Cementing growth in an oversupplied market
May 16, 2019
There is no denying substantial overcapacity in the global cement market. It is estimated that the surplus will fulfill the world’s cement needs for at least the next 20 years.1
How did we get here? Global cement capacity has tripled since the beginning of this century to 6.2 billion tonnes,2 primarily driven by China’s domestic construction boom. However, after 2014, world production growth became flat. (See Figure 1)
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In addition, cement industry operating margins have remained below 12 percent, post the 2008 global economic slowdown, although they recently neared the 2007 high of just over 14 percent. Meanwhile, revenue growth has been unreliable. (See Figure 2)
CLICK TO ENLARGE FIGURE 2
Continuous capacity increases are distorting global cement markets across regions. Currently, China has the greatest excess capacity, with a surplus of 895Mt, representing 45 percent of the total global overcapacity.3 Europe has a capacity-to-consumption ratio of 200 percent, the highest in the world.4 Turning to India, its Cement Manufacturers Association believes that India’s cement industry has 100Mt of excess production capacity out of a total annual capacity of 425Mt, and the situation is worse for neighboring countries.5
Since the cement industry is regional in nature—with the top 10 cement exporting countries accounting for 75 percent of total global cement exports in 2018—most of the excess production is diverted to adjacent geographies due to relatively high land-based transportation and distribution costs. (See Figure 3)
This overcapacity situation is exacerbated by U.S. and European cement manufacturers also being under regulatory pressure to reduce CO2 emissions, which may impact already low capacity utilization rates.
Intelligent process automation as a path to growth
In such challenging times, when average global capacity utilization is well below 75 percent, the cement industry needs to explore opportunities to improve efficiency and productivity. Process automation will be key. Adoption of “intelligent control,” for instance, can yield significant benefits. Although the industry tends to be slow in adopting new technologies, some cement plants are moving ahead. Additionally, benefits experienced by other industries are a major driving force to the adoption of new technologies in cement manufacturing.
The myth is also fading that cement companies must invest exorbitant amounts of money to digitalize their business and enable an Internet of Things (IoT)-driven system. The reality is that the cost of embedded sensors has declined significantly, making the transition to digital more affordable. The average cost per sensor dropped from US$1.30 in 2004 to US$0.60 in 2014, and the cost is expected to fall to US$0.38 by 2020.6
Relevant technologies that work in concert with IoT devices include new systems that support mass data processing, real-time connections, on-demand customized production and benchmark smart factories. Some industry leaders have already adopted these in various operations across the cement manufacturing value chain as illustrated in the following examples:
- Cement raw materials: Real-time information about mineral deposits transmitted to all value chain nodes can help inform and improve various production process phases. For example, a leading African cement producer uses drone-made contour maps in its mining software to analyze blocks that need to be blasted and excavated.
- Suppliers: Cement manufacturers can minimize delays and improve margins by having real-time connections to their suppliers of raw materials, services, products and fuels. For example, a top cement producer launched a continuous efficiency improvement program across the manufacturing value chain, and one of the steps involved introducing an e-auctioning program to digitalize purchasing.
- Manufacturing: During the cement production process, many tasks and functions—such as planning, maintenance and sales—can be centralized to enable more analytical, predictive and proactive decisions. For example, one Asian cement company, in collaboration with a leading equipment manufacturer, upgraded its distributed control system, providing full control over energy and raw material consumption during cement manufacturing, while keeping vital processes running without interruption.
- Supply chain: With various digital technologies, logistics can become self-organizing and more flexible, resulting in a better distribution of skills and assignment of functions, higher filling rates and greater precision in shipments. For example, a South American cement company launched an operational excellence program to generate efficiencies throughout its supply chain, while a few Indian cement companies have optimized their supply chains using radio frequency identification (RFID) technology and industrial IoT solutions.
- End users: When customers have real-time visibility into the supply chain, it can promote better planning and completion of orders with specific requirements. For instance, one leading European cement producer is developing an online portal for its customers to improve visibility.
To summarize, in today’s challenging business environment that includes stricter government regulations, cement manufacturing companies have every incentive to embrace new technology for end-to-end operations. The sooner they take this step, the better off they will be. Why? They stand to benefit from more flexible, agile and economical operations as well as the ability to achieve sustainable, long-term growth in an already oversupplied market.
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Sources:
1 Rowland, Jonathan. “The greatest problem,” May 7, 2018, World Cement.
2 Ibid.
3 Ibid.
4 Ibid.
5 “Indian cement industry sitting on 100Mt of excess capacity,” September 18, 2017, Global Cement.
6 Honrubia, Mario. “Industrial IoT is booming thanks to a drop in Sensor Prices,” August 17, 2017, Enmotive.
