Cement market growth slows while demand goes up

Rising cement demand results in rising imports
The trio on the local cement market – Carpatcement, part of the German group HeidelbergCement, Swiss Holcim and the local subsidiary of French group Lafarge – seem to agree that the growth of the cement market in Romania will decline by 20 to 30 percent in 2008. Since cement represents only 8 percent of the total construction market, according to Mihai Rohan, general manager of Carpatcement Holding, there is no contradiction in the 10 percent decrease and the 35 percent construction market growth forecasted in 2008, set to take the total figure to EUR 13 billion. Last year it stood at EUR 10 billion, according to the Association of Building Entrepreneurs (ARACO).
Even so, Carpatcement and its two competitors are faced with increasing demand for cement. “Demand is double our production capacity,” said Rohan.
According to the Carpatcement representative, the cement market will reach 12 million tons in 2008, of which imports will represent between 300,000 and 500,000 tons.
The increase in imports has been attributed by Carpatcement Holding to local firms' inability to keep up with demand on the market, due to the boom in the construction segment.
The level of consumption is increasing exponentially with the development of the real estate sector in cities such as Bucharest, Timisoara, Constanta and Iasi, according to Rohan.
He estimated a yearly consumption of 450 kilos of cement per inhabitant in Romania, a similar value to Hungary's, and predicts the amount will reach 800 kilos per inhabitant in the next six years. Still, the average consumption in Romania is less than half of the 1,000 kilos per inhabitants registered in Spain, Portugal or Greece, according to Rohan.

Investments on schedule
Carpatcement plans to invest over EUR 60 million in 2008, while Lafarge Romania also intends to invest around EUR 58 million in the expansion of its local cement plants and increasing production from 5.5 to 6.5 million tons per year.
Holcim Romania announced at the end of 2007 the start of a four-year, EUR 180 million investment program. At the beginning of 2008, the Swiss firm announced EUR 135 million of investments for 2008, according to general manager Markus Wirth.
The company's investment plan includes modernizing all the production stations it owns in Romania and enlarging the commercial fleet, which stands at 400 trucks owned or subcontracted by the company. “We are not ruling out the possibility of investing in a new factory, if expanding the existing one's production capacity isn't enough,” said Wirth.
He believes the local cement market will increase by 10 to 15 percent on a yearly basis in the following five years, so Holcim will need to invest in order to keep its position on the market.
Carpatcement will use its investment budget in 2008 for the revival of the second Bicaz production line of clincher and a depositing clincher store with a capacity of 90,000 tons.
The investment also covers the modernizing of Carpatcement's cement mill in Deva and the construction of another one in Fieni, according to company representatives.
The firm's concrete division intends to invest in the construction of three new concrete stations. Carpatcement invested EUR 40 million in 2007, and by the end of 2011, the firms plans to double its production capacities.
But while his competitors are looking to greenfield constructions at some plants to keep up with the increasing demand for construction materials such as cement and concrete, Rohan said that he would rather refurbish the existing production lines. Carpatcement would not focus on building a greenfield station in the short term since the estimated investment in this kind of development requires around EUR 250 million, while modernizing works cost EUR 60 million.
Lafarge Romania is planning EUR 58 million of investment by the end of 2008 to increase the group's cement production and distribution capacities, which currently stand at 5.5 million tons.
Besides that, the firm's concrete and aggregates division will get EUR 40 million in the next two years to expand production by 50 percent and purchase some production facilities, according to Bruno Roux, general manager of Lafarge Agregate and Betoane division.
The French subsidiary plans to increase cement production by 1 million tons by the end of 2008 at the three facilities at Hoghiz, Medgidia and Targu Jiu. In the first stage, to be completed by year-end, Lafarge plans to add 500,000 tons of cement to the current production capacity.
The group is also considering investing in power units in order to support the company's energy consumption, a decision to be made in the next year, according to Philippe Questiaux, president and general manager of Lafarge Ciment Romania.

Prices to increase in 2008
“I cannot say whether the cement industry will increase the price of cement in 2008,” the Holcim representative said at the end of 2007.
Now with the increasing prices of utilities, fluctuating national currency and higher production costs, more expensive cement is a certainty for the three big producers in Romania. Markus Wirth estimated an increase of up to 12 percent, a similar level to the one registered in 2007 by Holcim.He projected that the demand for cement from infrastructure works this year would reach 30 percent of the total cement demand, after the company delivered up to 80 percent of its cement production to building constructions in 2007.
Rohan said Carpatcement would increase the price by 5-10 percent in 2008. But the low proportion cement makes up in the overall construction market meant this would not impact on the price of buildings, he added. “Last year we increased prices by 5 percent, but in 2008 the prices
might be influenced by the cost of fuel, energy or if we have to buy certificates for carbon emissions,” added the GM.
From Lafarge's studies of Eastern European countries, Romania has registered the biggest growth in cement sales, more than 60 percent compared to Russia and Poland. Lafarge estimates a growth on the overall cement market in Romania of 20 percent by year-end, to be followed by an increase in prices.
The first to express their discontent at the news are the constructors, which estimate a inevitable increase in the price of a built sqm.
Representatives of the Construction Company Employers' Union (PSC) estimated that a 12 percent increase in the price of cement means a 5 percent increase in the final costs of a construction.
ARACO has come to an even gloomier conclusion, estimating a 20 percent increase in the average price of construction works, including the increasing price of construction materials and transport costs in the final price formula.

By Magda Purice

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