Cement makers pin hopes on infrastructure plans

Multinational cement companies are banking on the rollout of various countries' government infrastructure projects to buoy demand for cement after volumes began to slump in the second quarter.

Cement demand has been fairly strong in recent years, as the Covid-19 pandemic drove demand for residential renovations and private construction spending. But with the threat of a global recession looming, demand for these types of projects has come under pressure, weighing on cement volumes and forcing cement makers to harness their hopes to infrastructure spending.

Holcim, HeidelbergCement and Cemex, the three largest global cement companies, all reported roughly 4-5pc lower cement sales volumes on the year in the first half.

There are signs that volumes could continue to fall. Residential construction demand has been weakening in Europe. Cement makers are also keeping an eye on the US, where Cemex is flagging softer residential construction demand as a risk for 2023.

HeidelbergCement acknowledged that residential construction demand in the US is already beginning to weaken slightly, although "we are not up for a massive housing crisis", HeidelbergCement chairman Dominik von Achten said. "Is there a slowdown [in the US]? Yes. Is there a massive drop-off? No."

But von Achten was cautious about forecasting the trajectory of demand. "What happens in 6 -12 months? Nobody can tell you," he said.

But multinational cement makers remain optimistic about the coming months, with companies expecting infrastructure spending to prop up cement demand.

Infrastructure projects announced by a number of countries have "not been reflected in our order books yet", Holcim chief executive Jan Jenisch said. "We expect this to start influencing our business very positively next year."

Cemex anticipates the US' Infrastructure Investment and Jobs Act will yield "incremental demand" as the company heads into next year. HeidelbergCement is already seeing some effects of infrastructure investments in Europe, although the full impact is still to come, with the company expecting a "further uptick" on infrastructure activity in the second half, von Achten said.

Green premiums to prop up margins

But if demand does fall significantly in the coming months, multinational cement makers anticipate that their more sustainable products, which fetch a premium compared with typical cement or concrete, will be able to bring in sufficient revenue.

Cemex's lower-carbon Vertua cement and concrete have "the same or better margins" than ordinary cement and concrete products, Cemex chief executive Fernando Gonzalez said. Cemex aims to derive half of its cement and concrete sales from these higher-value Vertua products by 2025. In the first half, Vertua made up slightly more than 30pc of cement and ready-mix sales.

Holcim's ECOPlanet lower-carbon cement expanded into new markets in the first half. The company is looking to "transform [its] whole product range to sustainability".

HeidelbergCement, which offers multiple lower-carbon cement and concrete products that vary by country, also said that focusing on sustainable products could change the typical dynamic between cement pricing and volumes.

Green shift accelerates fossil fuel decline

This transition to less carbon-intensive cement, as well as overall lower volumes, will reduce demand for petroleum coke and coal, the two main fuels used to heat cement kilns.

The high cost of coke and coal is making a strong economic case for maximizing the shift away from fossil fuels, increasingly replacing them with alternatives such as refuse-derived fuel. HeidelbergCement expects that energy costs will be 60-65pc higher on the year in the second half, while Holcim anticipates that full-year energy costs will increase by 40pc on the year.

"The increase in CO2 pricing, but also increase in energy cost, has helped us to accelerate our transformation," Jenisch said.

By Delaney Ramirez