Middle East & Africa cement market trends

Cement pouringCement markets in MENA are expected to enjoy a solid year in 2013 with a positive outlook for 2014. Overall, IA Cement Ltd expects demand growth of 3 – 4% for the region as a whole in 2013, with an improvement to 4 – 5% in 2014.

There are a number of very strong markets growing at or close to double-digit – Saudi Arabia, Iraq, Libya and Algeria. Clinker supplies have generally tightened due to strong demand in North and West Africa, as well as imports to Saudi Arabia. This has helped Southern European cement producers to increase exports, easing their troubles in the wake of the eurozone crisis.

The total MENA cement market will reach 300 million t in 2013, on IA Cement’s estimates. This is equivalent to 7.5% of the global cement market, and is broken down into 190 million t for the Middle East and 110 million t for North Africa.

Middle East
Markets in the Gulf are generally enjoying robust cement demand growth, boosted by high oil prices and strong infrastructure spending by governments keen to avoid any further social unrest. Overall, cement consumption in the region is expected to grow by more than 4% this year.

Double-digit growth in cement demand is predicted for Iraq and Saudi Arabia in 2013, with solid growth also in Oman and Qatar.

Demand in Saudi Arabia has been very strong in recent years. The prevalent cement shortages of the last 18 months have been largely resolved with imports. In April 2013, the King of Saudi Arabia announced the importation of 10 million t of cement to alleviate chronic shortages.

Plans were also announced for 3 – 4 new cement plants to be built in the next three years, with grants of US$800 million towards these projects. Since the royal decree, IA Cement expects imports to surpass 0.5 million t as this article goes to print.

With very low cement prices in Saudi Arabia (SAR240/t or US$64/t), the government provides the cement companies with subsidies to cover the additional costs of import. Several major infrastructure projects are underway alongside the government programme to build 0.5 million new homes.

In Iraq, the rebuild process continues and this is gradually luring foreign investors back to the market. Cement demand is growing at close to double-digit levels. The cement industry has become more competitive following rising imports from Iran combined with higher local capacity.

In June 2013, Iraq announced it would stop imports from 1 July, although it appears these were resumed after prices on imported cement were increased.

The market is expected to continue to need more than 5 million tpa of imports in the medium-term. A number of overseas companies, including Lucky Cement, Attock Cement and ASEC, have announced plans to enter the cement industry in Iraq.

IA Cement expects sanctions to affect the cement market in Iran this year, with a decline in demand. Capacity continues to grow, and as such the pressure to export more cement has increased exponentially. Iranian exporters currently offer the lowest prices in the region, although sanctions make it difficult to carry out trading. Exports were up more than 40% to reach 8 million t in the period of March – August 2013.

In Lebanon, despite the close proximity to Syria, the cement market has held up remarkably well and is likely to post a healthy growth rate of 3 – 4% in 2013. Demand is likely to settle at around 5.4 million t in 2013, which will be relatively close to 2011 levels. Construction has been underpinned by a catch-up effect in recent years, but this backlog is now nearing completion. In the medium-term, demand growth is likely to be rather muted.

Syria continues to suffer sharp declines in cement demand. Although difficult to corroborate, consumption is estimated to have fallen from a peak of over 8 million t to less than 4 million t for 2013. Imports have largely stopped as the collapse (and extreme volatility) of the exchange rate has made these largely unviable.

Cement demand in the UAE has fallen by over 40% from peak levels since the real estate bubble burst. However, a modest growth in volumes is expected in 2013 from a very low base. Unfortunately, cement capacity continues to rise, increasing the size of the UAE cement surplus.

The property market in Dubai is making a strong comeback, with prices up by more than 20% in the last twelve months. As a result, a number of high profile tourism and real estate projects are being considered for reactivation. The country has also strongly benefitted from the Arab Spring due to its safe-haven status.

In smaller markets, demand in Qatar is robust but has not yet lived up to expectations in the run-up to the 2022 FIFA World Cup. Oman is also enjoying healthy demand from all segments, and is expected to enjoy another year of solid growth. Government spending is set to rise almost 30% this year. It will also face less pressure from UAE exports, as these have been diverted in part to Saudi Arabia.

Bahrain remains rather depressed due to unrest, and the market was flat in the first half of 2013. Kuwait has remained lacklustre due to the absence of large scale projects and lack of investment in infrastructure and development projects. Overall, the cement demand has remained in the range of 4.5 – 5.5 million t in the past five years and production has remained in the range of 2 – 2.5 million t.

North Africa
The aftermath of the Arab Spring is still highly visible in North African countries. IA Cement expects strong growth in Algeria/Libya in 2013, with falling demand in Egypt and Morocco.

The dominance of Egypt (circa 50 million t in 2013E) means that demand will rise only very slightly across the region this year.

Egypt continues to suffer heavy political instability. The business environment remains highly uncertain. Nevertheless, cement demand is showing resilience and is expected to shrink by only 2 – 5% for 2013. The outlook is very unclear – for instance, foreign aid (with very large commitments from Qatar in particular) is largely on hold due to the unrest. Prices are holding up well, which is helping to underpin cement margins.

The key theme in cement is really on the supply side. Energy shortages remain a major problem, keeping utilisation rates capped at about 75%. Cement suppliers are trying to diversify their energy fuel mix. This approach is risky, as government policy may not approve moves to switch from gas to coal. ASEC Minya inaugurated its new 2 million t plant in September 2013. Following this there are no further capacity additions for the foreseeable future in Egypt.

In Libya demand is returning despite major political uncertainties and ongoing instability. Local consumption is predicted to reach 8 – 9 million t in 2013. Given that local production is currently less than half of this figure, the shortfall ensures a healthy demand for imports (mainly from Greece). Local producers face a range of issues, including erratic supply of fuel/electricity, scarcity of equipment and skilled labour.

The market in Algeria continues to be affected by shortages, as production struggles to match surging demand. Prices have been increasing sharply in recent months. Imports are expected to rise from 2.7 million t in 2012 to 3 – 4 million t in 2013, and will remain elevated for a number of years according to IA Cement’s calculations.

The government agency GICA is planning 16 million t of new cement capacity by 2017, but less than half is likely to come through. GICA has not built a single new line since 2008 despite its plans. Energy costs remain low in Algeria and cement demand is likely to grow 7 – 9% pa in the medium-term. The central government is planning to build 1.5 million new homes, together with new rail and motorway programmes.

The cement market in Morocco saw plunging demand in the first quarter. Despite some stability in 2Q13, consumption still fell by more than 10% in the first half. Accordingly, a decline is expected over the year. The principal driver is a shortage of cash in the financial system in Morocco. Mortgage growth is slowing and companies are struggling to get loans. In addition, the government is looking to eliminate tax breaks on construction of low-cost housing. Earlier this year the government cut the public spending budget by 25%.

Looking ahead toward 2014
The MENA region has seen little impact of the recent currency and stockmarket turmoil affecting other emerging markets, particularly those in the Far East. Nevertheless, political unrest remains significant in many countries and is not far below the surface in others. This makes the outlook for 2014 a little difficult to predict, as there is a range of possible outcomes.

At present, the following conclusions can be drawn:

• Oil prices remain well underpinned and as a result IA Cement is optimistic for cement consumption trends in the Gulf countries in 2014.
• Dubai has managed to put itself on a recovery path and cement consumption is beginning to recover. However, its oversupply is unlikely to be resolved at any time except in the very long-term.
• Imports into Saudi Arabia are likely to continue as these have clearly resolved the shortages while maintaining control in the market for existing cement producers.
• North Africa is likely to continue to absorb the surplus capacity of Southern Europe for a number of years to come.
• Major uncertainties remain in Egypt, Iran and Syria due to the unrest/sanctions in place.
Considering the above factors, it is expected that demand may recover from a 3 – 4% range in 2013 to a 4 – 5% range in 2014. The large capacity surpluses in Iran/UAE will likely keep export prices capped during 2014. The main risks include further unrest and a drop in oil prices.

Written by Imran Akram, IA Cement Ltd, UK. This is an abridged version of the full article, which appeared in the November 2013 issue of World Cement. Subscribers can view the full article by logging in.

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