A review of global cement industry trends CONCREATECH, NEW DELHI, NOVEMBER 2018

Thomas Armstrong, Managing Editor

International Cement Review

Evolution of global cement demand, 1990-2018F

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

(Mt)

Emerging Markets Mature Markets China

World

demand

CAGR 5.1%

1990-2017

Peak demand

(2014): 4.15bnt

Demand x 4

1990-2017

China’s sustained pace of high growth

China’s pace of growth greatly outpaced Rest of World (RoW) for decades

China CAGR 9.6% (1990-2017) – multi-year double-digit growth, vs CAGR 2.5% RoW;

CAGR 7% Indian Sub-Continent

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

China vs RoW cement demand YoY growth, 1990-2020F

China: YoY Change (%) RoW YoY Change (%)

Global

financial crisis

China resets

to lower

consumption

Global cement demand growth is slowing

Global financial crisis saw global growth fall in 2008-09, but demand largely offset by Chinese growth

Peak demand achieved in 2010, when China and RoW growth was synchonised in post GFC rebound

General deceleration since 2010, contracting in 2015 due to negative Chinese growth (first time ever)

2,765 2,832 3,000

3,312

3,585 3,746

4,034 4,152 4,053 4,124 4,142

3,967 3,970 3,987

8%

2%

6%

10.4%

8%

4%

8%

3%

-2%

2%

0%

-4%

0% 0%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018E 2019F 2020F

Yo

Y C

han

ge

(Mt)

Global cement demand, 2007-2020E

World (Mt) YoY Change (%)

Asia dominates top cement consuming nations

284

97 75 66 60 57 55 54 54 49 47 42 41 39 30 29 29 28 28

0

50

100

150

200

250

300

350

(Mt)

Top cement consuming nations, 2017

Consumption (Mt)

Rank Country

Consumption

(Mt)

Rank 2017

vs 2016

1 China 2386 – 2 India 284 – 3 United States 97 – 4 Turkey 75 – 5 Indonesia 66 – 6 Vietnam 60 +2

7 South Korea 57 +2

8 Russia 55 +2

9 Egypt 54 -3 10 Brazil 54 -3 11 Iran 49 +1 12 Saudi Arabia 47 -1 13 Japan 42 – 14 Mexico 41 – 15 Pakistan 39 – 16 Philippines 30 +3 17 Thailand 29 -1 18 Germany 29 -1 19 Algeria 28 -1 20 Bangladesh 28 –

Per capita cement consumption

0

500

1000

1500

2000

2500

3000

3500

Qata

r

Bahra

in

UA

E

Lu

xe

mbo

urg

Ma

ca

u

Le

ban

on

Tun

isia

Mo

nte

neg

ro

Iran

Egypt

Bhuta

n

Kazakhsta

n

Ma

uritius

Re

unio

n

Pale

stine

Tha

iland

Iraq

Surin

am

e

Bela

rus

Cypru

s

Ca

mbo

dia

Slo

vakia

Japa

n

Cro

atia

Bra

zil

Bulg

aria

Me

xic

o

Djib

outi

Sri L

anka

Esto

nia

Uzbe

kis

tan

Vene

zu

ela

Gam

bia

Serb

ia

Spain

Ne

therl

and

s

Sw

ede

n

Mo

ldova

Para

gu

ay

Ango

la

Benin

Gha

na

Ukra

ine

Sw

azila

nd

Puert

o R

ico

Ne

pal

Cô

te d

'Ivo

ire

Cu

ba

Nic

ara

gua

Zam

bia

Lib

eria

Tan

za

nia

Eth

iopia

Eritr

ea

Ch

ad

Co

ngo

- D

em

. R

ep

ublic

Nig

er

(Kg

)

Per capita cement consumption: world (kg)

Cement Consumption Per Capita (kg)

Median World Av.

Per capita trends

World average 563kg

Median 287kg

Highest 2950kg

Lowest 19kg

Mind the gap – growing surplus capacity has eroded utlisation rates

Global capacity reached 6.2Bnta in 2016

Consumption growth has lagged capacity growth: consumption increased by 25 per cent between 2010 and 2016, while capacity increased by 40 per cent

Surplus capacity doubled from 1.06bnta in 2010 to 2bnta

Worldwide utilisation rates therefore dropped from 76% in 2010 to 67% in 2016

Worldwide utilisation rates outside of China fell from 70% to 61%: equivalent to 124Mta capacity added annually between 2010-16

Pressure on prices and profitability of cement companies

3312

4371

3746

5244

4155

5695

4129

6138

76%

71%

73%

67%

60%

62%

64%

66%

68%

70%

72%

74%

76%

78%

80%

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2010 2010 2012 2012 2014 2014 2016 2016

(Mta

)

World capacity (Mta) vs demand (Mt), utilisation rate (%), 2010-2016

Cement Capacity (Mta) UtlisationDemand (Mt)

Regional economic growth trends

GDP levels have stabilised since the global financial crisis in 2008-09, but world growth expected to soften on back of slower growth in China and US

Expectation that India will be achieving high, sustained annual growth, while China’s expansions softens

Emerging Asia growth around 6% vs 4% world average and 2% advanced economies

-6

-4

-2

0

2

4

6

8

10

12Y

oY

change (

%)

Annual GDP growth, world and regions, 2008-2023F

World Advanced economies

Emerging and developing Asia Latin America and the Caribbean

Middle East and North Africa Sub-Saharan Africa

India China

0

1

2

3

4

5

6

7

8

9

An

nu

al

gro

wth

(%

)

Selected GDP growth rates, 2018E and 2022F

2018E 2022F

Regional growth – current trends

-15%

-10%

-5%

0%

5%

10%

15%C

han

ge (

%)

Regional growth rates, annual (YoY), 2016 & 2018E

2016 2018

Regional cement demand growth

-5%

2%

0%

-10%

-3% -3%

2% 1%

2%

4% 3% 4% 3%

6%

1%

12%

6% 7%

6%

0%

6% 6% 5% 5%

1%

4%

-3%

-1%

1%

-15%

-10%

-5%

0%

5%

10%

15%

2015 2016 2017 2018E 2019F 2020F

( Y

oY

% C

han

ge)

Cement demand growth rates, China, RoW, Asia, 2015-2020E

China (Mt) World (excl. China) Indian Sub-Continent South Asia North Asia excl China

Strong pipeline of new capacity under construction

328Mta cement capacity under construction worldwide (ex. China) – vs 188Mt additional consumption

New projects concentrated in Africa and Asia

Strong future project pipeline: 419Mta new cement capacity announced, not all will materialise

90

63 57

41 35

20

10 6 5 1

119

87

124

17

38

18

7 2 2 3 1 1

0

20

40

60

80

100

120

140

Mta

New cement capacity, worldwide (ex China), 2018

Under construction Announced

Asian per capita consumption trends

1716

1542

1102

995 979 916

860 829

734

643 619 569

432 418 375 373

333 298 284 283 253 216 208 196 185 182 179 171

135

0

200

400

600

800

1000

1200

1400

1600

1800

2000

(Kg

)

Per capita cement consumption, Asia (kg)

Cement Consumption Per Capita (kg)

Median World Av.

Cement consumption vs GDP

0

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0 10,000 20,000 30,000 40,000 50,000 60,000

Ce

me

nt co

nsu

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tio

n p

er

ca

pita

(kg

)

GDP per capita (US$)

Cement consumption vs GDP - per capita

Indian sub-continent’s thriving cement sector

Indian sub-continent: demand (Mt)

Country 2017 2018E

India 284 324

Pakistan 39 42

Bangladesh 28 30

Myanmar 9 10

Sri Lanka 6 6

Nepal 5 6

Afghanistan 5 5

Bhutan 1 1

Total (Mt) 377 423

% Change 0.9% 12.3%

5.8%

10.6%

14.2%

7.1%

3.4% 4.8%

7.1%

3.1%

6.5%

0.9%

12.3%

6.5% 7.1%

0%

5%

10%

15%

20%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018E 2019F 2020F

Yo

Y C

han

ge (

%)

Indian sub-continent: demand (YoY % change)

Regional markets dominated by India (75%) followed by Pakistan and Bangladesh

Very high regional economic growth: India 7.3%, Bangladesh 7%

Bounce back in demand growth as three largest markets post strong growth rates, returning to long-term CAGR of 6-7% over 2019-20

Lowest per capita consumption levels of the three Asian regions at 208kg; well below world av.

64% utilisation rate – but demand growth should match supply growth in India, lag in Pakistan.

India – robust demand and supply growth

325 350 356

479 490 502 517

532

254 270 274

288 284

324 344

369

78% 77%

60% 58%

65% 67% 70%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

100

200

300

400

500

600

2013A 2014A 2015A 2016A 2017A 2018E 2019F 2020F

Mt

Capacity (Mta) Consumption (Mt) Utilisation (Mta)

Second largest market worldwide, with strong project growth in demand due to fundamentals (economic and demographic drivers), low per capita consumption

Second largest population at 1.33bn, set to overtake China by 2023 (IMF).

Demand growth accelerating from 5% (2013-18) to 6-7% annually over next two years

Utilisation rates set to recover from 58% in 2017 to 70% by 2020 as demand growth exceeds capacity additions (+15Mta, down from +35Mta)

Pop (2018): 1.334m (1.3% annual

growth)

GDP growth: 7.4% (2018)

Urbanisation rate: 34%

Per capita consumption: 216kg

• Cap: 502Mta (x2 over 10yrs)

• Demand 2018E: 324Mt / +14%

• Utilisation rate: 65%

(increasing)

• Surplus: 178Mta

• Demand CAGR 2013-18E: 5%

+35Mta capacity

(2013-18E)

India – technology and sustainability

✓ Modern cement facilities with advanced

technology: 50% of capacity less than 10

years old

• 99% dry process

• Large capacities: 4500-12000tpd kilns

✓ Best-in-class performance:

• Heat consumption (kcal/t cl): 650-750

• Power consumption (kWh/t cem): 70-90

• Waste heat recovery power generation

widely used

✓High use of fly ash slag to reduce clinker

rate.

Challenge: average Thermal Substitution

Rate of 4%

Sustainability performance:

> Dalmia and Shree top ranked

worldwide on climate preparedness

(CDP)

> CO2 emissions reduced by 36% from

1.12/t cement in 1996 to 0.719/t cement.

Target: reduce emissions intensity to

0.35t of CO2 per tonne cement by 2050,

requiring US$29-50bn investment.

North Asia – regional slowdown accelerates led by China

North Asia: demand (Mt)

Country 2017 2018E

China 2386 2149

South Korea 57 52

Japan 42 42

Taiwan 10 10

North Korea 7 7

Hong Kong 6 6

Mongolia 3 3

Macau 1 1

Total 2512 2270

% Change -0.2% -9.6%

Regional market dominated by China, followed by South Korea and Japan

Mature cement markets in structural decline

Advanced economies (slower GDP growth), high urbanisation (59-100%), low consumption growth/potential

Highest per capita consumption levels of the three Asian regions at 1542kg; well above world av.

75% utilisation rate – taking into account China’s ongoing industry reform

3.4%

14.5% 14.3%

10.3%

5.7%

10.3%

2.6%

-4.8%

2.4%

-0.2%

-9.6%

-2.5% -2.3%

-15%

-10%

-5%

0%

5%

10%

15%

20%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018E 2019F 2020F

Yo

Y C

han

ge (

%)

North Asia: demand (YoY % change)

China resets to new demand course; industry restructures

-

500

1,000

1,500

2,000

2,500

3,000

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

20

18

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20

20

22

20

24

20

26

20

28

20

30

(Mt)

China cement consumption, 1990-2030F

2014-2030

CAGR -2.7%

PCC: 1805kg

PCC: 1100kg

1990-2014

CAGR 11%

Building boom over? Shift from intensive real estate and infrastructure construction to stable, sustainable consumption: new normal

Long-term demand to decline (CAGR -2.7% then plateau)

Supply side reform of energy-intensive, polluter industry

Utlisation rate to recover from 68% in 2016 to 80% by 2020: reduction of 400mt clinker capacity over period

Stop new capacity, strengthened environmental regulation/upgrading, off-peak production

Consolidation: top 10 companies clinker capacity: 60% by 2020

Shift from exporter to importer (Vietnam)

1H18: cement production fell steeply: -10%

Improvement of supply-demand balance = utlisation rates recovering

Conch gross profit margin climbed by 11.86% to 44.83%

Prices: CNBM reported 1H18 v 1H20: +25%

Globalisation: One Belt, One Road (OBOR)

South Asia

8.8%

2.6%

6.6% 6.1% 6.1% 6.5% 5.5% 6.1%

-0.4%

5.6% 6.0% 4.7% 4.9%

-5%

0%

5%

10%

15%

20%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018E 2019F 2020F

Yo

Y C

han

ge (

%)

South Asia: demand (YoY % change) South Asia: demand (Mt)

Country 2017 2018E

Indonesia 66 70

Vietnam 60 66

Philippines 30 32

Thailand 29 30

Malaysia 20 20

Cambodia 6 6

Singapore 5 5

Laos 4 4

Brunei 0 0

Timor-Leste 0 0

Total 221 234

% Change 5.6% 6.0% Region combines high-growth emerging economies more mature economies (Singapore, Malaysia)

Annual demand trending at 6% (sub-norm growth in 2016 as Thailand, Malaysia, Indonesia stalled)

Per capita consumption below average: 336kg

Range of urbanisation trends: 35% Vietnam, 47% Philippines, 54% Indonesia vs 75% Malaysia and 100% Singapore

High-growth markets: Indonesia, Vietnam, Philippines

But: high capex phase, resulting in low price environment and exportable surplus

Asian companies dominate cement industry groups

525

335 318

195

104 102 91 92 83 83 76 60 55 53 49 48 46 44 39 40 36 34 30 29 27 27 23

0

100

200

300

400

500

600M

ta

Production capacities of major cement producers, 2017