Upbeat prospects for the cement market in Eastern Europe
As indicated by the results of PMR’s latest report, entitled “Cement market in Russia, Ukraine, Belarus and Kazakhstan 2020. Development forecasts for 2016-2021”, the cement production in the four countries increased by 5.5% to 81.6 million tonnes in 2019, following an almost 1% reduction recorded a year before. The rebound was instigated mostly by Russia, which covered 71% of the region’s cement production last year.
In Russia, cement production expanded gradually at a CAGR of 9.2% between 2010 and 2014, supported mostly by sizeable growth in residential and non-residential construction. However, in 2015 and 2016 output contracted by 10% and 11.6% respectively, followed by other reductions in 2017 and 2018. It is estimated that cement production came to 53.3 million tonnes in 2018, excluding about 400,000 tonnes produced in Crimea, falling 2% short of the level reached a year earlier. Furthermore, cement imports are estimated to have been collapsed by almost 28% year on year to about 1.5 million tonnes. Nevertheless, the bulk of cement consumed is produced locally, with imports accounting every year for less than 7% of domestic consumption. According to PMR estimates, cement consumption in Russia totalled about 53.8 million tonnes in 2018, 2.6% less than the consumption achieved a year before. Nevertheless, an upward trend in the Russian cement industry re-emerged in 2019, with production and consumption rebounding by 7-8% year on year.
In Ukraine, the cement industry has been also on a downward trend in recent years, regardless of the official sharp increase in construction output. In 2018, the cement production recorded a 0.9% reduction, following a 3.3% growth achieved a year before and following the sharp upward trend recorded in the construction industry. However, a negative trend re-emerged in 2019, though a reduction of only 0.2% was achieved.
In 2017-2019, construction activity in Ukraine continued to be affected by the crisis in eastern Ukraine, though to a lesser extent. Furthermore, a markedly lower devaluation of the national currency and easing inflation, allowed to reduce lending costs. Annual GDP expansion of at least 2.5% since 2017, stabilisation of the national currency against the euro (following a 14% drop in 2016 and 35% in 2015) and an average 8% consumer price index in 2019 (easing gradually from 48.7% in 2015), complemented by a sharp increase in the value of personal remittances provided a solid support to construction activity in 2017-2019. Official data indicate that the Ukrainian construction output observed a cumulative growth in constant prices of 64% between 2017 and 2019. The upsurge occurred mainly within the civil engineering subgroup, which experienced an 85% year-on-year growth. The non-residential construction subgroup also performed solid, with output expanding 70% over the period in question. Residential construction output increased by „only” 21%. However, the recent growth did not instigate a significant rebound in cement production, mostly because the output has been propelled by transport infrastructure projects without significant cement consumption.
Unlike Russia and Ukraine, the cement industry is one of those in Kazakhstan which has been booming in recent years. Large-scale state-supported infrastructure programmes have been launched since 2010, particularly the State Programme for Accelerated Industrial and Innovative Development. In 2019, cement production reached all-time high level of 9.92 million tonnes in Kazakhstan. There was a year-on-year increase of only 0.7% and up 22% over the amount achieved in 2014. Our estimates suggest that cement consumption in Kazakhstan rebounded by 2.1% year-on-year in 2019, following an almost 5% reduction a year before.
As for Belarus, the recent development of the country’s cement industry has generated many financial difficulties to domestic cement companies. The modernisation required a total investment of more than $1bn, which was mostly covered by loans from Chinese investors. Financial difficulties for the three cement producers in Belarus have been growing mostly due to the failure to increase exports, the national currency’s devaluation, as well as due to the falling demand on the domestic market. Poor growth in the residential and non-residential construction sectors in Belarus as well as the failure to boost exports to Russia and Ukraine have provided only modest support for the cement market’s expansion between 2015 and 2019. Nevertheless, cement production in the country came to 4.73 million tonnes in 2019, which is the highest level achieved since 2014.
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