Let’s get COVID-19 out of the way first – at the time of writing this, vaccines are being distributed and the first shots are being given to front-line personnel and high-risk citizens around the world. Everybody understands that the vaccine is not miraculously changing things over night. It is however providing hope that things will return to normal and life as we know it is within reach.
US spending bill in the balance
“With light at the end of the tunnel, in terms of a COVID-19 vaccine and clarity around the US presidential election, we eliminate the uncertainty holding back investments and the industry can begin to plan ahead,” says Pat Turner, Regional President for North America. “One thing that we are monitoring closely in the coming weeks and months is the US government’s negotiations on the large infrastructure spending bill – a bill earmarking more than $1 trillion for upgrading US infrastructure. We expect this to happen in first half of 2021 and will help boost optimism among cement producers and increase confidence in the market.
From every FLSmidth corner-office around the world, the “health” of the local cement markets are monitored meticulously. The construction industry is a major consumer of cement, but also geographically narrow, which gets hit hard when the local economy suffers. We witnessed that in 2020. Cement is part of the construction business, which is a relatively geographically narrow business and gets hard hit when the local economy suffers. This is also what we saw in 2020, although most cement plants have been kept running albeit at reduced production rates.
Focus on the green agenda in EU
“The focus on sustainable solutions to drive reduction in carbon and NOx emissions will resume as the industry start to plan more long-term perspective again,” says Mette Dobel, Regional President for Europe and North Africa. “We will continue to see a postponement of larger investments to expand capacity. Any new capital investments in the foreseeable future is focused towards the green agenda.”
Asia will revert to growth in 2021
In Asia, Regional President, Per Mejnert Kristensen, expects the first 3-6 months of 2021 to continue to be challenging. “The Chinese economy is nearly back to normal, with a strong support from the central government, but most other countries in the region continue to be severely impacted by COVID from either a health or economic perspective. As the vaccine has its effect, we expected that all countries in Asia will revert to growth in 2021 – however, for many countries it will only mean getting back to 2019 GDP levels after the contraction in 2020. Again, with China being the positive exception, “ Per Mejnert predicts.
From a cement industry point of view, Per Mejnert Kristensen, saw most capital spending come to a halt across the region in 2020 and expect this to continue going into 2021. “As we emerge from the COVID-19 pandemic, during the first half of 2021, we predict that capital spending will resume in the latter part of the year.” Operating expenditures has also dropped throughout 2020, as cement companies try to stay profitable in a time of reduced demand and pressure on prices. “We expect OPEX investments to gradually return to normal in 2021,” says Per Mejnert.
Indian government pushes for infrastructure investments
As the second largest cement producer in the world - accounting for over 8% of the global installed capacity, a lot of analysts have kept a close eye on how the India would react to COVID-19. Managing Director for India, Ramanathan Chandran, reports that even though COVID-19 continue to impact mobility and will be felt well into first half of 2021, the International Monetary Fund expects India to see an 8.8% growth in GDP from April 2020 to March 2021. “We have obviously stayed in close contact with customers throughout the pandemic and we see positive activity on capital projects as the government pushes for infrastructure investments and housing. Similarly, we see new regulations on waste-to-energy and handling of waste, offering a massive opportunity for the cement industry,” says Chandran. The Indian cement demand is expected to reach 550-600 Million TPA by 2025.
Green recovery fuels sustainable agenda
During the last weeks of 2020, the EU Commission agreed on a 55% reduction target of greenhouse gas emissions by 2030, and a budget that allows for a green recovery following COVID-19 restrictions. The agreement was nudged along by CEOs from over 170 businesses and investors, calling on EU policymakers to support the reduction target of at least 55 per cent, necessary to raise the pace and focus of transition efforts for the EU to become a climate-neutral continent by 2050.
Responsible for 7% of the world’s CO₂ emissions, the cement industry obviously on the radar as part of the green recovery and public procurement. Alternative fuels have a vital role to play in the reduction of carbon – with the increased focus, infrastructure and legislation in place, Europe is heading into a second wave of alternative fuel adoption, argues Robert Krist, FLSmidth Pfister in Germany and Mads Nielsen, FLSmidth’s Global Product Line Manager for Upgrades.