2011 was a year of challenge for the Lebanese economy. Domestic and regional events were on the downside with the eruption of Arab Spring and the collapse of the government of national unity. The cement industry however, and as opposed to other sectors, showed resilient over the year despite the inevitable slowdown witnessed. As noted by Apraham Dedeyan, who served as the caretaker Industry Ministry before the formation of the current government, “Lebanese cement manufacturing has a number of distinct qualities, chief among them are its quality that adheres to international standards, its reasonable prices, its developed manufacturing techniques, as well as its proximity to oil-producing Arab Gulf states.”
Background
Cement accounted as Lebanon’s biggest single industrial exports in 1980, making up 16% of industrial exports. Syria was the main country of destination, importing over 40% of Lebanese cement. However, a year later, Syria initiated the construction of its own cement industry which put a halt to the massive cement exports from Lebanon. In the 1990s, the domestic industry which remained strong throughout the period went through a restructuring phase, when about $600 million was channeled into the industry and invested in the upgrading of technology and raising capacity to meet the country’s reconstruction needs.
While exports remained weak, cement production in Lebanon has tripled from 2 million tons in 2006 to 6 million in 2011.
Exports stood at 1 million tons per year and targeted mostly Syria and Iraq. According to Cimenterie Nationale, a leader cement producer in Lebanon, sales of cement increased at around 10% a year during the considered period.
Drivers of Growth
The drivers of the cement industry in Lebanon are fundamental and strong. The real estate sector counts as a main pillar with the construction boom that has intensified post 2006, bringing in a surge in demand for cement. The Doha agreement in 2008 and the global financial crisis to which the country remained resilient contributed to boost further up the industry performance. Cement deliveries rose at a CAGR of 10% from 2006 to 2011 to 5.5 million tons, reflecting the significant rise in local consumption rates.
The other driver of the cement industry is government infrastructure which is currently almost nonexistent in Lebanon. The inability to pass a budget since 2005 paralyzed decision making and failed to allocate the needed amount of capital to move on with public works.
Suppliers on the Market
Lebanon’s cement market is being supplied by three main cement plants; Cimenterie Nationale S.A.L., accounting for 42% of sales in 2011 and offering grey cement only, which is the most common type of cement used worldwide and accounting for the biggest share of the Lebanese market for construction materials; Holcim (Liban), making up 38.4%1 of cement sales in 2011, and offering both types of cement, grey and white2; and Ciment de Sibline S.A.L, producing only grey cement and accounting for 19.6% of sales in 2011.
Performance of the industry
The cement industry has been resilient to domestic, regional, and national events that hit hard over 2011 but witnessed a slowdown over the year. The collapse of the government of National unity early in the year and the inability to form a new government until June, coupled with the eruption of Arab Spring that has strongly affected the Syrian economy to which the Lebanese one is heavily linked, distorted the economic activity of the country and tamed demand for cement. Statistically, investments in the real estate sector account for a good share of Lebanon’s Foreign Direct Investment, out of which Arabs contribute an average of 96%, which indicates, to a certain extent, the importance of Arab demand to real estate in Lebanon. However when considering the whole real estate sector in Lebanon, foreign demand accounted for an approximate 2 percent of real estate transactions. Hence, it is a reluctant investors from both Arabs and Lebanese that caused a slowdown in entrepreneurs’ actions across several sectors among which construction, which translated into a deceleration of demand for cement.
Cement deliveries rose by 6.2% y-o-y in 2011, yet at a much slower pace than years earlier. Also, the slowdown was more accentuated over the first half of the year as sales picked up over the second half with cement deliveries up 8.5% from the first half of 2011.
Two out of the biggest three domestic cement suppliers saw their production of cement rise over 2011 and sales were on the uprise for all three suppliers. Cimenterie Nationale witnessed a 12% y-o-y rise in production, up to 2.8 million tons in 2011. Holcim’s production was down by 4% y-o-y to 2.3 million tons due to some technical interruptions; their sales however went up by 2% y-o-y to 2.36 million tons3, possibly achieved using their stocks to respond to demand. Ciment de Sibline had a 9% y-o-y increase in production to 1.2 million of tons in 2011. According to Cimenterie Nationale, the cement industry responds rather fast to any economic shock and it takes around 8 months for any economic slowdown to reflect itself on the industry.
Price
The price of cement is fixed at an average of $90 per ton – without VAT – for the grey cement, and at an average of $181 per ton – without VAT – for the white cement. Recently in 2011 however, the selling price for the Syrian market has been declining due to the lower demand resulting from the folding events.
Prospects of Growth
According to Cimenterie Nationale, regardless of what form the Syrian regime will take next, the reconstruction phase that will follow the current social chaos will require significant amount of cement. Hence, the prospects for the Lebanese cement industry are strong. However, Pierre Doumet, General Manager of Cimenterie Nationale, believes the industry needs to invest in more efficient production capacities in order to face the growing competition on the markets. The elevated electricity cost, eight times that of Egypt, makes it extremely challenging to compete with the cheap cement flooding the market from Iran, Saudi Arabia, and Egypt. Amidst the current setting and as a step to incentivize the industry, the government cut income taxes by 35% on owners of industrial enterprises back in 2011. But greater incentives are needed.
There is an urge for the budget to be released in order for the industry to get its share of public investment. According to Doumet, despite the several challenges faced, the cement industry in Lebanon is safe and strong and stands “one of the few industries able to survive in the country in the long run, because the industry here has raw materials, professionals with know-how, production technology, as well as a market”.
Source:Data provided by related cement companies, Banque du Liban, Blominvest Bank- Research Department
13 August
