-
www.exanebnpparibas-equities.com
Please refer to important disclosuresat the end of this
report.
Building Materials Sector rating: Outperform
Equity Research
Report
2 February 2005
Cement: revisiting our 2005 scenario
2005 organic growth should be driven by a strong pricing
effectLike-for-like trends in 2005 will be influenced by
challenging base effects andcost inflation. In this report, we
revisit our entire cement scenario on volumesand prices by country.
We estimate that top-line organic growth will remainstrong (around
+8.5%) due to firm demand (average +2.5%e) and a strongerpricing
effect (average +6%e) in cement markets than in 2004.
2005 margins are less at risk than in our initial scenarioIn
this environment and despite H2 04 and 2005 incremental cost
inflation,we believe that cement margins are less at risk than we
estimated in Q3 04.We have recently confirmed or raised by an
average of 3-5% our 2005 and2006 estimates for cement companies,
except for Italcementi.
2006: firm demand and better pricing power in Europe and
NorthAmericaRecent sector consolidation (RMC/Cemex, AI/Holcim) and
impliedrestructuring in Germany, the USA and the UK should
strengthen theindustrys pricing power in Europe and North America
(two majoraggregate/concrete producers have disappeared). Volumes
should remainfirm in Europe, as the new EU norm on concrete (EN
206-1) takes effect,implying 2% more cement consumption.
We prefer Lafarge and HeidelbergCementWe now estimate that
HeidelbergCement will report the strongest organicgrowth in 2005 at
10.9% (Outperform; target price: EUR60), followed byHolcim at 8.5%
(Neutral; target price: CHF79), Lafarge at 8.6% (Outperform;target
price: EUR84) and Italcementi at 7.3% (Neutral; target price:
EUR11.5).
Arnaud Pinatel & Nicolas Godet
Arnaud Pinatel Josep Pujal Nicolas Godet+(44) 20 7039 9467 +33
(1) 42 99 25 17 +33 1 42 99 52 [email protected]
[email protected]
[email protected]
Rel. Perf. Construction / DJ Stoxx50
2002 2003 200450
60
70
80
90
100
110
120
130
140
150
DJ STOXX CON & MAT E - PRICE INDEXDJ STOXX CON & MAT
rel. to DJSTOXX 50
Source: Datastream
Stock recommendationsRating Price Price Upside
(EUR) target (downside)(EUR) (%)
Big capsHeidelberg Cement + 54.0 60.0 11.1Holcim R (CHF) = 74.8
79.0 6Lafarge + 79.3 84.0 6
Mid capsCiments Franais + 73.9 80.0 8Dyckerhoff Pref + 26.5 29.0
9.4Italcementi = 13.0 11.5 (12)
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2 Building Materials
Contents
Revisiting 2005 scenario ___________________________________
3
Organic growth anticipated by producer _______________________
6
Western Europe__________________________________________ 9
North America __________________________________________ 16
Latin America___________________________________________ 19
South-East Asia _________________________________________ 24
Eastern Europe _________________________________________ 32
Med. Rim & Middle East __________________________________
35
Africa & Oceania ________________________________________
38
Financial Highlights ______________________________________
43
Index of countries________________________________________
49
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3 Building Materials
Revisiting 2005 scenario
The Construction sector outperformed the DJStoxx50 index by 24%
in 2004, mainlydriven by the concession businesses and acquisition
premiums paid on stocksfollowing the UK sector consolidation. As a
result, the cement sub-segmentunderperformed the rest of the
sector.
In this report, we revisit our cement scenario on volume and
price by country toanticipate both good and bad surprises on
top-line growth and margins. This is basedon the interviews we
conducted in December 2004 and January 2005.
It will be difficult to forecast trends in 2005 as like-for-like
figures will be influenced bybase effects and cost inflation. As a
result, the sustainability of cement margins in 2005will be the
main question mark. We believe stock performances should be
differentiatedby the variations in prices published by the groups,
as volumes should remain firmacross a majority of countries.
Volume: unfavourable base effect, but firm demandAlthough demand
is expected to remain firm in 2005, the total volume effect will
bechallenged by a less favourable base effect, especially in
H1.
Volume growth should remain firm across Europe and could be
sustained in 2005 and2006 by the implementation of the new European
Union standard EN 206-1 onconcrete. One of the main consequences of
this new standard, to be adopted on1 January 2005, is the higher
dosage of cement (5-10k) per m3 of concrete. This couldcreate an
additional 2% in cement consumption throughout Europe in 2005 and
2006.
Demand should also remain firm in North America, where supply is
tight and fuelled byfirm Residential demand albeit slowing down ,
gradual recovery in Non Residentialdemand and the support of public
works. In some regions impacted by hurricanes,recent reconstruction
helped boost the trend in the last few months.
Strong growth is also expected in most emerging markets, except
Latam and a fewAsian countries where demand is improving but growth
remains modest compared withother regions.
World cement volume trends Mature markets cement trends Emerging
markets cement trends
-15%
-10%
-5%
0%
5%
10%
Jan-
98
Aug
-98
Mar
-99
Oct
-99
May
-00
Dec
-00
Jul-01
Feb-
02
Sep
-02
Apr
-03
Nov
-03
Jun-
04
Jan-
05
Aug
-05
World sample emerging markets samplemature markets sample
-15%
-10%
-5%
0%
5%
10%
Jan-
98
Aug
-98
Mar
-99
Oct
-99
May
-00
Dec
-00
Jul-01
Feb-
02
Sep
-02
Apr
-03
Nov
-03
Jun-
04
Jan-
05
Aug
-05
Western Europe Southern EuropeNorthern Europe North America
-40%
-30%
-20%
-10%
0%
10%
20%
30%
Jan-
98
Aug
-98
Mar
-99
Oct
-99
May
-00
Dec
-00
Jul-01
Feb-
02
Sep
-02
Apr
-03
Nov
-03
Jun-
04
Jan-
05
Aug
-05
Eastern Europe Latin AmericaSouth East Asia Oceania
Source: Exane BNP Paribas Source: Exane BNP Paribas Source:
Exane BNP Paribas
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4 Building Materials
Prices: strong improvement, except in a few marketsIn 2005, we
believe the price effect will vary depending on the country:
In the US, the UK and Germany, cement producers have already
announced majorprice increases. In the UK, cement players want to
recover sharp cost inflation andmake up for three years of
stagnation, whereas in Germany prices are moving backtowards
historical levels, following the 2003 price war. In the US, high
dependence onimports combined with rising freight costs are
changing the supply/demand balance.Hence the major price increases
in April 2004, August 2004, January 2005 andprobably summer 2005.
This strong pricing power should be particularly high andvisible in
Q1 05, as some price increases have been implemented early in the
year(January instead of March). The pricing effect should offset
the cost of H2 04 inflationand additional inflation in 2005. We
believe that operating margins should be stable oreven recover from
H2 04 in most cement markets.
Conversely, the pricing effect could be limited in some markets
where new entrantsare creating additional competition or where
governments are freezing price hikes. Thiscould be the case
especially in Italy and Latin America, and perhaps in Spain and
someSouth East Asian countries. In those countries, we believe
producers will not be able torecover cost inflation.
World cement prices in 2005 (% change)
> 10%
5% to 10%
4% to 5% 0% to 4%
not covered
0%
0% to -2%
> -2%
Source: Exane BNP Paribas
Costs: significant inflationAll cement producers are set to face
significant cost inflation due to the expected sharprise in coal,
petcoke and freight prices, together with higher electricity costs
and theimpact of new EU legislation (addition of iron sulphate in
cement, CO2 emissions,working time) in some countries. In our
scenario, spot prices could stabilise at highlevels or even decline
slightly in H2 05 for both coal and petcoke.
Note: in one tonne of cement, electricity represents around 11%
of total costs, fuel:11%, labour costs: 15% and transport: 20%.
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5 Building Materials
Evolution of coal prices (FOB and CIF)
10
20
30
40
50
60
70
80
Dec-81
Oct-8
2
Aug-8
3
Jun-8
4
Apr-8
5
Feb-8
6
Dec-8
6
Oct-8
7
Aug-8
8
Jun-8
9
Apr-9
0
Feb-91
Dec-91
Oct-9
2
Aug-9
3
Jun-9
4
Apr-9
5
Feb-9
6
Dec-9
6
Oct-9
7
Aug-9
8
Jun-9
9
Apr-0
0
FOB RSA Freight
USD/t
Nota:FOB = Free On Board;CIF = Cost Insurance Freight
Coal and Petcoke prices have surged dramaticallyAccording to the
outlook disclosed by the industry, we believe theworst of
combustible cost inflation is behind us. In our scenario, bothcoal
and petcoke prices could stabilise at high levels or even
declineslightly in H2 05.
Coal prices expected to ease
At the current USD50/t FOB pri ce, steam coal is well above the
20-year historical average ofUSD30/t. South African steam coal has
increased in dollar terms,following the appreciation of the SA rand
vs the dollar (2x in twoyears) In 2005, we believe prices should
ease as supply offsetsdemand. On the supply side, export capacity
is being developed byeastern Europe, Russia and American producers.
On the demand side, consumption of steam coal by utilitiesshould
decrease owing to the new CO2 emissions legislation and theswitch
to other energies (gas, subbituminous coal). Also, freight costs
are expected to ease in 2005 due to thecommissioning of new
vessels, which will have a favourable impacton CIF prices.
Evolution of petcoke prices (FOB and CIF) Petcoke: further
increase expected, but the worst is behind us
0
10
20
30
40
50
60
Dec-81
Oct-8
2
Aug-8
3
Jun-8
4
Apr-8
5
Feb-8
6
Dec-8
6
Oct-8
7
Aug-8
8
Jun-8
9
Apr-9
0
Feb-91
Dec-91
Oct-9
2
Aug-9
3
Jun-9
4
Apr-9
5
Feb-9
6
Dec-9
6
Oct-9
7
Aug-9
8
Jun-9
9
Apr-0
0
FOB US Freight
USD/t Petcoke prices are expected to catch up to coal prices in
theshort term, as demand outpaces supply. On the supply side, the
fact that current inventories are at 50% oftheir 2003 level makes a
bullish case for petcoke. Also, plannedmaintenance stoppages in
2005 in refineries providing petcokeshould create a tight supply
situation this year. On the demand side however, some favourable
factors shouldlimit the rise of petcoke. First, over a FOB price of
around USD30/t,petcoke becomes uncompetitive for utilities compared
to steam coal.Second, the expected decline in steam coal should
limit the rise. Last,petcoke buyers have recently postponed petcoke
shipments due tolower-than-expected consumption.
Compared Evolution of steamcoal and petcokeprices, in
USD/Kcal
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
Jan-8
6
Jan-8
7
Jan-8
8
Jan-8
9
Jan-9
0
Jan-91
Jan-9
2
Jan-9
3
Jan-9
4
Jan-9
5
Jan-9
6
Jan-9
7
Jan-9
8
Jan-9
9
Jan-0
0
Jan-01
Jan-0
2
Jan-0
3
Jan-0
4
Steam coal $/Kgcal Petcoke $/Kgcal
Currency impact is uncertain but certainly priced inThe currency
effect also remains an uncertainty especially forcompanies exposed
to USD weakness. Excluding Cemex, which isthe only company that
benefits from a potential positive effect as itreports in USD and
now has greater access to European marketswith RMC, the companies
the most exposed remain Holcim, Lafarge,HeidelbergCement, and to a
lesser extent Italcementi.Nevertheless, the high euro dollar
exchange rate should not beconsidered a major risk on European
cement stocks for the followingreasons:
We believe that the market has already priced in the USDweakness
scenario. Our estimates include a USD/EUR rate at 1.32. As noted
below, combustibles and freight prices aredenominated in dollars,
which makes cost inflation less painful fornon-USD reporting
companies. Currency risk in only a translation risk, as cash is
usuallyreinvested in the country in which it was generated, and
thus notconverted into EUR or CHF. Also, debt is generally in local
currency.
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6 Building Materials
Organic growth anticipated by producer
Organic growth should remain strong in 2005, but differs among
actorsWe have tried to base pricing and volume trends in our 2005
scenario on the volumesold locally by each producer in each
country.
To simplify the exercise, our calculation assumes that each
producer will face the sametrends in each country. On this basis,
we tried to identify which companies in oursample could post the
highest l-f-l growth and which could benefit from the
highestpricing effect to recover cost inflation.
Top line l-f-l growth in 2004 was estimated at around 9%e for
the industry, with a 4.5%epricing effect and a 4.5%e volume impact,
which was mainly linked to the strongrebound in demand in H1 04
(favourable base effect). In 2005, we expect the pricingeffect to
drive up organic growth, as the volume base effect will be less
favourable evenif demand remains firm.
As a result of our calculation based on our new assumptions for
2005, we expect topline l-f-l growth in 2005 to be close to 8.5%,
with volume at 2.5% and prices at 6%e asan average for the
industry. In H1 05, the pricing effect will be strong and
particularlyvisible in mature markets benefiting from earlier price
hike announcements (Januaryinstead of March). These price increases
are necessary to try to recover operatingmargins impacted by
additional cost inflation in H2 04 and 2005e.
Top line organic growth is expected to differ among cement
producers, which arenot exactly exposed to the same cycles. We
assume that HeidelbergCementcould post the strongest organic growth
at 10.9% (Outperform; Target price:EUR60/share), followed by Holcim
at 8.5% (Neutral; target price: CHF79/share),Lafarge at 8.6%
(Outperform; target price: EUR84/share) and Italcementi at
7.3%(Neutral; target price: EUR11.5/share).
Cement organic growth implied by our 2005 scenario
1.8%3.8% 3.3% 3.4%
6.8%4.7%
7.6%
3.9%
0%
2%
4%
6%
8%
10%
12%
Lafarge Holcim HeidelbergCement Italcementi
Volume Pricing
Source: Exane BNP Paribas estimates
-
7 Building Materials
HeidelbergCement is benefiting from the highest pricing effect,
estimated at 7.6%. Themain drivers remain ongoing recovery in
German pricing, but also strong priceincreases expected in the UK,
the USA, Western Africa, Eastern Europe and Turkey.The price effect
in Benelux should remain poor, if HeidelbergCement decides to
regainmarket share on German imports. The volume effect is
anticipated at 3.3% despite thecontinuing weakness of German demand
(-4% in our scenario), but is helped by thestrong increase in
Indonesia (good underlying demand and reconstruction after
thetsunami) and Turkey. Eastern Europe and African volume trends
should also remaingood.
Holcims pricing effect estimated at 4.7% is below that expected
for Lafarge andHeidelbergCement. The pricing effect is still
penalised by the anticipated trend in Latamand Asia, two main
regions for Holcim, where new entrants, additional capacity,
andgovernment price controls explain weaker emerging market trends
integrated in ourscenario. However, organic growth expected at 8.5%
remains strong and reflects thevolume effect of 3.8%. This growth
mainly comes from Holcims exposure to emergingmarkets.
Lafarges organic growth of 8.6% anticipated for 2005 is a
combination of a low 1.8%volume effect (compared with Holcim +3.8%)
and a strong 6.8% pricing effect, which isreassuring in a cost
inflation environment. The volume effect is penalised by the
declineexpected in Greece (post Olympic games) impacting southern
European trends, and inemerging markets in Asia (further decline in
South Korea and ongoing weakness inMalaysia). The pricing effect
should benefit from US, UK and German pricingrecoveries, the strong
5% increase posted in France, and ongoing trends in African
andEastern European prices.
Italcementis organic growth anticipated at +7.3% is the lowest
in our sample ofcompanies, due to a limited pricing effect (3.9%
vs. an average 6.2% for peers).Volume growth should reach 3.4%, in
line with the sector. The groups strong exposureto the Italian and
Benelux markets, where we have integrated slight volume growth
andpotential pricing pressures, explains this lower trend and also
reflects the significantweight of the mature markets within the
group. Italcementi is also relatively lessexposed than its
competitors to the strong pricing effect expected in North
America.
Cement volume weight by producer (as % of total volume)Lafarge
Holcim HeidelbergCement Italcementi
Northern Europe 9 11 33 2Southern Europe 18 11 0 52Total Western
Europe 28 22 33 54North America 18 18 18 14Oceania 0 3 0 0Asia
Mature 5 0 0 0Total Mature markets 50 43 51 68
Med. Rim and Middle East 10 7 3 13Eastern Europe 9 8 19 4Latam 6
20Asia emerging 18 21 21 15Africa 7 2 7 0Total Emerging Markets 44
55 46 29
Total Group 100 100 100 100
Source: Exane BNP Paribas estimates
-
8 Building Materials
Estimated 2005 volume effect by producer (%)Lafarge Holcim
HeidelbergCement Italcementi
Northern Europe (1.8) (2.1) (0.5) 2.5Southern Europe (1.1) 0.8
1.0Total Western Europe (1.3) (0.6) (0.5) 1.0North America 2.3 2.4
2.3 2.5Oceania 1.3Asia Mature (5.0)Total Mature markets (0.4) 0.8
0.5 1.3
Med. Rim and Middle East 4.3 1.0 7.0 5.4Eastern Europe 4.3 5.6
3.6 10.0Latam 4.5 5.3Asia emerging 3.4 8.7 9.6 9.3Africa 4.9 7.0
4.0 0.0Total Emerging Markets 3.7 6.1 6.3 8.0
Total Group 1.8 3.8 3.3 3.4
Source: Exane BNP Paribas estimates
Estimated 2005 pricing effect by producer (%)Lafarge Holcim
HeidelbergCement Italcementi
Northern Europe 12.1 5.3 8.3 (3.0)Southern Europe 4.1 2.5
1.4Total Western Europe 6.8 3.9 8.3 1.2North America 12.3 12.5 12.1
12.9Oceania 4.0Asia Mature 0.0Total Mature markets 8.1 7.5 9.6
3.6
Med. Rim and Middle East 7.1 3.5 12.5 7.1Eastern Europe 9.0 8.4
7.5 10.0Latam (0.4) (1.2)Asia emerging 3.0 3.1 1.0 1.1Africa 10.0
10.0 10.0 0.0Total Emerging Markets 6.3 2.7 6.1 4.5
Total Group 6.8 4.7 7.6 3.9
Source: Exane BNP Paribas estimates
Estimated 2005 top line organic growth by producer (%)Lafarge
Holcim HeidelbergCement Italcementi
Northern Europe 10.3 3.2 7.7 (0.5)Southern Europe 3.1 3.3
2.4Total Western Europe 5.5 3.3 7.7 2.3North America 14.7 14.8 14.3
15.3Oceania 5.3Asia Mature (5.0)Total Mature markets 7.7 8.2 10.1
4.9
Med. Rim and Middle East 11.4 4.5 19.5 12.5Eastern Europe 13.3
14.0 11.1 20.0Latam 4.1 4.1Asia emerging 6.4 11.7 10.5 10.4Africa
14.9 17.0 14.0 0.0Total Emerging Markets 11.0 8.8 12.4 12.6
Total Group 8.6 8.5 10.9 7.3
Source: Exane BNP Paribas estimates
-
9 Building Materials
Legend
Volume: 2005 projectionPrice: 2005 projectionMain companies:
companies in our sample exposed to the country! Strong decrease"
Strong increase# Stagnation$ Slight increase% Slight decrease
Western Europe
Weight of European countries in European cementconsumption
2005 comments: stagnating volume but better pricing
Spain 21%
Italy 20%
France 10%
Germany17%
UK6%
>15%> 5%> 3%1% to 2%
Western Europe: cement volume trend
11,000
12,000
13,000
14,000
15,000
16,000
01-97
06-9711
-9704
-9809
-9802
-9907
-9912
-9905
-0010
-0003
-0108
-0101
-0206
-0211
-0204
-0309
-0302
-0407
-0412
-0405
-0510
-05
-4%
-2%
0%
2%
4%
6%
8%
12-mth moving avg. ('000 tonnes) % change
Volume: quarterly base effects
-6%
-4%
-2%
0%
2%
4%
6%
Q1eVol. 2003
Q3e Q1eVol. 2004
Q3 e Q1eVol. 2005
Q3 e
Northen Europe Southern Europe Western Europe
A less favourable base effect, but firm demand Cement demand in
Europe remains firm in most of the countrieswith low interest
rates, which support residential construction andinfrastructure
spending beneficial to public works. The implementation of the
European standard EN 206-1 shouldhelp the cement industry in 2005.
The new measure has two majorimplications. First, the dosage of
cement required to produce onecubic meter of concrete will increase
for certain types of concrete.Second, concrete producers will now
be legally bound to comply withthese cement dosages (stricter
controls are also in the works). As aresult, the proportion of
cement per cubic metre of concrete producedwill increase, which
could mean an additional 2% in cementconsumption in the EU in
2005-2006. In turn, this confirms ourconfidence in mature markets
exhibiting firm demand, as the volumeof cement consumed by
downstream markets (e.g. ready-to-useconcrete, precast and
prefabrication) will increase independently ofthe construction
cycle, all other things being equal. On our calculations, an
additional 5-10kg/m3 of cement onaverage will be necessary to
conform to the new standard. Theaverage dosage of cement per cubic
metre would thus rise to 285-290kg versus 280-285kg currently. The
impact of this new measurewill be gradual, and we are convinced
that demand will remain solidin 2005 and 2006 in the European
Union, despite a less favourablebase effect in H1 05. This is
clearly good newsflow for cement producers, but not asgood for
companies producing concrete, which will have to recoverboth cement
price increases and the additional cost linked to thehigher dosage
of cement within the concrete (cement represents 65%of the raw
material cost of one cubic meter of ready mixed concrete). NB:
although visible in the national statistics published by
tradeassociations, part of the volume benefit will not be seen at
aconsolidated level, as intra-group sales should be eliminated
betweencement and concrete subsidiaries within the same group.
-
10 Building Materials
Price: quarterly base effects Pricing effect is expected to be
stronger
-20%
-10%
0%
10%
20%
Q1ePrice 2003
H1 Q4e Q1ePrice 2004
H1 Q4 e Q1ePrice 2005
H1 Q4 e
Northen Europe Southern Europe Western Europe
We have assumed an average 5% pricing effect for westernEurope
in 2005, which reflects a high 10% in northern markets and alow 2%
in southern markets.
Price hikes announced are particularly high in western
Europecompared with recent years and could be explained by:
A catch-up to historical pricing levels on markets impacted
byrecent competitive issues (price war in Germany, imports in UK) A
catch up to recover H2 04 cost inflation and to offset
additionalcost inflation expected in 2005 (all over Europe). Price
increases effective on 1 January 2005, whereas in recentyears they
were applied in April for some markets.However, two factors could
temper this enthusiasm:
Several investigations, started in 2004 for pricing collusion,
areunderway in concrete and cement businesses
(Netherlands,Switzerland) New entrants have to create their market
share in some southerncountries (Italy, Spain) in a more or less
stable demand environment,creating a question mark on pricing
evolution in these markets.
Main companies: Italcementi (70% of group sales)/Ciments
Franais(57%), Cimpor (67%), Titan (60%), Buzzi Unicem/Dyckerhoff
(57%),HeidelbergCement (51%), Lafarge (41%), Holcim (30%),
Cemex(11%).
Germany: Cement deliveries 2005 comments: continuing pricing
recovery in a weak demandenvironment
1,500
2,000
2,500
3,000
01-96
07-96
01-97
07-97
01-98
07-98
01-99
07-99
01-00
07-00
01-01
07-01
01-02
07-02
01-03
07-03
01-04
07-04
01-05
07-05
-20%
-15%
-10%
-5%
0%
5%
10%
15%
12-mth moving avg. ('000 tonnes) % change
nnn
Volume: %%%% -4% The BDZ, a German cement trade association,
recentlydisclosed its forecast of a 4% decrease in domestic cement
deliveriesfor 2005, following the 5% expected for 2004.
(HeidelbergCementand Dyckerhoff communicated on the same
figure).
Prices: """" +20% We expect the pricing recovery to continue. A
new increase ofEUR9.5/t has been announced, which represents a 20%
increase onthe average EUR46/t expected in 2004. We estimate that
spot pricesat the end of December 2004 were between EUR45/t and
EUR50/t.Further restructuring (Cemex/RMC) and
consolidation(HeidelbergCement bought Teutonia ZW) should help the
priceincrease. At the end of 2005, we expect prices to be around
EUR55/t,still below their historical level of EUR65/t.
Costs: $$$$ Cost inflation should be tempered by additional use
of waste fuel,a better cost structure following the restructuring
and logisticsoptimisation (end of unprofitable cross regional
deliveries).
Main companies: HeidelbergCement (19% of group sales),Dyckerhoff
(46%), Buzzi Unicem/Dyckerhoff (23%), Cemex/RMC(16% of RMC),
Lafarge (4%), Holcim (3%).
-
11 Building Materials
UK: Cement deliveries 2005 comments: stagnating demand, but
strong price increase
800
850
900
950
1,000
1,050
01-97
06-9711
-9704
-9809
-9802
-9907
-9912
-9905
-0010
-0003
-0108
-0101
-0206
-0211
-0204
-0309
-0302
-0407
-0412
-0405
-0510
-05
-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
12-mth moving avg. ('000 tonnes) % change
Volume: # # # # +/- 1% Cement demand should continue to be more
or less stable in2005. The Quarry Product Association is expecting
flat volume inConcrete, -1% in Aggregates and -1% in Asphalt. With
the new Anglo American cement plant in Buxton, cementproducers and
importers will also have to give back market share toTarmac (Anglo
Americans UK building materials subsidiary). Imports terminals are
penalised by freight rates and the lack ofexport capacity in
Europe. However, Aggregate Industries confirmedthey would import
300kt in 2005.
Prices: """" +8% Prices have been stable in the last three years
and there is aclear need to make up for this situation and
2004-2005 additional costinflation. Cement producers have announced
a 10-15% price increase(GBP6/t). We are more optimistic than a few
months ago that 8%could stick, as, since then, concrete producers
have announcedsimilar price hikes on the downstream market. Castle
Cement is due to hike prices by as much as 15% for itsmaterial from
the beginning of 2005. Other producers like RMC, Hanson and Lafarge
have announcedcomparable price increases around GBP5/cubic meter of
concreteand GBP7/t of cement (from January or March 2005).
Tarmacannounced the following price increases: primary quality
aggregates7-10%, asphalt 8-11%, ready mixed concrete 9-10%. We also
believe that the UK cement industry should regainpricing power,
following further consolidation linked to theHolcim/Aggregate
Industries and Cemex/RMC deals. The verticalintegration of cement
producers within the concrete market, and thedisappearance of two
major concrete & aggregates players, shouldgive the cement
industry much more control in the market.
Costs: """" Even if combustible waste use increases thanks to
the permitsobtained by several plants to burn them, cost inflation
will be clearlyhigher than in the rest of Europe (coal market,
electricity is up 20% to50%, European directives on transport,
mainly affecting UK haulage,CO2 and chromium VI). HeidelbergCement
could be impacted by thestart-up costs of its new cement kiln in
Padeswood.
Main companies: Lafarge (10% of group sales),
HeidelbergCement(4% of group sales), RMC/Cemex (26% of RMC), Hanson
(29%),Aggregate Industries (46%).
-
12 Building Materials
Belgium: Cement production Benelux. 2005 comments: more
restructuring.
250
300
350
400
450
500
01-96
06-9611
-9604
-9709
-9702
-9807
-9812
-9805
-9910
-9903
-0008
-0001
-0106
-0111
-0104
-0209
-0202
-0307
-0312
-0305
-0410
-0403
-0508
-05
-15%
-10%
-5%
0%
5%
10%
15%
12-mth moving avg. ('000 tonnes) % change
Volume: $ $ $ $ +2% In 2004, cement consumption declined 3% in
Belgium and wasflat in the Netherlands. Euroconstruct is expecting
8.7% and 2% growth in cementconsumption for Belgium and
Netherlands, respectively, in 2005. Weestimate a more modest trend
of +2% for both countries.
Prices: % % % % -3% Benelux prices were still under pressure in
2004 due to Germanimports and probably the new grinding capacities
launched bytraders. In 2005, despite the pricing recovery in
Germany andcapacity closures (HC in Maastricht), we believe some
localproducers could aggressively try to gain back the market share
theylost in 2003/2004 from German importers, through price
decreases.We estimate a 3% price decline for 2005, although one
local producerhas already announced a price increase of around
1.5%. We also believe that the outlook for prices is poor in
theNetherlands due to the current antitrust investigation. In April
2004,the Dutch anti-cartel authority (Nederlandse
Mededingingsautoriteit)began an investigation on 11 concrete
companies for pricing collusionover the 1998-2002 period. However,
producers are restructuring their assets throughcapacity closure
(Maastricht for HeidelbergCement) and headcountcuts, and expect
significant savings (Holcim, HeidelbergCement).
Main companies: HeidelbergCement (10% of group sales),
CimentsFrancais (6%)/Italcementi (4%), Dyckerhoff (9%)/Buzzi Unicem
(4%)and Holcim (5%).
Switzerland: Cement deliveries 2005 comments: decline in volumes
and cartel probe
250
260
270
280
290
300
310
320
330
340
01-96
06-9611
-9604
-9709
-9702
-9807
-9812
-9805
-9910
-9903
-0008
-0001
-0106
-0111
-0104
-0209
-0202
-0307
-0312
-0305
-0410
-0403
-0508
-05
-15%
-10%
-5%
0%
5%
10%
12-mth moving avg. ('000 tonnes) % change
Volume: % % % % -4% Cement demand in 2004 was particularly
strong (+7% accordingto the Cemsuisse Association); mainly due to
the realisation of thelarge Gothard tunnel project, which should
create a challenging baseeffect in 2005. In 2005, Cemsuisse expects
a 3-5% year-on-year drop in cementsales. We estimate a 4%
decline.
Prices: $ $ $ $ +2%The Swiss anti-trust authority (WEKO) started
an investigation inH2 04 on reported pricing collusion among
concrete and cementsuppliers for a tunnel in the Alps. Although
they deny price fixing, we believe that in such anenvironment,
cement producers could reduce the price increase theyneed to
recover cost inflation in 2005. We estimate a slight priceincrease
of 2%.
Main companies: Holcim (7%).
-
13 Building Materials
France: Cement consumption 2005 comments: continuing growth and
price increases
1,500
1,600
1,700
1,800
1,900
01-96
06-9611
-9604
-9709
-9702
-9807
-9812
-9805
-9910
-9903
-0008
-0001
-0106
-0111
-0104
-0209
-0202
-0307
-0312
-0305
-0410
-0403
-0508
-05
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12-mth moving avg. ('000 tonnes) % change
Volume: $ $ $ $ +2% Cement demand in France increased 5-6% in
2004 helped by agood underlying trend (strong residential
construction fuelled byRobien law and social housing programmes), a
higher number ofworking days and good weather conditions in Q4 04.
In 2005, the base effect should be more challenging even
ifunderlying demand remains good. As a result, we expect a
2%increase in volume.
Prices: $ $ $ $ +5% After the 1.5% price increase in 2004, we
expect a strong 5%price hike to be implemented in January 2005. It
should stick andmore than make up for cost inflation (smaller
contribution of animalmeal and higher cost of coal and petcoke). We
expect the concrete price to increase by 7%, which reaffirmsour
confidence that the cement price increase will stick. Also,
theaggregates industry should post a 5% price increase.
Costs: """" We believe that the absolute priority for the French
industry willbe to produce more cement, as underlying demand is
strong and theutilisation rate saturated. One technical solution to
increaseproduction with the current saturated capacity is to switch
fromalternative combustibles to common combustibles (coal,
petocke), asalternative combustibles impose production constraints.
Moreover, the availability of alternative fuels like animal meal
hasdecreased on the French market. We believe the strong price
increase should make up for cashcost inflation.
Main companies: Lafarge (14% of group sales), Ciments
Franais(42%)/Italcementi (27%), Holcim (6%).
Spain: Cement consumption 2005 comments: close to the cycle
peak, still adding capacity
1,750
2,250
2,750
3,250
3,750
4,250
01-96
07-96
01-97
07-97
01-98
07-98
01-99
07-99
01-00
07-00
01-01
07-01
01-02
07-02
01-03
07-03
01-04
07-04
01-05
07-05
-5%
0%
5%
10%
15%
20%
12-mth moving avg. ('000 tonnes) % change
Volume: # # # # +/- 0% Demand in Spain was well oriented in
2004, with an expected3.5% increase, following several years of
growth. Cemex expects cement volumes to decline 3% in
2005.Residential is expected to decline slightly from its current
high levels. We assume flat demand in 2005 at very high levels,
owing to adecrease in both private and public housing, and to the
CO2 EUdirective on the cement sector. Oficemen, the national trade
association disclosed a stablevolume assumption for Spain in 2005.
It also mentioned that it hasnot detected any slowdown in public
construction, while highlightingthe strength of residential
activity. Euroconstruct is more optimisticwith a +3.6% volume
forecast.Prices: $ $ $ $ + 3%/4% Our assumption for 2005 is an
average increase of 3-4%, butwith differences between regions. We
believe that we could see somepricing pressure with the start in Q1
05 of the new Balboa cementplant (1MT to be produced by the Alfonso
Gallardo metallurgist groupthat represents 2%e national market
share) in Badajoz. Several other projects for new capacity exist
even if Spain is atits cycle peak. This creates clear question
marks for 2006-2007pricing and market share at time when demand
should go down.Costs: """" There is clear uncertainty regarding how
the CO2 EU directivewill affect cement industry production costs in
2005. Spain alsomainly burns petcoke whose price is increasing and
catching up oncoal. Electricity is expected to increase less than
the average 10-15%expected in western Europe.Main companies: Cimpor
(24% of group sales), Cemex (11%),Lafarge (4%), Holcim (6%),
Italcementi (6%)/Ciments Franais (9%).
-
14 Building Materials
Italy: Cement consumption 2005 comments: pricing pressure due to
new entrants?
2,500
3,000
3,500
4,000
01-96
07-96
01-97
07-97
01-98
07-98
01-99
07-99
01-00
07-00
01-01
07-01
01-02
07-02
01-03
07-03
01-04
07-04
01-05
07-05
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
12-mth moving avg. ('000 tonnes) % change
Volume: # # # # + 1% In 2004, volume growth should reach 2%, at
the historically highlevel of 45MT. In 2005, we assume that cement
consumption will continue todecelerate to reach +1%. According to
Euroconstruct, civil works willcontinue to be very well oriented
(+3.6%), but residential and non-residential should be weak (+0.5%
and -0.8%, respectively). Demand should be different region by
region, with better growthin the South and the Islands
(infrastructure projects) than in theNorth, where we expect flat
volumes.Prices: % % % % - 1% In Q1 05, Cemex will commission two
grinding stations, locatednear Parma and Rome for a estimated
combined cement capacity of0.7MT. We believe the cement industry
could try to push price increasesin regions where Cemex is not
starting its grinding stations. Weconsider that the industry will
need another 4-5% price increase torecover cost inflation. In the
regions where Cemex has to create market share, cementproducers
could decide to grant discounts to defend their flatvolumes. It
means that the average price increase in Italy could bepoor. We
have assumed a 1% decline for 2005.
Costs: """" Italian cement producers will face significant cost
inflation in2005. The main cost inflation items should be fuel
(Italian producersare more dependent on hydrocarbons than peers and
have shorter-term contracts making them more vulnerable during
rising costperiods). Also, they will be impacted by the rise in
electricity,transport, and the compulsory use of iron sulphate.
Main companies: Italcementi (33% of group sales),
BuzziUnicem/Dyckerhoff (29%), Cementir (30%), Cemex by 2005,
Lafarge(2%), Holcim (3%).
Portugal: Cement consumption 2005 comments: another year of
decline?
500
600
700
800
900
1,000
01-97
06-9711
-9704
-9809
-9802
-9907
-9912
-9905
-0010
-0003
-0108
-0101
-0206
-0211
-0204
-0309
-0302
-0407
-0412
-0405
-0510
-05
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
12-mth moving avg. ('000 tonnes) % change
Volume: % % % % -2% At the end of October 2004 (last available
statistics), cumulatedcement volumes in Portugal were down 2.6%,
with a sharp 20.2%drop in October 2004 alone, penalised by a marked
decrease inpublic works. As a result, consumption should be down by
3-4% inFY04. After three years of ongoing decline, we assumed a
further 2%decrease in 2005 reflecting the poor government budget
voted forinfrastructure.
Prices: $ $ $ $ +4% We have assumed that Portugal, as a duopoly,
could announcea 3-4% price increase to recover cost inflation.
However, there isuncertainty regarding the new 1mt Alfonso Gallardo
plant coming onstream in Q1 05, which located at the
Portuguese-Spanish border inBadajoz.
Main companies: Cimpor (44% of group sales), Semapa (49%owned by
CRH).
-
15 Building Materials
Greece: Cement production 2005 comments: end of Olympic
games
1,050
1,100
1,150
1,200
1,250
1,300
1,350
01-97
06-9711
-9704
-9809
-9802
-9907
-9912
-9905
-0010
-0003
-0108
-0101
-0206
-0211
-0204
-0309
-0302
-0407
-0412
-0405
-0510
-05
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12-mth moving avg. ('000 tonnes) % change
Volume: ! ! ! ! -5% Domestic volume should continue to decline
on the back of theend of the 2004 Olympic games. We assumed a 5%
declinecomparable to the forecast disclosed by Titan for 2004 and
2005. However, export volume should increase and could easily
findbuyers given the currently tight supply environment in
severalcountries (USA, Middle East, etc) and the export capacity
deficitthroughout the world.
Prices: $ $ $ $ +5% In a consolidated market like Greece, we
assumed a priceincrease of 5%, similar to that posted in 2004, to
recover cost inflation(Petcoke, electricity, Chromium VI EU
directive). Export prices should also increase due to the deficit
of exportcapacity across the world.
Main companies: Titan (48% of group sales); Lafarge
(3%),Italcementi(2%)/Ciments Franais (3%).
Source: Exane BNP Paribas, trade associations
-
16 Building Materials
North America
Market sizes as a % of total consumption
L ake Huron
Lake E
rie
Lake O ntar io
Mi c
higa
n
Lak
e
St.
Law
r enc
e
0
0
200 MI.
200 KM.10050
50 100
Pennsylvania
CT
MA
NJ
DE
RI
MD
S. Carolina
Maine
Louisiana
Alabama
Missi
ssippi Georgia
Kentucky
TennesseeCarolina
North
NHVT
New York
Ohio
IllinoisIndiana
Missouri
Iowa
Wisconsin
M i c h i g a n
Arkansas
F l o r i d a
Southern T e x a s
Minnesot a
Oregon
North
C a l i f o r n i a
Arizona
Nevada
Colorado Virginia W
est
Virgi
nia
Sout h Dako ta
North Dakot a
Wyoming
Idaho
Washington
Arizona
Utah
M o n t a n a
Nebraska
Kansas
South
C a l i f o r n i a
OklahomaNew Mexico
Northern T e x a s 7%
5%
4%1%
1%
4%
1%
1%
1%1%2%
4%
5%5%
1%
2%
Missouri river
Mississippi river
Ohio rive
r
Inter
coast
al
Water
way
Inter
coast
al
Water
way
Main consumption aeras
9%
3%
1%
1%
1% 1%
1% 1%
1%
1%
1%
1%
1% 1%
8%
1%
1%1%
1%
2%
Others aeras
% of total cement consumption
3%3%
5%1%1%
1%
North America: Cement volume trend
7,000
8,000
9,000
10,000
11,000
01-96
06-9611
-9604
-9709
-9702
-9807
-9812
-9805
-9910
-9903
-0008
-0001
-0106
-0111
-0104
-0209
-0202
-0307
-0312
-0305
-0410
-0403
-0508
-05
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12-mth moving avg. ('000 tonnes) % change
US Prices: quarterly base effects
-5%
0%
5%
10%
15%
20%
25%
Q1ePrice 2003
Q3e Q1ePrice 2004
Q3 e Q1ePrice 2005
Q3 e
2005 comments: strong pricing and ongoing growth
Favourable base effect for pricing in 2005We assume an average
10-15% pricing effect for North America in2005, which reflects
several issues: A catch up on historical pricing levels on markets
impacted byrecent competitive issues (capacity additions between
1999 and2003, aggressive imports developed by independent traders).
A catch up to recover 2004 and 2005 cost inflation.The Q1 05 base
effect will be particularly favourable because: A gradual impact of
the two main price increases announced inApril and August 2004. Two
new price increases are also expected in2005, whereas historically
the industry implemented just one peryear. Price increases will be
effective on 1 January 2005, whereasthey have gone through in April
in the recent years for most markets.The reasons to believe that
these price increases can stick are thefollowing: Imports are less
competitive due to the freight rates which areagain at their
highest historical spot rates since Q4 04 (USD30/t andUSD50/t to
transport 1 tonne of cement from Europe and Asia,respectively, to
the USA). No new major capacity addition is planned in the USA
before2007-2008, and the tight supply situation (shortages) should
continuein 2005. The world cement trading market is showing a clear
deficit inexport capacity. Recent consolidation and vertical
integration of cement players(Cemex/RMC, Holcim/Aggregate
Industries, Lafarge/The ConcreteCompany) implies that the upstream
market is gaining control andpricing power on the downstream
market.
US volumes: quarterly base effects
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
Q1eVol. 2003
Q3e Q1eVol. 2004
Q3 e Q1eVol. 2005
Q3 e
Less favourable base effect for volume in 2005
In 2004, demand remained firm in North America, where a
tightsupply situation still exists, and was fuelled by firm
residentialdemand which should decline in 2005, the gradual
recovery in nonresidential and the support of public works, which
should beconfirmed in 2005. Recent reconstruction helped the
underlying trendin some regions impacted by hurricanes. The
slightly positive outlookon 2005 demand is tempered by the tight
supply situation. In 2005,cement producers will again have to
demonstrate their ability toincrease imported volume (+13%e in 2004
and +8.6% in 2005according to PCA) in difficult conditions (world
deficit of exportcapacity, low availability of bulk carriers,
freight at its highest rates).Main companies: Titan (40%), Lafarge
(30% of group sales), BuzziUnicem/Dyckerhoff (31%), Cemex (29%),
Holcim (21%), CimentsFranais(21%)/Italcementi(13%).
-
17 Building Materials
USA: Cement shipments 2005 comments: strong pricing and
sustained volume growth
6,000
8,000
10,000
01-96
07-96
01-97
07-97
01-98
07-98
01-99
07-99
01-00
07-00
01-01
07-01
01-02
07-02
01-03
07-03
01-04
07-04
01-05
07-05
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12-mth moving avg. ('000 tonnes) % change
Volume: $$$$ +3% Volume growth in 2004 in the USA should reach
3.9%. Cemex expects cement volumes to grow 3% in 2005, despite
anexpected 6% decline in residential demand, and thanks to a 5%
increaseexpected in public works. The TEA-21 amount for 2005 should
be in theUSD34bn range, to which another USD2bn will be added, as
this moneywas not used in 2004. The combined USD36bn represents a
15%increase compared to 2003 levels according to Cemex. We assumed
2.5% incremental demand for 2005, comparable to the2.6% forecast of
the PCA (Portland Cement Association). However, thecurrent tight
supply situation and cement shortages, experienced mainlyin the
south-eastern and western states, are creating a question markabout
how to supply this additional demand when the utilisation rates
ofthe plants are close to 100%. As a result, we believe that the
situation in 2005 should becomparable to that in 2004, especially
if demand is sustainable.Overseas imports should continue to
increase, as local producersabsolute priority will be to supply
their market share, even if importsare not profitable with the
current freight spot rates. Additionalhandling capacity for barge
traffic on the Mississippi River should alsoallow more cement to be
shipped from the US gulf region to theNorth.
Prices: " " " " +10% to 15% After the two price increases in
2004 (USD2/t to USD3/t in April,and USD5/t in August), we expect
the cement industry to implementtwo new hikes in 2005 (USD6-8/t in
January and USD6/t in July). Itrepresents an average 13% price
increase for 2005 according to ourcalculations. This increase
should help to recover the impacts of costinflation (electricity,
coal, and transport) and the zero margin imports. We also expect
concrete prices to increase significantly on thedownstream market,
even if there is uncertainty regarding thepossibility of
immediately passing on raw material cost inflation to thefinal
customer. The fluctuating price of cement and raw materialsresulted
in 2004 in a tough commercial situation where concreteproducers
cannot reliably anticipate production costs. Hanson isexpecting
3-4% price increases for aggregates in 2005.
Costs On top of the energy price increase (both electricity and
coal), wehave assumed that import logistics costs will increase
with the surgeof freight rates. NB: US cement consumption is still
20% dependenton imports. The saturation of assets for almost 18
months could also createsome additional maintenance costs during
the year.
Main companies: Cemex (29% of group sales), Lafarge
(21%),Heidelberg (16%), Italcementi (12%)/Ciments Francais (19%),
Holcim(13%), Dyckerhoff/Buzzi Unicem (31%).
-
18 Building Materials
Canada: Cement production 2005 comments: slight growth but
strong price increases
800
900
1,000
1,100
1,200
1,300
01-96
07-96
01-97
07-97
01-98
07-98
01-99
07-99
01-00
07-00
01-01
07-01
01-02
07-02
01-03
07-03
01-04
07-04
01-05
07-05
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
12-mth moving avg. ('000 tonnes) % change
Volume: $$$$ +2% Volume growth in 2004 in Canada was 3.9%. We
assume 2% growth in 2005 comparable to the +2.1%forecast of the PCA
(Portland Cement Association).
Prices: """" +13% Holcim subsidiary, Saint-Laurent, announced a
significant priceincrease of CAD10/t in Ontario and CAD6/t in
Quebec for January2005. It represents a 10% increase according to
our calculations. Weassume a comparable level for other producers
in Canada, whichshould clearly help to recover cost inflation in
2005. We also expect competitive issues in concrete to ease in
2005,after the price war that occurred in 2004.
Main companies: Lafarge (9% of group sales), Holcim
(8%),HeidelbergCement (7%), Ciments Francais(2%)/Italcementi
(1%).
Source: Exane BNP Paribas, trade associations
-
19 Building Materials
Latin America
Market sizes as a % of total volumes
J AMA ICAMEXICO
COLOMBIA
GUATEMALA
B ELI
ZE
HONDU RAS
EL SALV ADOR
NICARAGUA
CO S T A
RIC A
PANAMA
C A R I B B E A N S E A
P A C I F I C O C E A N
Gulf ofPanama
Bel mopa n
Teg uc igalpaS a n S a lva
d o r
Managua
P an am a
GUATEMALA
San J os
PA NA MAVENEZUELA
BOLIVIA
WEST INDIES
Caracas
CARIBBEANSEA
GeorgetownParamaribo
Cayenne
Quito
Lima
La Paz
Santiago
Bras lia
Montevdeo
BogotCOLO MBIA
Rio de Janeiro
URUGUAY
Ascunsion
PARAGUAY
PERU
BRAZIL
Buen o s A ires
ECUADOR
CHILE
Guyan a Fr en ch Guy ana
AT LAN T IC
OCEAN
PACIFIC
OCEAN
ARGENTINA
Surinam
U N I T E D S T A T E S
CENTRALAM ERICA
MEXICO
Chihuahua
Guadalajara
Tapachula
0 100
>15%> 5%> 3%1% to 2%
Mexico 26%
Brazil 36%
Argentina 5%
Columbia 5%
Latin America: Cement volume trend
6,000
7,000
8,000
01-97
06-9711
-9704
-9809
-9802
-9907
-9912
-9905
-0010
-0003
-0108
-0101
-0206
-0211
-0204
-0309
-0302
-0407
-0412
-0405
-0510
-05
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
12-mth moving avg. ('000 tonnes) % change
Latin American prices: quarterly base effects
-10%
-5%
0%
5%
10%
15%
20%
Q1ePrice 2003
H1 Q4e Q1ePrice 2004
H1 Q4 e Q1ePrice 2005
H1 Q4 e
2005 comments: weak pricing and slight recovery in volume
Pricing effect should remain weakSeveral parameters explain our
projection of a slight decrease inpricing for 2005 in Latin
America. Prices are among the highest in the world in most
countries. It should be another year of modest growth in volume for
thecontinent, although an improvement will be visible compared to
2004. Governments control prices (Venezuela, Honduras) and
havefrozen all price increases for 2005. A few anti-cartel
investigationdiscussions are also underway. New entrants and new
capacity are coming on stream, puttingprices under pressure
(Brazil, Mexico) or leading to preventive warsto discourage
newcomers (Colombia). The continuing revaluation of local
currencies implies stable ordeclining prices in US dollars or
euros.
Ongoing but still modest growthWe expect volume in Latin America
to grow by 4%. Modest growth on the two main markets (Brazil and
Mexico)which represent 62% of Latin American volume and should grow
3-4%. However, Brazil has started to recover after four years
ofcontinuing decline. Continuing recovery of the markets impacted
by recent economiccrises (Argentina, Venezuela), but with a less
favourable base effect. Growth in other markets.
Main companies: Cemex (56% of group sales), Holcim (24%),Cimpor
(13%), Buzzi Unicem/Dyckerhoff (5%), Lafarge (5%).
-
20 Building Materials
Mexico: Cement deliveries 2005 comments: modest growth, but weak
pricing still an issue
1,750
2,000
2,250
2,500
2,750
3,000
01-96
07-96
01-97
07-97
01-98
07-98
01-99
07-99
01-00
07-00
01-01
07-01
01-02
07-02
01-03
07-03
01-04
07-04
01-05
07-05
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
12-mth moving avg. ('000 tonnes) % change
Volume: $$$$ +3.5% After a weak H1 04, demand increased in H2
04. Productionsurged by 9.7% in November, still fuelled by
residential and publicworks, but also due to a more favourable base
effect (weather andworking days). As a result, cement production
has surged by 4% in2004. We reproduced the 2004 scenario of a
modest increase for 2005,as GDP growth should be comparable for
both years. For 2005, weassumed that cement demand could increase
by more than 3.5%helped by housing and infrastructure construction.
However, Apasco(Holcim subsidiary) recently mentioned that it
expects 2.5% volumegrowth in 2005. Cemex expects domestic volumes
to rise 4%. We believe that anti-dumping barriers between Mexico
and theUSA are unlikely to be removed in 2005. We have not
integrated anincrease of volumes that would be driven by additional
exports to theUS, despite the shortage situation in North
America.
Prices: %%%% -2% to 3% Holcim/Apasco announced a 5% price
increase for 2005, a levelcomparable to the February 2004 price
increase which did not stick.Cemex announced it wishes to increase
prices in step with inflation. Even if we avoid any scenario of a
price war, we have adopted amore cautious assumption of -2% to 3%
for 2005, comparable to2004, despite additional cost inflation
(especially on the transportside). Our main concern remains the
1.3mt capacity addition launchedby Buzzi Unicem/Moctezuma in H2 04
in San Luis Potosi as weexpect the new plant to supply the north
east market where prices arethe highest (as in Monterrey). The CDM
import project is not a major concern in our view sincethe company
was not allowed to unload its first vessel. CDM ispreparing to
appeal the embargo decision taken by customs, and isalso preparing
to send a second vessel to Mexico. The rumours of aJV between Cemex
and CDM could lead to the end of the conflictbetween the two
companies. However, high Mexican prices could continue to attract
otherimport projects and new entrants in the coming years. Global
Cementhas plans for a grinding station project in Guatemala
starting in 2005that will export to Mexico.Main companies: Cemex
(39% of group sales), Holcim (10%), BuzziUnicem/Dyckerhoff
(15%).
Brazil: Cement deliveries 2005 comments: better volume, but weak
pricing
1,500
2,000
2,500
3,000
3,500
01-96
07-96
01-97
07-97
01-98
07-98
01-99
07-99
01-00
07-00
01-01
07-01
01-02
07-02
01-03
07-03
01-04
07-04
01-05
07-05
-20%
-10%
0%
10%
20%
30%
12-mth moving avg. ('000 tonnes) % change
Volume: $$$$ +3.5% After three years of decline and a gradual
stabilisation of demandin 2004 (decline in H1 and improvement in
H2), we expect modestgrowth of 3.5% in 2005 comparable to GDP
growth. The smallconstruction segment is expected to push
sales.
Prices: %%%% -1% New entrants adding capacity in 2004 and VAT
implementationput pricing under pressure in H2 04. Price recoveries
are expected in some regions but decreasescould continue in others.
As a result, we assume that average pricesin local currency should
be slightly down, as prices are stabilising butthe base effect is
not favourable (prices declined by 7% in Q3 04 andby 2% in H1 04).
More new capacity projects are planned for 2005/2006.Main
companies: Cimpor (13% of group sales), Holcim (3%),Lafarge
(2%).
-
21 Building Materials
Argentina: Cement deliveries 2005 comments: ongoing volume
recovery
200
400
600
800
01-96
06-9611
-9604
-9709
-9702
-9807
-9812
-9805
-9910
-9903
-0008
-0001
-0106
-0111
-0104
-0209
-0202
-0307
-0312
-0305
-0410
-0403
-0508
-05
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
12-mth moving avg. ('000 tonnes) % change
Volume: """" +10% After an 18% increase in 2004, we assumed a
+10% for 2005,which is comparable to the figure disclosed locally
by Holcimssubsidiary (Minetti). It should help to go back to
pre-crisisconsumption levels. Argentina's construction growth is
expected to be12% both in 2004 and 2005 according to recent
comments by theArgentinean Chamber of Construction.
Prices: #### +/- 0% We expect prices to be stable in an
environment where the maincompany, Loma Negra, is officially to be
sold, and where rumours ofnew entrants developing grinding station
projects or local producers(Petroqumica Comodoro Rivadavia SA)
extending capacity areexpected to continue over the next few
years.
Main companies: Holcim (1% of group sales).
Colombia: Cement deliveries 2005 comments: a pre-emptive price
war?
250
500
750
01-96
06-9611
-9604
-9709
-9702
-9807
-9812
-9805
-9910
-9903
-0008
-0001
-0106
-0111
-0104
-0209
-0202
-0307
-0312
-0305
-0410
-0403
-0508
-05
-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
12-mth moving avg. ('000 tonnes) % change
Volume: $$$$ +5% Consumption is expected to have risen 2.8% in
2004. Colombiais still recovering from a strong decline in 1999. We
assume a 5%increase for 2005 to reflect the large programme of
transportinfrastructure spending (new roads, highways, ports and
tunnels).
Prices: !!!! -5% Despite cost inflation, prices in local
currency are down by 5% in2004 due to what we perceive as a
pre-emptive war betweenproducers defending their market share and
two new entrants addingcapacity. For 2005, we assume a further 5%
decline. Moreover, therevaluation of the local currency by more
than 6% is not recovered inprices in USD.
Main companies: Cemex (3% of group sales), Holcim (1%).
Venezuela: Cement deliveries 2005 comments: government controls
prices
150
250
350
450
01-96
06-9611
-9604
-9709
-9702
-9807
-9812
-9805
-9910
-9903
-0008
-0001
-0106
-0111
-0104
-0209
-0202
-0307
-0312
-0305
-0410
-0403
-0508
-05
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
Venezuela % change
Volume: """" +10% Cemex expects volumes to surge 15% in 2005,
reflecting afurther step in the recovery. We assume 10% growth for
2005 reflecting a further steptowards recovery following the recent
crisis and after the strong+30%e rebound expected for 2004.
Prices: #### +/-0% The government fined the cement industry for
pricing collusion in2003. The government has controlled the cement
price since August2004, thus we assume that prices will be frozen
in 2005, despite thecost inflation environment. The government is
also talking about apotential greenfield project of 1mt to be
financed with Iranian partners(Venezuela consumes 3-4mt for 6mt
capacity and is alreadyexporting its surplus).
Main companies: Cemex (7% of group sales), Holcim (2%),
Lafarge(1%).
-
22 Building Materials
Chile: Cement deliveries 2005 comments: slight growth, stable
prices
200
250
300
350
01-96
06-9611
-9604
-9709
-9702
-9807
-9812
-9805
-9910
-9903
-0008
-0001
-0106
-0111
-0104
-0209
-0202
-0307
-0312
-0305
-0410
-0403
-0508
-05
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
12-mth moving avg. ('000 tonnes) % change
Volume: $$$$ +3% As medium-sized projects have replaced large
infrastructureprojects, we assume modest 3% volume growth for 2005,
slightlybelow the 4% expected for 2004.
Prices: #### +/- 0% Better control of imports from Asia,
partially due to an exportshortage there, should help to stabilise
prices or to increase themslightly in the short term. However, the
revaluation of the local currency should not be fullyrecovered in
prices in USD. More recently, Cementos Bio-Bio hasannounced
capacity extension in its cement business. As a result, we also
assume that cost inflation should not be fullyrecovered.
Main companies: Lafarge (2% of group sales), Holcim (2%).
Peru: Cement deliveries 2005 comments: slight increase in
pricing
150
250
350
450
01-96
06-9611
-9604
-9709
-9702
-9807
-9812
-9805
-9910
-9903
-0008
-0001
-0106
-0111
-0104
-0209
-0202
-0307
-0312
-0305
-0410
-0403
-0508
-05
-20%
-15%
-10%
-5%
0%
5%
10%
15%
12-mth moving avg. ('000 tonnes) % change
Volume: $$$$ +5%We assume continuing growth in Peru with a 5%
increase in demandfor 2005, following 3.5% expected for
2004.Prices: $$$$ +1%/2% We assume a 1-2% price increase in local
currency, as cementprices in local currency are normally indexed to
the USD when thereis a devaluation of the Sol. However, we do not
expect therevaluation of the Sol (+5%) to put under pressure cement
prices inlocal currency.
Main companies: Holcim.
Honduras: Cement production 2005 comments: prices are frozen by
government
N/A Volume: """" +5% We assume ongoing growth in Honduras of 5%
in 2005 following7% expected for 2004.
Prices: !!!! -5% After the price war due to new entrant Cement
America (Cemar),prices in Honduras rose 10% in 2003 and 12% in H1
04. Rumoursare circulating regarding Holcim taking over Cemar. As a
result, the government made several decisions in H2 04,which lead
us to believe that prices should decline by 5% in 2005despite
higher cost inflation (coal, electricity, transport and
tax).Honduras has removed duties on imported cement and adopted
anexecutive decree that fixed cement prices. The government is
alsotalking about a potential anti-cartel investigation. Prices
were down by 12.5% in Q3 04. We expect a 5% price decline in
2005.
Main companies: Lafarge, Holcim.
-
23 Building Materials
El Salvador: Cement deliveries 2005 comments: back to strong
volume growth rates
50
60
70
80
90
100
110
120
01-96
06-9611
-9604
-9709
-9702
-9807
-9812
-9805
-9910
-9903
-0008
-0001
-0106
-0111
-0104
-0209
-0202
-0307
-0312
-0305
-0410
-0403
-0508
-05
-10%
-5%
0%
5%
10%
15%
20%
12-mth moving avg. ('000 tonnes) % change
Source: Exane BNP Paribas, trade associations
Volume: """" 4% Cement consumption in El Salvador grew by a
healthy 5.2%average p.a. in 1995-2003. In 2004, consumption slowed,
accordingto the latest statistics released by the Central Bank:
these reported1.5% growth at end-September, but a 10% decline in
the month ofSeptember alone, due to a decrease in public works
spending. We have assumed a consumption rebound of 4% in 2005, in
linewith the 1995/2003 level.
Prices: #### +/- 0% CESSA is the sole producer in El Salvador
and has 90% marketshare with its 1.8mt of capacity. Consequently,
prices are very high(USD90/t). In our view, the main threat remains
the arrival of a new entrantin Guatemala in 2005. Global cement in
Guatemala (owned bySpanish traders and local investors) is starting
a grinding stationproject and has built a cement terminal to import
clinker. Thecompanys target is to acquire 10% market share in
Guatemala in2005 (or an estimated 250kt of cement), and to devote
30% ofproduction to exports (to El Salvador, Mexico and the USA).
Globalcement is also planning to act on pricing to create its
market share.As a result, even if the volumes concerned are low
(250kt) potentialpricing pressures could occur in 2005 in El
Salvador. We assume flat prices in 2005.
Main companies: Holcim.
-
24 Building Materials
South-East Asia
South-East Asia: Cement volume trend (excludingChina, India and
Japan)
2005 comments: weak pricing but good volumes
8,000
9,000
10,000
11,000
12,000
13,000
14,000
01-97
06-9711
-9704
-9809
-9802
-9907
-9912
-9905
-0010
-0003
-0108
-0101
-0206
-0211
-0204
-0309
-0302
-0407
-0412
-0405
-0510
-05
-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
12-mth moving avg. ('000 tonnes) % change
Volume: $$$$ Most South-East Asian markets should continue to
see stronggrowth in 2005. However, Malaysia and Philippines should
berelatively stable while South Korea continues to decline.
Prices: #### The price outlook is mitigated. Whereas we expect
increases inVietnam (recovery of cost inflation), The Philippines
(end of price war)and India (strong demand and new taxes), other
countries (Indonesia,Thailand, Malaysia, South Korea) should post
flat trends due to thecompetitive environment or direct and
indirect price controls by localgovernments.
Impact of the tsunami The major question is how the recent
tsunami will impactregional GDP growth and national construction
output for thecountries that were affected by the catastrophe. We
believe that the tsunami will have a marginal positive impacton
cement consumption, which is difficult to estimate. However,
weconfirm our initial scenario of growth for the region and do not
expectthe tsunami to impact the long-term prospects of countries in
South-East Asia.We assume the following consequence on demand
andprices:Demand. The countries impacted should see a marginal
increase incement demand, as reconstruction has already been
announced,especially in regions where government or tourist
infrastructures(Hotels) have been damaged.Thailand and Indonesia
are good examples even if the provincesimpacted represent only 2%
of GDP for both countries. Othercountries, like India and Sri
Lanka, should not see any major impacton future cement demand as
the type of construction destroyed,mainly coastal huts, do not
require a lot of concrete. The trend willdepend on whether the
government decides to rebuild the temporaryhouses in concrete.
However, the track record is poor; althoughcyclones have regularly
damaged this type of construction in recentyears, the government
has not decided to rebuild huts in concrete.The tsunami has
apparently hurt only two cement plants. The Lafargeplant in Sumatra
was seriously damaged and will not be reopenedquickly. The Holcim
plant in Dewata, Sri Lanka has been shut downsince the disaster but
will reopen soon. We do not expect this eventto have any major
impact on either groups results in 2005.Price. The tsunami impact
on building materials and cement prices ismitigated. In Thailand,
the government has decided to freeze priceincreases for at least
six months and is even asking for a 15%discount on cement prices
for the regions impacted by the tsunami.We also believe that the
decision of government-owned cementcompanies to cut Indonesian
exports to supply the Aceh region,where the Lafarge plant is
damaged and had 90% market share, willaggravate the export/import
deficit in cement world trading. Indonesiaremains a major cement
exporter.In India, cement price increases have already been
announced bywestern region producers following the surge in orders
from Gulfcountries heavily dependent on Indian exports to supply
the currentconstruction boom. Gulf countries believe that the
tsunami impact onIndian consumption could reduce volume to export
markets. As aresult, export prices could reach USD45/t (USD35/t for
clinker).Main companies: HeidelbergCement (10% of group sales),
Holcim(9%), Lafarge (8%), Ciments Franais(7%)/Italcementi (6%).
-
25 Building Materials
Indonesia: Cement deliveries 2005 comments: strong growth, but
weak pricing?
1,500
2,000
2,500
3,000
01-96
06-9611
-9604
-9709
-9702
-9807
-9812
-9805
-9910
-9903
-0008
-0001
-0106
-0111
-0104
-0209
-0202
-0307
-0312
-0305
-0410
-0403
-0508
-05
-40%
-30%
-20%
-10%
0%
10%
20%
30%
12-mth moving avg. ('000 tonnes) % change
Volume: " " " " +10% In 2004, cement demand is expected to have
increased by 8%,even though the November trend of 1.7% reflected
modest activity inthe construction market. With the Indonesian
government planning more infrastructureprojects in the next few
years, we assume that national demand willgrow by 10% in 2005 after
the 8.5% expected in 2004. As a result, several producers are
planning to cut their exports toredirect production to the domestic
market.
Prices: $$$$ +2% The government recently threatened local
producers with a banon cement exports if the cement prices continue
to increase, eventhough they are facing strong cost inflation (fuel
and coal prices havedoubled over the last 12 months) and in spite
of the fact that prices in2004 were up modestly. According to
labour unions, if Cemex were allowed to take amajority stake in
Semen Gresik (currently controlled by thegovernment), 93% of the
industry would be owned by Internationalgroups. Some believe that
this is not good for the public, as priceswould increase and
government infrastructure projects could behampered. We have
assumed a slight increase for 2005, as we believe thatthe
government will not accept a price hike greater than 2%.Impact of
the tsunami The recent tsunami impacted mainly northern Sumatra.
Sumatrarepresents 20% of Indonesian consumption. NB: Aceh
representsaround 2% of the Indonesian economy. We believe that it
is a supportfor the construction market, but that we should not see
anacceleration of demand, which is already expected at a double
digitgrowth for the coming year. The Lafarge plant has been closed
in this region since thedisaster. It produced 1.3MT, representing
80-90% market share inAceh. The plant is not expected to reopen
quickly, even if thegovernment takes action for the plant to resume
operations as soonas possible. Indonesia made a contribution of
EUR4-5m to Lafargesoperating profit. Lafarge now plans to
accelerate the construction of a new plantin Sumatra for additional
capacity of 1MT. The closest operating plant is Semen Padang, which
belongs toSemen Gresik (government-controlled, and 25.5% owned by
Cemex).We believe the plant currently dedicates around 1MT pa of
itsproduction to exports, and should now deliver this cement to the
Aceharea. Indocement (61% owned by HeidelbergCement) recently
statedthat demand will increase in the Aceh region once
reconstruction hasbegun, and that they could supply part of the
additional demand.
Main companies: HeidelbergCement (8% of group sales),
Holcim(2%), Lafarge (
-
26 Building Materials
Thailand: Cement consumption 2005 comments: strong growth, but
mitigated pricing outlook.
1,000
2,000
3,000
4,000
01-96
07-96
01-97
07-97
01-98
07-98
01-99
07-99
01-00
07-00
01-01
07-01
01-02
07-02
01-03
07-03
01-04
07-04
01-05
07-05
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
12-mth moving avg. ('000 tonnes) % change
Volume: """" +10% 2004 construction levels were impacted by the
combined effectof high steel and oil prices, social unrest in the
south and the bird flu.However, consumption grew 12% to 27MT in
2004, with totalproduction up 9.4% to 35MT. After strong Q4 04
demand and 12% volume growth expected forFY04, we believe that 2005
will be driven by the government'sinfrastructure spending (THB1.5
trillion announced for the next 5years). Conversely, private
investment has slowed since H2 04. We expect 2005 domestic cement
demand to increase by 10% to30MT, still far below the pre-1997
crisis levels of 37MT.
Prices: #### +/- 0% Prices declined in Q3 04, but this probably
does not indicate aprice war, as prices have remained steady in the
last three months of2004. In 2005, their level will depend on the
competitive environment,as TPI Polene appears to be aggressive
again. Capacity utilisation is still low around 65% and a question
markexists regarding recent announcements of capacity utilisation
by TPIPolene and Thai Development group. Also, we see a negative
mix effect, especially in northern andnorth-eastern Thailand, which
account for 30-40% of total sales.Cement companies there are
introducing new products like mortarcement, with lower clinker
content than mixed cement, and sold at alower price. However, this
cement has limited applications and do notfully compete with
classical portland cement. In January 2005, prices in the Bangkok
area were up more than2%. Following the tsunami, local prices could
be affected (see below).Despite the price increase observed in
January, we have assumed aflat price effect in 2005.
Impact of the tsunami The tsunami impacted only the western
coast of southernThailand. The affected provinces represent only
2.1% of the countrysGDP, but the impact on tourism (December is a
peak season) andthe Thai economy is difficult to measure. The
region of Phuket needs to rebuild around 6,000 lodgings andat least
13,000 hotel rooms. However, due to low concreteconsumption for
beach bungalows and outdoor hotels, we do notbelieve that the
long-term trend of the Thai cement market willchange. The impact on
pricing should be more visible with recentgovernment comments on
price controls in the six southern provinceswith increases to be
frozen by at least six months or on 5-15%discounts imposed on
cement prices. The most exposed cementcompany is the local Siam
Cement, holding 70% market share in thatregion.
Main companies: Italcementi (4% of group sales)/Ciments
Franais(5%), Holcim (2%).
-
27 Building Materials
Malaysia: Cement production 2005 comments: stabilisation and
ongoing pricing pressure
500
1,000
1,500
2,000
01-96
06-9611
-9604
-9709
-9702
-9807
-9812
-9805
-9910
-9903
-0008
-0001
-0106
-0111
-0104
-0209
-0202
-0307
-0312
-0305
-0410
-0403
-0508
-05
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
12-mth moving avg. ('000 tonnes) % change
Volume: $$$$ +1% Steel shortages and the end of big projects
impacted cementdemand in 2004. We expect a gradual improvement in
2005 andmore or less stable demand over the full year. After a
strong 2003, we expect a 1% increase, as thegovernment has
announced public works spending.
Prices: #### +/- 0% Prices are controlled by the government with
a maximum price inKuala Lumpur of MYR198 or USD55/t. Currently,
producers areapplying rebates of 15% to 20%. With YTL acquiring
Perak Hanjoong, recent market consolidationcould favour a better
management of the assets and help pricesincrease up to the level
fixed by the government. However, we have assumed flat prices in
2005. Moreover, therecent announcement by Lafarge to reactivate
0.8MT of mothballedgrinding capacity could be perceived by YTL as
an aggressivecapacity addition.
Main companies: Lafarge (3% of group sales), Holcim (
-
28 Building Materials
Philippines: Cement deliveries 2005 comments: aggressive imports
threat?
750
1,000
1,250
01-96
07-96
01-97
07-97
01-98
07-98
01-99
07-99
01-00
07-00
01-01
07-01
01-02
07-02
01-03
07-03
01-04
07-04
01-05
07-05
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
12-mth moving avg. ('000 tonnes) % change
Volume: #### +1% As in 2004, the Philippines should be more or
less stable withvery little volume growth expected for 2005.
However, a recentlyannounced government plan to increase spending
on infrastructure isencouraging.
Prices: """" +12% Prices are currently protected from the
aggressive behaviour ofimporters which led to a price war in 2003 -
by tariffs on importedcement. The Cement Manufacturers Association
of the Philippineshas asked the government to extend the current
tariff (PHP15.60 per40-kilogram bag, i.e. EUR0.22) for another four
years. After the first step in a price recovery of +28% following
the 2003price war, we expect 2005 prices to increase by another
12%. Thisreflects the price hikes announced last year. However,
further price increases are unlikely, and spot pricesshould remain
more or less stable throughout the year. Restructuringprogrammes
have finished at Lafarge and Holcim, which should helpreduce the
impact of cost inflation.
Main companies: HeidelbergCement (2% of group sales),
Lafarge(1%), Holcim (1%).
South Korea: Cement consumption 2005 comments: weak demand and
pricing pressure
3,000
4,000
5,000
6,000
01-96
06-9611
-9604
-9709
-9702
-9807
-9812
-9805
-9910
-9903
-0008
-0001
-0106
-0111
-0104
-0209
-0202
-0307
-0312
-0305
-0410
-0403
-0508
-05
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
12-mth moving avg. ('000 tonnes) % change
Volume: !!!! -5% Construction orders in Q2 04 fell by nearly a
third from a yearearlier because of a soft local economy, following
a 14.2% drop forthe first quarter, according to government data. We
understand thatH2 04 trends continued to deteriorate significantly,
as the policystarted in June 2003 by the government to stabilise
the housingmarket is still resulting in an ever-dwindling number of
buildingpermits. Given very weak activity, Ssangyong Cement
Industrial andLafarge Halla Cement, the country's largest cement
makers,temporally shut production lines for maintenance work during
H2 04.This kind of job is usually done in the winter, but current
stocks are sohigh that the storage capacity is saturated, and
inventories cannot besold in this weak demand environment. We
believe these conditions should persist in 2005, and weexpect
volumes to be down 5%.
Prices: #### +/- 0% Imports from China continued to increase
significantly throughoutH2 04. Importers are gaining market share
from local producers andintensifying competition. Two big producers
(Yoojin Remican and AjuIndustry) have developed their own cement
grinding capacity. Despite cost inflation, prices were under
pressure in 2004 andwe believe that there is no scope for price
increases in 2005: weexpect prices to be broadly flat.
Main companies: Lafarge (2% of group sales).
-
29 Building Materials
China: Cement production 2005 comments: lower growth and pricing
pressure
20,000
45,000
70,000
95,000
01-99
05-99
09-99
01-00
05-00
09-00
01-01
05-01
09-01
01-02
05-02
09-02
01-03
05-03
09-03
01-04
05-04
09-04
01-05
05-05
09-05
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
12-mth moving avg. ('000 tonnes) % change
Volume: """" +7% Chinese cement output is expected to be up 14%
in 2004.Cement exports increased for the first time since 1997, and
reached4.4MT, up 17% at the end of September. Nonetheless, from a
peak of 33.5% in February growth slowedquickly month-on-month to
10% in August and 9.7% in September.This is due to the recent
governments decision to ease economicgrowth. In 2005, domestic
demand for building materials should generallyremain brisk. On the
export side, the recovery of the economies inneighbouring countries
should boost demand for Chinese buildingmaterials. We expect a 7%
rise in demand for 2005 to reflect continuinggrowth.
Prices: !!!! -5% Average cement prices have declined sharply at
the end of 2004due to capacity expansions, according to government
and companyofficials, from 310 yuan (USD37.5) in July-August, but
to 265 yuan(USD32) in September-October and 245 yuan (USD29.6)
inDecember. The biggest drop in cement prices was in eastern China
andBeijing, where production capacity expanded extensively. For
2005, we assume that prices should remain under pressureowing to an
unfavourable base effect and new capacity additions. Weexpect a 5%
decline.
Main companies: Lafarge (1% of group sales),
HeidelbergCement(
-
30 Building Materials
India: Cement deliveries 2005 comments: strong volumes and
prices
4,000
6,500
9,000
11,500
01-96
06-9611
-9604
-9709
-9702
-9807
-9812
-9805
-9910
-9903
-0008
-0001
-0106
-0111
-0104
-0209
-0202
-0307
-0312
-0305
-0410
-0403
-0508
-05
-10%
-5%
0%
5%
10%
15%
20%
12-mth moving avg. ('000 tonnes) % change
Volume: """" +6% Although construction demand was hampered in
2004 by a sharprise in steel prices - mainly in the south of India
and a shortage ofriver sand, we expect cement consumption to have
risen by around6% in 2004, helped by intense road and highway
construction works. On top of growing domestic demand, cement
producersbenefited from a 15% surge in exported volumes, mainly
towards theMiddle East and Gulf countries, where demand is booming
(11MTwere exported). This phenomenon should continue in 2005. In
2005, the expected growth in housing and infrastructuresectors
should push up demand for cement by another 6% based onour
assumptions.
Prices: """" +6% In the last three months, prices have been
mostly stable in India. We believe ex-works prices should increase
by 5-10%nationwide, even in the south, which represents 30% of the
Indianmarket and has traditionally been a tough market in terms of
pricing. Delivered prices should also increase following the
decision ofthe authorities to increase taxes on cement by another
15%. We expect the price effect for cement companies to be around6%
in 2005.
Impact of tsunami: India has been impacted in the southern
provinces of Tamil Naduand Kerala, as well as in the Nicobar and
Andaman islands. The totalimpact of the disaster could amount to
USD1.2bn. However, the additional volume will depend on the
decision ofthe government to rebuild in concrete the temporary huts
and housesdestroyed by the catastrophe. However, local opinion is
sceptical, ascyclones have regularly destroyed this type of
construction in therecent years without prompting the government to
change its policy. Itis more likely that people will rebuild huts
on their own, and cementproducers are projecting only a small
incremental demand followingthe tsunami. Allegedly, following the
catastrophe, some local companies havedecided to increase the price
of 50kg bagged cement by INR20 toINR30 (USD0.45 to USD0.68), the
equivalent of a USD11/tonne priceincrease. Cement traders have
confirmed these price increases, butcement producers have not.
Local demand in the Gujarat state could lead to a cut inshipments
towards the Mumbai states, creating shortages. Theconsequence on
export prices should be visible after the recentincreases announced
by producers in Gujarat and western regionswhich supply the Gulf
countries. Fearing a drop in cement exportsfrom India and
South-East Asia because of reconstruction, Gulfcountries ordered
large quantities of cement from Indian producerswho increased their
prices by 20 to 25 RS/bag of 50 kilos, theequivalent of a
USD11/tonne price increase. As a result export pricescould reach
USD45/t price (USD35/t for clinker).
Main companies: Lafarge (2% of group sales), Ciments Franais(2%)
/Italcementi (1%); Holcim (1%, in the process of acquiring astake
in ACEL (2MT) and ACC (18MT).
-
31 Building Materials
Japan: Cement consumption 2005 comments: restoring prices in a
still weak environment
3,500
5,000
6,500
8,000
01-96
07-96
01-97
07-97
01-98
07-98
01-99
07-99
01-00
07-00
01-01
07-01
01-02
07-02
01-03
07-03
01-04
07-04
01-05
07-05
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
12-mth moving avg. ('000 tonnes) % change
Source: Exane BNP Paribas, trade associations
Volume: %%%% -1% Cement consumption in Japan has declined
significantly in thepast