Sluggish economic activity has weighed on the cement sector and demand growth has decelerated in recent years to just 1.1 per cent in 2014. Latest figures indicate a more pronounced impact on cement demand, with consumption expected to have declined by 9.5 per cent YoY in 2015 to 64.9Mt, according to preliminary data and market estimates from the Brazilian National Cement Industries Union, Sindicato Nacional da Indústria do Cimento (SNIC).
Against this backdrop, cement capacity utilisation now stands at just 59 per cent. Speaking at the recent Cemtech Americas conference at the end of last year, Francisco Suarez of Scotiabank (Mexico) cautioned: "After years of massive capacity expansions, the downturn should result in capacity rates below the 60 per cent mark for a prolonged period."
Meanwhile, Fitch notes that production capacity coming online in 2016 will also ultimately result in lower pricing power. Furthermore, high inflation, high energy costs and increased unemployment will continue to negatively impact profitability metrics through 2016. Companies with diversified global operations, such as Votorantim Cimentos and InterCement, will lean more on their operations outside of Brazil to partially offset lost volumes in Brazil, it notes. Small, local producers in Brazil will continue to be most vulnerable in 2016.
Short-term market expectations
This year, cement consumption is expected to fall by around 10-12 per cent in 2016, according to SNIC. “The main challenge is to find a way to resume the construction industry growth, by infrastructure or by real estate building as soon as the economy recovers,” a SNIC spokesperson told CemNet News. For 2017, the industry body sees the "possibility for a small recovery."
Meanwhile, cement imports represents less than on per cent of cement consumption in Brazil and will probably continue to decrease this year, it added.
Long-term prospects
However, in the longer run, attractive demographic dynamics and lagging infrastructure should provide good support for the sector. "Brazil has an important infrastructural program to build, and cement is an important part of that as it is the basis for housing, hospitals, schools, sanitation, ports, airports, highways, railways, bridges, hydro power plants, etc. As far as the political and economic conditions in Brazil will stabilise, these programmes will be reactivated,” notes SNIC.
Theo Cemnet
