Asian cement market: still robust despite global crisis
Never make the mistake of underestimating Asia’s cement
sector, writes Fred Pundol. The region took a beating from the
global economic downturn in 2009. China’s economy, for one,
throttled down to its slowest pace in eight years — growing by
just 8.7% compared with 9.6% in 2008. Yet, cement consumption
last year was on the rise in some Asian countries, including
China, thanks to stimulus spending by governments that helped
spur building activity and boost consumer confidence. Amidst
the general gloom, there were even signs of expansion as major
cement players looked beyond the crisis and prepared for a
more benign future.
For sure, it wasn’t the best of times. Cement consumption in
Thailand, for example, slid by 2.4% to 24.23mt (million metric
tonnes) from 24.83mt in 2008. Total production of cement was
down 1.5% at 31.18mt with clinker output decreasing by 3.9% to
35.90 million tonnes. Cement exports were likewise off by 5.1%
at 15.09mt compared with 15.91mt the year previous.
Those figures are hardly surprising. The Asian Development
Bank (ADB) says Thailand’s economy contracted by 2.3% last
year compared with a positive growth of 2.5% in 2008. On the
other hand, the picture would have been more dismal if not for
the Thai government’s adroit handling of the economy, which
resulted in positive growth in the last quarter of 2009, and the
country’s strong economic fundamentals (including a welldeveloped
infrastructure, which the Philippines and some other
neighbouring countries lack).
Will 2010 be much better? Maybe or maybe not. The redshirt
rallies and the general political tension that has been
gripping the country give Thai cement manufacturers a reason to
worry. But not top-ranked Siam Cement Group (SCG), which
has projected a 5% to 10% growth this year in its building
material division. The company has cited two reasons for being
optimistic: provincial markets (the political strife has been largely
concentrated in Bangkok) account for some 70% of SCG’s sales
of construction materials and the expanding economies of
neighbouring countries such as Vietnam can support its export
sales drive.
The Philippine cement sector has been quite lacklustre for more
than a decade. But last year, despite the economy growing by a
mere 0.9% compared with 3.8% in 2008, it sprinted ahead.
Preliminary estimates place last year’s cement demand at 14.7mt,
which is said to be an 11% improvement over 2008. A better
picture should emerge once the Cement Association of the
Philippines (CeMAP) releases its figures.
In any case, the volume surge would not have happened if not
for the Manila government’s economic stimulus package, which
saw large-scale infrastructure spending, and migrant worker’s
remittances, which boosted general consumption levels and
fuelled the construction of more shopping malls and housing
projects. To this one can add the peculiar tendency of Filipinos
to not worry about what tomorrow will bring — to just roll
with the punches and enjoy the present. Other Asians may look
at this as a negative trait but it could very well have contributed
to the increased consumption of cement.
Holcim Philippines Inc (HPI) was particularly well-positioned
to reap the benefits as it boasts the largest cement sales and
distribution network in the country — four plants, one cement
grinding mill, three ports, four storage/distribution terminals, 18
sales offices and 800 dealers nationwide. The company says it
achieved double-digit growth in all markets, with Mindanao,
where HPI runs two plants, growing by a whopping 30%. All
told, HPI sold 5mt of cement locally and exported 330,455
metric tonnes of cement and clinker to the Asia-Pacific region.
There was some progress as well in Indonesia, albeit far from
dramatic. Domestic cement consumption in 2009 was estimated
at 38.7mt, up slightly from the 38.09mt recorded the year
previous. The increment is nothing to sneeze at, considering that
the Indonesian economy grew by only 4.5% compared with 6%
in 2008. Interestingly, local consumption of cement during the
first three months of 2010 increased by nearly 17% (year-onyear)
to 9.7mt — which points to better times ahead for
Indonesian cement companies.
For the whole of this year, the Indonesia Cement Association
(ASI) sees domestic consumption rising by about 6% to 40.7mt
this year. In 2009 total output was already close to 90% of
capacity. This means that there’s a pressing need for additional
production capacity if supply is to keep pace with demand and if
the potential upward pressure on prices is to be avoided.
In fact, there are several ongoing expansion projects which
together would add 4.6mt to the country’s total installed
capacity, lifting it to an all-time high of 48.6 million. The largest
new investment, apparently, is a US250-million plant which PT
Semen Tonasa, one of eight subsidiaries of Semen Gresik, is
building in East Indonesia in an area said to be abundant in
limestone and clay. When completed, the Tonasa V plant will be
able to produce 2.5mt per annum.
PT Semen Tonasa is putting up two small power plants to
support the new facility. In addition, it is refurbishing the Tonasa
III and IV production facilities and gearing up to expand its port
so that larger vessels can berth and load cement in bulk instead
of by bags. The company is reportedly aiming to capture 47% of
the cement market in East Indonesia by 2011. And just in case
future local demand falls, it has contingency plans in place to
export its cement to Bangladesh, Africa and the US, amongst
One thing with the Asian cement market is that it has a grand
scale. This is something which some Westerners may not readily
appreciate and which China, still the world’s top cement
producer, epitomizes. What’s interesting about China’s cement
industry, though, is not so much its size as the speed at which it
continues to grow.
In seeming defiance of the worldwide economic slump in
2009, China’ cement production was up 18% at 1.63 billion
metric tonnes, according to official figures. Chinese cement
exports did suffer a major setback with total volume plunging
40% to 15.6mt and export value down by 38% at some US$687.
But who’s to complain?
Domestic consumption of cement remained robust last year
— so much so that there was actually a flurry of expansion
activities. The national cement association says a total of 176
new production lines were commissioned in 2009 and total
investments in China’s cement industry exceeded 100 billion
yuan (about US$14.7 billion). The consensus, inside and outside
China, is that cement demand will keep growing — perhaps
exponentially if one looks at the various factors at play.
The most important, of course, has been the Chinese
government’s economic stimulus package and massive spending
on infrastructure. Beijing is also keen on helping increase
building materials sales to the countryside via a trade-in subsidy
programme which has yet to be fleshed out. In the meantime,
restructuring of the cement industry is forging ahead with focus
on the further phase-out of backward production lines, industry
consolidation, a more equitable distribution of capacities by
region and — not least important — environmental protection
and more efficient use of energy by cement producers.
An overview of how Asian cement is faring won’t be complete
without a snapshot of India, the world’s second-biggest cement
producer. Estimates place total Indian cement dispatches in
2009 at around 195mt as against 177mt previously. This is
interesting as India had to grapple with a sub-normal monsoon
aside from having to fend off the effects of the global recession.
Equally important, cement market growth cut across all major
regions — clear evidence of India’s continuing binge on
infrastructure and still healthy housing sector. To cope, cementmakers
put in around 27mt in additional production capacity.
The future beckons. ACC Limited, India’s second largest
cement-maker 46% owned by Swiss cement giant Holcim, has
projected a spike in Indian cement demand of 9–10% this year
owing to infrastructure investments and steady growth in the
housing sector. The company is looking to soon raise its own
installed capacity from 27mt to 30mt. Fitch Ratings is even more
bullish. It expects a demand growth of 10–11% in 2010 and the
addition this year of some 50mt in new capacity, raising the total
to 300mt.
That kind of optimism appears well-grounded. By all
indications, India has turned the corner. In fact, it has emerged
even stronger from the global recession. The ADB reckons that
the Indian economy would grow by 8.2% this year versus 7.2% in
2009 and 6.7% in 2008. Perhaps of more fundamental
importance, India is a vast country with a population of 1.16
billion people.
This means a huge domestic cement market that could grown
even bigger. As things stand, per capita consumption of cement is
said to lag behind those in other Asian countries (an estimated
150kg compared with China’s 1,000kg). Have no doubts about
it, there’s plenty of room for expansion in India’s cement
industry and it’s being filled up. If they play their cards right,
other cement-producing countries in Asia could look forward to
better times as well in 2010 and onward.
  China undertakes ‘vigorous development’ of its cement-making capacity
India, with a capacity of 234mt (million tonnes) happens to be
the owner of the world’s second-largest cement industry, writes
Kunal Bose. As is in so many other commodities, China
comfortably holds the top slot in the league of cement
producing countries with capacity in excess of 2bn tonnes and it
continues to create new capacity at the fastest rate in the world.
Thanks to the presence of some large groups, including a few
leading multinational cement producers, the Indian capacity
addition at over 10% is double the rate of world growth. Indian
industry officials recently on a visit to China, however, say the
Chinese story is altogether different in scope and complexities.
The riddle is as China continues to create new cement capacity
at a frenetic speed, it will be left to nurse considerable idle
capacity unless of course in a clean sweep it does way with
much of the 500mt capacity described as ‘laggard’.
As many as 418 new cement lines aggregating a capacity of
620mt are under construction in China and when these are
commissioned by the end of this year and early 2011, China will
have a 2.7bn tonne cement industry. This, however, does not
take into account another 147 lines of total capacity of 210mt
for the building of which approvals have been given. Apparently,
there is a dichotomy in the Chinese landscape since domestic
consumption in the current year will be between 1.6bn and
1.7bn tonnes. What will China then do with the surplus of more
than three times the size of the Indian cement industry? Export
is an option, but in no way could it lead to evacuation of so
much surplus. Asia Pacific is seeing the fastest growth in cement
consumption among all regions in the globe. The problem with
cement is that the margins get squeezed if the building material
is to be moved long distances. That is why in a big country like
China or India, the growth of the cement industry has a regional
orientation. “Our objective is to reach cement to the actual
user within a radius of 250 km of factories,” says an industry
An insight into the Chinese strategy will be found in China
Cement Association declaration that if the country’s eleventh
plan promoted “vigorous development” of capacity based on the
energy efficient dry process technology, the next plan to start in
2011 will be devoted to “appropriate development of the
industry,” which because of uncharted capacity growth has been
witness to chaotic competition. The Chinese cement capacity is
composed of over 1.2bn tonnes of dry process kind, nearly
300mt of special cement and 500mt of low technology origin.
Besides destabilizing the domestic market, cement in such big
volumes produced in small vertical kilns is found to be an energy
wasting exercise in an environment of major electricity
shortages in China. The quality of cement produced by marginal
units is found to be wanting in quality. The reorganization of the
cement industry that China is now attempting has also got to do
with the industry’s commitment to significantly reduce its carbon
Interestingly, China will encourage “foreign capital to play an
important role in mergers and acquisitions of cement capacity.”
At the same time on the model of global cement majors
presiding over very large capacities, China will give leading
domestic producers access to special loans to carry out
“enterprise acquisition.” It will not be surprising if China will
take recourse to some harsh fiscal measures and punitive action
against polluting units to ensure the phasing out of ‘laggard
capacity’. Through major capacity consolidation, China wants to
achieve profound changes in technology, energy conservation
and emission reduction.
In the meantime, thanks to the initiative of a handful of
domestic enterprises with Aditya Birla Group playing the lead
role and the growing presence of foreign companies, the Indian
cement industry has seen some major capacity consolidation
moves. Of the foreign cement makers out in India, the leader of
the pack is Holcim of Switzerland which in two daring initiatives
gained significant ownership and management control of ACC
and Ambuja Cement. The combined capacity of multi-locational
ACC and Ambuja Cement is around 50mt. Holcim has
announced investment of at least $1.1bn over the next five years
to lift its Indian capacity by 10mt. This will include building of
two or three greenfield factories and some brownfield capacity
expansion. “India is a fast maturing market which no cement
player with ambition to have global footprints can afford to
overlook. That’s why you have here besides Holcim, LaFarge,
Italcementi, Heidelberg Cement and Vicat. While they made
their entries into India by acquiring assets or gaining
management control or by way of joint ventures, all of them on
getting a foothold here have been pursuing vigorous capacity
growth. As they are expanding capacity of existing factories and
also building new ones, they remain on the lookout for buying
opportunities,” says an official of Cement Manufacturers
Vicat SA of France bought 51% of Bharathi Cement which in
October commissioned in the first phase a factory of 2.5mt
capacity at Kadapa district of Andhra Pradesh. Factory capacity
will be doubled in the second phase to be completed by
December 2010. Vicat’s outing in India, however, began earlier
when it entered into a 51:49% JV with Sagar Cements to build a
5.5mt cement project at Gulbarga in Karnataka. The 2.75mt first
phase of Gulbarga mill is scheduled to start commercial
production in January 2012. What price Vicat has paid for the
controlling interest of Bharathi has not been disclosed. But
industry watchers say since there were many serious contenders
for the Bharathi pie, including the likes of Holcim and LaFarge
the price must have been worked out on the basis of $230 a
tonne of cement capacity. In three years Vicat will be presiding
over 10.5m capacity in two southern Indian states in the
industry’s fastest capacity ramp up.
Lafarge of France, which has come to own 6.5mt capacity by
buying the cement business of Tata Steel and Raymonds has
decided to build 2.5mt of greenfield capacity. The new factories
will be in Rajasthan, Karnataka and Meghalaya. Incidentally,
LaFarge has become a preferred brand in India. Like LaFarge,
Heidelberg Cement with capacity of 3mt here by way of
acquisition is to take capacity to 6mt in the next three years.
Italcementi is also in the process of ramping up Indian capacity
to 6mt from 3.5mt.
The expansion programmes of domestic and foreign groups
in India are proving to be music to Danish cement machinery
maker FL Smidth’s ears. The company is making a virtual clean
sweep of cement plant orders emerging in the world’s second
biggest industry. India in fact is FL Smidth’s most important
market where cement machinery demand is growing twice as
fast as in the rest of the world outside China. FL Smidth CEO
Joergen Rasmussen says, “in India there is a boom in cement and
our customers there are very aggressive on expanding capacity.”
The Danish company could run neck and neck with Sinoma
International Engineering Company of China in terms of order
book size for kilns largely because of its monopolizing Indian
orders. According to Indian prime minister Manmohan Singh,
the country needs to spend at least $1 trillion on building roads
and other infrastructure facilities. By the end of this year India
will have cement capacity of about 275mt and the industry will
no doubt continue to grow at a double digit rate. Since the
national focus will remain on strengthening infrastructure and
building construction cement will continue to fare well in India,
occasional overcapacity notwithstanding.
Surplus capacity leads UAE cement factories to increase exports
Cement factories in the UAE are expected to boost exports in
the coming period to utilize a projected increase in surplus
capacity because of a decline in demand following the end of the
oil boom, the Emirates Industrial Bank said in April.
In its monthly bulletin, the government-held EIB estimated
that the UAE’s installed cement production capacity at nearly
25mt (million tonnes) per year, the second-largest output among
the Gulf Co-operation Council (GCC) states after Saudi Arabia.
“Construction activity having abated but with more capacity
coming online, the cement factories are not likely to be producing at full capacity
soon. Price adjustments are not likely to boost demand, so the industry’s decision
to hold moderate prices and not to allow price wars or a price crash is an
appropriate one. If the prices fixed by the industry’s association can be held, business
will continue to remain profitable despite some excess capacity,
though this will vary from factory to factory,” it said.
“New added capacity is best utilized by focusing on exports.
Exports might be more challenging than selling domestically but
the UAE’s cement factories have been long in the business to
find a niche in the international markets.”
The EIB noted that Ras Al Khaimah, the largest cement
producer in the UAE, exports nearly 90% of its output. It
showed that Bahrain and Oman were major cement importers
in the GCC while key non-GCC importers include Pakistan,
Yemen and Ethiopia.
“In the short- to medium-term, the UAE’s cement industry is
likely to focus on exports to utilize its excess capacity. Unlike
the Western world, the neighbouring markets have not been
affected by the global financial crisis since 2008. Demand
continues to be robust there and offers an opportunity to profit
from the recently expanded capacity,” the EIB said.
Referring to the upswing in domestic production and demand
during the oil boom, the EIB said while trading companies can
quickly adjust to changing demand, the challenge was much
greater for manufacturing companies.
Cement is the most important of the construction materials
and demand for it was such during the boom years that despite
producing at full capacity, domestic factories were not able to
meet the requirement, it said.
“The consequent demand-supply gap had to be filled by
imports. This gap has now have been reversed. According to a
global study on cement, the UAE has one of the highest per
capita cement consumption rates in the world, standing at
1,757kg/person even before the construction boom,” the study
“The consequence of the construction boom was an
exploding demand for cement, leading to shortages and higher
prices. Demand increased from around 7mt in 2000 to nearly
12mt in 2006 and to a peak of more than 25mt in 2008. Most
of the demand was met by rising domestic production with
sustained expansion of capacity.”
Its figures showed the UAE’s cement production capacity had
almost doubled since 2004. It said because of the sustained
demand, more capacity was added in the past decade, including
new cement plants.
It noted that since it takes almost two years to implement
capacity expansion plans, capacity expansion was not able to
meet rising demand, which led to price increases, shortages and
imports. “By the time some of the production capacity came
online, the market had changed. Because of the two-year period
it takes to install new capacity, cement production capacity is set
to rise further. According to market sources, capacity is
expected to increase by almost 19% in 2011, as a consequence
of decisions taken earlier,” the study said.
“Consequently, competitiveness in the market is set to
increase. Certain cement companies would continue to perform
well due to their favourable cost structure and advantageous
location. However, the challenge is not
new and the cement industry has
experienced excess capacity situation
The study recalled that a large number
of cement factories in the UAE faced
excess capacity difficulties during the
recession of the eighties, with the situation
of excess capacity continuing until around 2000 and exports
filling the gap. “Since then, the situation was reversed when
cement supply shortages resulted in imports and added capacity
in existing as well as new factories for both, cement and clinker
Citing figures by the UAE Cement Manufacturers’
Association, the report put domestic cement sales in 2009 at
around 17.8mt.
“This can be taken as a fairly accurate estimate of the
production, suggesting a 28% excess capacity. Such an excess
capacity level may not be ideal, but is not critical. Few
manufacturing industries produce at full capacity at all times.
However, the problem is that the cement manufacturers’
association estimates demand to slide further to about 13.5mt
by the end of this year, namely another decline of almost 25%,”
the EIB said.
“This may be an overestimate, but demand does not look to
be recovering in the short run, so the industry needs to have an
appropriate strategy during the low demand period while waiting
for demand to revert to earlier levels for which the new
capacity was built. While the industry as a whole will be able to
weather the storm, some individual factories may find the
situation difficult,” it said.
Turning to prices, EIB said during the oil boom, demand
soared to such levels that prices almost doubled between 2003
and 2004. A 5% import surcharge was lifted and imports started
to come in, it said, adding that prices stabilized at about 10% to
20% more than previous levels and manufacturers pumped large
investments to add capacity to meet demand.
According to the study, the recent demand-supply gap meant
that a price adjustment was inevitable and prices have fallen. It
pointed to a decision by the Ministry of Economy in April 2009
to fix cement prices across the UAE at Dh280 per tonne and
Dh14 for a bag, saying this reflected conditions prevailing at that
time, when factories were selling cement at Dh300 to Dh310
per tonne.
“While at that time there was reluctance among
manufacturers to accept these prices, they were compelled to
reduce prices in the following months,” it said. “To avoid price
wars and bring stability, the industry decided to fix prices. In
February 2010, the cement manufacturers’ association
announced prices at slightly higher than prevailing levels. Though
the decision has no legal binding, all member factories are
expected to abide by the prices.”
ABG Shipyard wins cement carrier contract
India’s largest private sector shipbuilder ABG Shipyard has
won a $114m order to construct four cement carriers for the
Singapore-based Associated Bulk Carriers Ltd (ABCL), which
is 50% owned by the Bangkok-based dry bulk cargo specialist
Precious Shipping.
Each cement carrier can take up to 20,000 tonnes of
cargo, and will cost $28.5 million to build. The vessels will be
delivered to the owner between August 2011 and April 2014.
This is the first order won by the Indian shipyard since the
global economic crisis deepened in September 2008. The last
order it had booked had been in August 2008 for the
construction of two oil drilling rigs for Essar Oilfield Services
Limited, a subsidiary of the widely diversified Essar Group, for
$530 million.
The four bulkers order adds to the existing $2.65 billion
order book that is packed till 2013, and has not seen a single
cancellation during the difficult times when yards the world
over saw both signed orders and options being dropped.