The Romanian cement market declined 0.2 percent in 2012 owing to bad weather and an unfavorable economic context, and this year seems no better as yet. Any growth by yearend will be small, and could only come from infrastructure investments and a higher EU funds absorption rate for this sector, manufacturers say.
(Romania) -- "I don't think the Romanian constructions market will ever again see annual increases of 7-9 percent like those posted over 2005-2008. But I am confident that a moderate yet stable and constant growth rate of about 1-2 percent per year is achievable," Florian Aldea, general director and president of the board of directors of Carpatcement Holding, recently stated. The company is one of the main players on the local cement market alongside Holcim Romania and Lafarge Romania.
However, even an annual increase of just a few percentage points seems out of reach at present.
"Judging from the results so far this year, our estimations are that the market will stagnate, but we hope to see a slight increase, at least in the second half of this year. Still, it is too early to predict how the year will go overall," he said.
Carpatcement is not the only player to think that. "Taking in consideration the evolution of the cement market in the first quarter, 2013 should be a more stable year than 2012, with better conditions for a positive evolution of the market," Daniel Bach, general director at Holcim Romania told BR.
Lafarge Romania too is taking a cautious approach.
"In 2013 we do not expect any significant changes compared to 2012. Our group estimates a 1 to 4 percent possible growth in market volumes, but we are rather conservative after the first quarter results which were impacted by adverse weather, lower infrastructure spending and high inventories in the distribution channels," Sonia Artinian, country CEO at Lafarge Romania, told BR. However, she added that in the cement industry the first quarter results do not reflect full-year trends and are traditionally lower than those throughout the rest of the year.
The challenges ahead for the industry include inflation and the rising cost of energy, as well as the unpredictability of potential growth, as many of Lafarge Romania's major projects are related to infrastructure.
The first signs of growth may come in the second half of the year, but only if public investments in infrastructure projects are maintained at least at last year's level, if not increased, Aldea added.
The other players agree. "Market growth could come from a higher EU funds inflow rate for the infrastructure sector. That would definitely make a major contribution to reaching the estimates I gave, as the residential construction segment has performed poorly over the past few years and, in my opinion, it will take more time for it to get back on track," said the head of Lafarge Romania.
Holcim too stresses the importance of infrastructure projects. "An important factor that can influence the cement market would be a reinforcement of the priority of infrastructure by the government and thereby taking full advantage of the available EU funds. This would not only help the construction industry, but also the economy in a wider sense since availability of adequate infrastructure is often a key criterion in investment decisions. The economy growth will also help the residential and non-residential sectors to rebound and companies and individuals to regain confidence to invest in the construction market," said Bach.
In addition to infrastructure developments, logistics parks and office space projects also fueled the construction market last year and should continue to do so in 2013. As for manufacturers pinning their hopes on infrastructure developments, there have been few positive signals from the government. The Ministry of Transports has a 40 percent higher budget this year (approximately EUR 1.6 billion) but this does not mean more money for investments. The funds necessary for the majority of this year's road, highway, railways and subway investment projects will be, or more likely, should be, mostly EU money. This does not leave room for a lot of optimism considering that in the six years since joining the EU, Romania has managed to absorb a meager 6 percent of the over EUR 4.5 billion available from the EU for transport projects.
Talking concrete numbers
Last year Carpatcement Holding reported a total turnover for all three divisions – cement, concrete and aggregates – of EUR 195 million, down 7 percent y-o-y. The main factor was unfavorable weather conditions in the first half of 2012 but, nevertheless, the local economic context did not help either. And Romania was not an exception. German HeidelbergCement, of which Carpatcement Holding is a member, reported global sales growth of just 1.4 percent, with the increase coming from outside Europe.
Despite the turnover decrease in Romania, the cement producer managed to increase its net profit by 11 percent to EUR 36 million. This was achieved by restructuring costs and increasing revenues through the product mix and vertical integration.
Last year's cement production in Romania was 7.6 million tons, out of which the company delivered 2.75 million tons. By comparison, during the boom years of 2007-2008 Carpatcement provided some 3.2-3.3 million tons of cement per year.
About 8-9 percent of the company's cement deliveries went to infrastructure projects, a share which Aldea says has remained relatively constant over the past few years. The rest was made up of private ventures such as logistics parks and office projects.
Some of the infrastructure projects for which the company delivered in 2012 were the Nadlac-Sibiu highway, airport renovations and even the Redemption Cathedral in Bucharest, for which Carpatcement provided 20,000 tons of cement in 2012.
In 2012, the total sales of Lafarge Group increased by 3.5 percent, to EUR 15.8 billion. In Romania, the company grew its business by 7.9 percent in terms of value on cement activity (volume +7 percent, other effects +0.9 percent, including price, product and customer mix effects).
The local subsidiary of Swiss Group Holcim saw cement sales drop by 3.6 percent (in volume) in 2012 y-o-y, due to unfavorable weather conditions and a decline in private sector investment.
Overall, the firm's global cement sales increased by 2.5 percent in 2012 despite declines in its European businesses, while consolidated net sales rose by 3.9 percent.
