China to damper global cement demand growth in 2021

Asia ex-China and Latin America are expected to be the main drivers of global cement demand in 2021

With global economic recovery remaining strong, CW Research estimates Global ex-China cement consumption to have increased around 5 percent in 2021, with Asia ex-China and Latin America driving demand. Considering China, global cement demand is expected to grow by more than 1 percent.

The expected growth in 2021 is mostly due to the recovery of markets from the pandemic. However, dark clouds that have surged in the past couple of months could have a major impact on this outlook. For instance, China's real estate sector is facing considerable financial challenges in terms of repaying its debt obligations, highlighted by the Evergrande crisis.

Another clear risk posed to the economic outlook is the ongoing risk of new variants and still low vaccination rates in several countries. Furthermore, due to the impact of supply chain shortages and the rising threat from inflation, the IMF in its October economic outlook update lowered its global growth projection by one-tenth to about 6 percent. For 2022, a slightly lower economic growth of about 5 percent for the global economy is expected.

All these remarks and more can be found in the 2H2021 update of the Global Cement Volume Forecast Report, released in November 2021 by CW Research.

 

Global economic outlook

 

Source: Goldman Sachs, Scotiabank, OECD, International Monetary Fund: WEO, CW Research. Notes: Goldman Sachs: Nov 8; Scotiabank: Oct 20; OECD: Sep 23.

 

In terms of the Baltic Exchange's main sea freight index, which tracks rates for ships carrying dry bulk commodities, has been hovering around 2,000-3,000 points since November, a significant drop compared to trading levels of October, which reached an average of more than 5,300 points.

This happened mostly due to a decline in China's iron ore demand and steel output. Added to this, more recently the energy crunch is still biting the shoes of countries such as Indonesia and India.

 

Asia ex-China and Latin America to boost cement demand

In 2021, global cement demand is expected to grow by more than 1 percent, with Asia ex-China and Latin America driving demand. Asia ex-China is expected to witness a robust demand growth of almost 7 percent in the year, led by Pakistan, India, the Philippines, Bangladesh, and Vietnam.

India, the second-largest cement market, is expected to record cement demand growth in 2021, on the back of the infrastructure sector and robust rural demand.

Until 2023, the Indian government plans to spend approximately USD 1.4 trillion on infrastructure alone to ensure the country's sustained economic growth, which will support cement demand growth estimates until 2026, at an average of around 7 percent per year.

In China, cement demand was able to grow in 2020 despite the Covid-19. However, this year, demand is expected to see a slight decline as the country's industrial sector has been facing challenges related to the energy crisis, pollution, and carbon emissions restrictions.

 

Source: CW Research

 

In Latin America, after growing by around 1 percent in 2020, cement demand is likely to see more robust growth in 2021. The region has seen sustained consumption despite the pandemic, in markets including Brazil and Bolivia.

Argentina's demand is expected to see a rebound from last year, supported by public investment in infrastructure. In 2021, 30 projects were announced worth an estimated USD 160 million, entailing road and urban infrastructure works.

The same trend is expected to be seen in the United States. Although the US is expected to see modest growth in cement demand, it is expected to grow on average by almost 2 percent per year from 2021 to 2026, on the back of infrastructure projects funded by the USD 1.2 trillion infrastructure bill approved in 2021.

In North America, cement demand is expected to grow in 2021, driven by US consumption.

 

Cement consumption in Western Europe to rebound

Severely hit by the pandemic in 2020, the cement market in Western Europe witnessed a decline of 3 percent in demand, which is set to recover in 2021, even though the region has been hit by several new waves of coronavirus cases.

Cement demand in Africa, which was also hit by the pandemic, is predicted to grow in 2021, with Egypt's housing demand, helping to boost cement consumption in the region's largest market.

Regarding the Middle East, cement demand is estimated to decline in 2021, after a growth of more than 3 percent in 2020.

 

Source: CW Research

 

India, Pakistan, and Nigeria to lead capacity additions

Capacities additions that were postponed in 2020 came online last year due to the dramatic change in the economic outlook, and consequently, capacity utilization rates declined as demand growth was severely impacted.

On a global level, more than 300 million tons of capacity is expected to come online by 2026, with markets including Asia ex-China, and Africa witnessing the biggest additions.

China's capacity is expected to continue to decline over the forecast period from 2021 to 2026, with the government only allowing replacement capacity additions of older capacity.

India and Pakistan are the markets expected to see the biggest capacity additions from 2021-2026, with Asia ex-China expected to see an estimated 20 percent of total capacity additions in 2021.

In Africa, Nigeria and Morocco are the regional leaders in terms of capacity additions. In 2021, African markets are estimated to be adding about 11 million tons of production capacity and, up to 2026, the region is expected to add in excess of 40 million tons of capacity.

Latin American markets are projected to add 3 million tons of capacity in 2021 alone, and further add an estimated 30 million tons of capacity by 2026F.

Cement demand growth trajectory remains positive

Regarding cement demand outlook, CW Research also estimated additional scenarios: conservative and optimistic. Overall, the growth trajectory remains positive, but recent events in China could push global demand towards the conservative case.

In the conservative scenario, taking into account the possibility of China's real estate going bankrupt, China's demand is likely to decline, heavily affecting global cement demand.

 

Source: CW Research

 

Even a small decline in China's demand has a cascading impact on overall global volumes since no other single market can make up for its volume impact. Furthermore, this scenario also takes into account the possibility of new lockdowns to contain cases of vaccine-resistant coronavirus mutations.

In the optimistic scenario, the USD 1.2 trillion infrastructure bill in the United States, and continued construction sector growth in Asia-ex China including India, is likely to create sustained demand. Additionally, increasing the availability of vaccines specially to emerging and developing countries, is expected to help accelerate global economic growth.

 

 

The CW Group's Global Cement Volume Forecast Report (GCVFR) is a twice-yearly update on projections for cement volumes on a national, regional and global level. The forecast provides global and regional outlooks, as well as detailed perspectives on 57 of the world's most important countriesÔÇÖ cement consumption, production, net trade and cement production capacity. The five-year outlook presented in this benchmark study enables industry professionals to shape their perspective on markets and business priorities.

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