Cement Shipping Trends Tell a Macro Story
The slow implosion of the Chinese property market is impacting global cement shipping markets, but not so much as you might think. In part this is because China produces much of its own cement and in part because the loss of Chinese import demand has been offset by rising import demand in the US, where President Biden, for all his alleged faults, is at least trying to rebuild some of America’s run down physical infrastructure.
Anhui Conch Cement, China’s biggest manufacturer in 2021, made just over 200 Mn T of cement in 1H21 but only 128 Mn T in 1H22, offering a guide to the demand crunch caused by the property market in the Middle Kingdom.
China National Building Material Group Co., Ltd (CNBM) is the second biggest Chinese cement producer, selling 128 Mn T in 1H22 compared to 151 Mn T in 1H21. In its latest quarterly report, CNBM blames declining sales of cement on “repeated coronavirus outbreaks, a decline in the real estate market, lack of funding for infrastructure projects and a generally weak economy.”
A smaller competitor, China Resources Cement (CRC), sold 31 Mn T in 1H22 compared to says 42 MnT in 1H21. In its 2Q22 report it says that, “total cement production in China amounted to approximately 980.0 million tons, representing a year-on-year decrease of 15.0%.“ The report goes on to say, “According to the statistics published by the National Bureau of Statistics of China, in the first half of 2022, the floor space of commodity housing sold in China decreased by 22.2% year-on-year to 690 million m2 and the sales amount decreased by 28.9% year-on-year to RMB6.6 trillion. Real estate investment in China decreased by 5.4% year-on-year to RMB6.8 trillion. The floor space of houses newly started construction decreased by 34.4% year-on-year to 660 million m2 while the floor space of houses completed dropped by 21.5% year-on-year to 290 million m2 . The floor space under construction by the real estate developers nationwide reached 8,490 million m2 , representing a year-on-year decrease of 2.8%....”
China’s government has made dozens of spending pledges on infrastructure and housing, but there is not much it can do about a demand crunch made by a fall in the number of young people forming families. Live births were 10.62 Mn in 2021 compared to 17.86 Mn as recently as 2016. That sort of collapsing demographic was not in China’s long term economic plans.
Cement companies in China are not just reeling from falling sales but also from rising energy costs. Anhui Conch’s EBITDA fell from (approximately) USD 1.75Bn to USD 960 Mn between 1H21 and 1H22. CNBM’s EBITDA fell from USD 3.7 Bn to 2.9 Bn, while CRC’s ENTIDA fell from USD 737 Mn to 447 Mn. The problem is not just Chinese. Compare Taiwan, where Taiwan Cement reports its cement segment increased sales revenues during 1H22 by 8.2% to USD 1.42 Bn from USD 1.31 Bn. However, EBITDA fell from USD 360 Mn in 1H 21 to a loss of USD -58 Mn in 1H 22.
International producers like Holcim, Heidelberg Cement or Cemex report that higher input costs are being passed onto customers in the US and Europe where demand is holding up, but less so in Asia, where demand is falling overall due to China’s problems. Even in India, where demand is growing, margins are faling due to an inability to pass high coal prices on as higher cement prices.
International suppliers have also noted high freight costs in 1H22. Votorantim of Brazil said in its Q2 report: “Several factors impacted the world economy, which had already been weakened by the pandemic: higher-than-expected inflation across the world (especially in Brazil, the United States and Europe), tighter financial conditions, a worse-than-expected slowdown in China, reflecting COVID-19 outbreaks and lockdowns, and further negative repercussions from the war in Ukraine, with an increase in the cost of fuel, freight and energy.”
Cement shipments have been directly affected by the pandemic. Total global annual exports rose from 80 Mn T in 2015 to 135 Mn T in 2019 before falling to 118 Mn T in 2020. A recovery in 2021 to 149 Mn T reached a record monthly peak of 15.3 Mn T in October 2021. Since then, volumes have fallen to a low of 10.8 Mn T in July 2022, though there was a recovery to 12.0 Mn T last month and this month we estimate 13.4 Mn T.
Imports to the Far East peaked at 39.3 Mn T in 2021. We estimate that they will fall to 28.1 Mn T in 2022 based on 18.7 Mn T of imports in Jan-Aug. Seaborne imports to the US were 14.9 Mn T in 2021; we estimate that they will grow to 16.2 Mn T this year. Imports into Western Europe, via the Baltic, North Sea, Atlantic, or Mediterranean were 8.2 Mn T last year; we estimate 10.3 Mn T this year. EU imports were 6.8 Mn T last year; we estimate 9.4 Mn T this year.
It looks like, in the short term, cement manufacturers (and shippers) will rely on the US market to drive demand. It isn’t just federal spending on infrastructure. August 2022 housing starts data surprised on the upside with a 12.2% increase to a 1.58 million annualised rated. However, applications to build, used as a guide to the level of future construction, fell to an annualised 1.52 million units, the lowest number since June 2020.
Analysts say that rising interest rates (the Federal Reserve added 0.75 bp to its funds rate on 21 September) will pressurise domestic and commercial property markets going into 2023. The expectation of a US recession is being priced into the stock market which is tracking its 2008 decline fairly closely. The EU and UK are hovering around zero growth. Japan’s quarterly GDP growth for Q2 was recently upgraded to 0.9% from 0.5%. But, when stated in USD terms, Japan’s GDP is below USD 4 Trillion for the first time in 30 years due to the JPY’s 30% fall against the USD in the last 12 months.
There are uncertain times to come in the global economy. The cement shipping markets can offer a quantifiable window into that uncertainty.