up by 8.6% year-on-year from 229Mt in May 2019. Xinhua News Agency has reported that cement production in the first four months of 2020 was 520Mt, down by 18% from 637Mt over the corresponding period of 2019. Four-month sales revenue fell by 13% year-on-year to US$32.9bn from US$37.8bn. Net profit fell by 18% to US$4.99bn from US$6.01bn. April 2020 was the first month of the year in which sales and profit grew, by 4.4% and 0.6% respectively.

April 2020 data from the Japanese Cement Association (JCA) suggests that Japan has avoided the worst effects of the coronavirus outbreak. The industry’s total sales fell by 2.4% year-on-year to 16.4Mt in the first four months of 2020 from 16.8Mt in the same period in 2019. This is the kind of change associated with business as usual market trends, rather than the 20% declines seen elsewhere around the world in association to the coronavirus. In part this reflects the country’s case and mortality rate, which are far lower than other Group of Seven (G7) countries. The reasons for this may be due to lower levels of testing, less stringent lockdown measures and a more effective public health strategy. That last point is perhaps even more impressive given the population’s high median age (47.3). Whatever the reasons, the overall effect on the construction materials business seems low.

Graph 1: Cement production, sales, imports and exports in Japan. Source: Japanese Cement Association.

Graph 1 above shows the Japanese cement market in a historical context. Production peaked in the mid 1990s at a little below 100Mt/yr followed by a decline to above 40Mt/yr since 2010. This informs the current situation once one removes any effects from the health emergency. As Naoki Ono, the chairman of the JCA and the chief executive officer (CEO) of Mitsubishi Materials, described it in late May 2020, domestic demand for cement fell by 3.8% year-on-year to 41Mt in 2019. He blamed this on the completion of construction work for the 2020 Tokyo Olympic and Paralympic Games, the end of a period of rebuilding following natural disasters and a shortage of manpower.

All of this may explain why Taiheiyo Cement announced the acquisition of a 15% stake in state-owned Semen Indonesia subsidiary Solusi Bangun Indonesia in April 2020. At the time the producer said explicitly that the partnership with Semen Indonesia was part of Taiheiyo Cement’s response to a, “forecasted long-term decline in domestic cement demand in Japan.” Given the competiveness of the Indonesian market it seems like a brave move given the country’s overcapacity, the departure of LafargeHolcim and the arrival of China’s Anhui Conch. Meanwhile at home, Mitsubishi Materials and Ube Industries said in February 2020 that the companies were discussing a potential merger of their cement businesses. The letter of intent suggests a schedule of late September 2020 to sign a definitive agreement and a target of April 2022 to complete the integration. This follows the two companies working together since 1998 on a joint venture called Ube-Mitsubishi Cement, which integrated their cement sales and logistics operations. Mitsubishi Materials and Ube Industries are the third and fourth largest producers by production capacity in the country. A merger would potentially give the combined entity the same production base as the largest producer, Taiheiyo Cement.

Taiheiyo Cement’s experience in its 2020 financial year to 31 March 2020 was in line with Naoki Ono’s summary above, with both sales and profits down. Its domestic sales volumes decreased by 5% to 14.5Mt, although exports rose by 11% to 3.9Mt. In its financial report it highlighted its key foreign markets in the US, China, Vietnam and the Philippines. Despite increasing its sales in its 2020 financial year, Sumitomo Osaka Cement’s operating income and profits fell. It blamed this on energy costs, principally coal, and other raw material inputs. It has since published its next medium-term management plan. This includes a number of measures such as cutting costs and looking at overseas expansion. Both Mitsubishi Materials and Ube Industries reported similar reductions in their sales and profits. Mitsubishi Materials noted that it had observed a decrease in cement shipment due to the construction delay caused by the coronavirus.

Ratings company R&I is optimistic about the Japanese market following the start to 2020. In a recent news release it concluded that domestic cement demand is ‘solid’ for the next few years due to order backlog and anticipated infrastructure projects. In its assessment local producers have been improving their cost structures since 2010 in ways that should support ‘certain levels of profit’ provided domestic demand remains around 40Mt/yr. In the medium to longer term though it still expects domestic demand to decrease slowly. Hence, the overseas expansion, merger and acquisition activity and cost cutting plans of the larger producers. Long trends aside, the Japanese cement sector is coping well so far with the global health pandemic.

Japan: The Japan Cement Association (JCA) has reported that cement demand has resumed its pre-coronavirus outbreak levels, with all planned construction projects from mid-May 2020 going ahead. R&I News has reported that this follows the suspension of multiple major works during the crisis, leading to a domestic demand of 3.19Mt in April 2020, down by 7% year-on-year from 3.43Mt in April 2019. Although the JCA’s 2020 cement consumption forecast is 41.0Mt, the lowest since 1990, contractors will reportedly have a backlog of projects “even after the completion of projects related to the Tokyo Olympics and Paralympics,” suggesting the likelihood of a considerable rise in demand year-on-year in 2021, set against a moderate decrease in the medium to long term.

Puerto Rico: Cement companies produced 43,900t of cement in May 2020, up by 2.5% year-on-year from 42,800t in May 2019. M-Brain News has reported that sales rose by 2.1% to 52,800t from 51,700t.

Under the current circumstances it’s not surprising to see how much Indian cement production fell in April 2020. Like many other countries, its lockdown measures to combat the coronavirus outbreak suppressed industrial output. Yet seeing an 86% year-on-year fall in the world’s second largest producer is shocking. Cement production declined to 4.1Mt from 29.2Mt. Further data shows, as part of the Indian government’s eight core industries, that steel and cement production suffered the most. Coal, crude oil, natural gas, petroleum refinery products, fertilisers and electricity generation all fell by far less.

Graph 1: Change in Indian cement production year-on-year (%). Source: Office of the Economic Adviser.

By comparison in China monthly cement output only fell around 30% at the peak of its outbreak. The difference is that China implemented a graduated lockdown nationally, with the toughest measures applied in Wuhan, the place the outbreak was first identified. As we reported in April 2020 demand for cement in Wuhan had fallen by around 80% at the time its lockdown ended. Production and demand are different, but India’s experience feels similar except that it’s on a national scale. The last time the country had a dip in cement production recently was in late 2016 when the government introduced its demonetisation measures and dented cement production growth rate (and national productivity) in the process.

UltraTech Cement, Orient Cement, Ambuja Cement, India Cement, Dalmia Bharat, JK Lakshmi Cement, Shree Cement and others all suspended operations to varying degrees in the first phase of the lockdown in late March 2020. Operations of industrial plants in rural areas was then cleared to restart in mid-April 2020, although subject to local permissions and social distancing rules, as the country’s lockdown zones took shape. All of this started to show in company results towards the end of March 2020 as sales started to be hit. The worst is yet to filter through to balance sheets.

March 2020 was a particularly bad time for the government to shut down cement plants because it is normally the month when annual construction work peaks. Cement production usually hits a high around the same time. The monsoon season then follows, reducing demand, giving producers a poor time to restart business. Credit ratings agency Care Ratings has forecast that capacity utilisation will drop to 45% in the 2020 – 2021 financial year. This follows a rate of 65 – 70% over the last six years with the exception of 2019- 2020, which was dragged down to 61% due to lockdown effects. On top of this labour issues are also expected to be a major issue to the sector returning to normality. The mass movement of workers back to their homes made world-wide news as India started its lockdown. Now they have to move back and Care Ratings thinks this is unlikely to complete until after the monsoon season, by September 2020. Hence, it doesn’t expect a partial recovery until the autumn, nor a full recovery until January 2021 at the earliest.

Not everybody is quite as gloomy though. HM Bangur, the managing director at Shree Cement recently told the Business Standard newspaper that he was expecting a rebound following the resumption of production in May 2020. He also reported a capacity utilisation rate of 60% at his company, higher than Care Rating’s prediction above, and he noted a difference between demand in rural areas and smaller cities (higher) compared to bigger cities (lower).

India is now pushing forward with plans to further unlock its containment measures to focus on the economy. However, daily reported news cases of coronavirus surpassed 8000 for the first time on Sunday 31 May 2020. How well its more relaxed lockdown rules will work won’t be seen for a few weeks. While this plays out we’ll end with quote from HM Bangur that will resonate with cement producers everywhere: “sales are imperative.”