Turkish cement industry: Down in dumps since 2018
After two years of adverse conditions experienced throughout the sector, the current contraction due to the Covid-19 pandemic has increased the burden of the companies
Economic slump hits cement hard
The Cement Sector in Turkey, which is the largest producer of Europe, after its nearly three-year continuous growth has entered a downward trend in consequence of the negative developments in the Turkish economy since August 2018. In addition to the slowdown in construction works in recent years, the adverse economic conditions encountered in Turkey reduced the demand for cement, as it has been case for many domestic products. As a result of the decreasing demand for cement, the total production in the sector, which shrank by 9.9% in 2018 compared to the previous year, continued to contract and shrank by 21.4% in 2019. Due to the overall contraction in the sector, the capacity utilization ratio of the producers dropped to 50% in 2019.
Housing, infrastructure down-turns affect sales
In addition to the stagnation in housing market, the slowdown in infrastructure projects also caused a decrease in the demand for cement in the domestic market over the last one and a half year. The contraction of 10.8% in total sales in 2018 increased to 29.5% at the end of 2019. While the total domestic market sales of the sector were 72.2 million tons in 2017, it decreased to 45.4 million tons in 2019 and the contraction in the domestic market between these two periods has been 37.1%. After the increase in demand in the construction sector following the decrease in market rates, an improvement in the cement sales in the domestic market had been expected across the sector. However, the high level of housing stock in the construction sector has suppressed the implementation of new projects, as a result, the contraction in the domestic market continued until the end of 2019.
Exports become the salvation
Due to the shrinkage in the domestic market, cement producers of Turkey attached more importance to foreign markets and concentrated further on their export-oriented activities. The exports of the cement sector, which was 7.5 million tons in 2018, increased by 48.0% in 2019 to 11.1 million tons. The export revenue of the sector from cement and clinker, which was 234.1 million USD in 2018, reached 380.5 million USD with an increase of 62.5% in 2019. While the African countries such as Cameroon, Gana and the Ivory Coasts have been the countries where the sector’s exports were most developed, the USA and Israel markets maintained their position of being the most important markets for the sector. The increase in the export income of the sector continued in the first two months of 2020, and an increase of 42.0% was achieved in export revenues compared to the same period of the previous year.
Despite the contraction in the domestic market, the improvement in exports supported the increase in the overall cement production in the last two months of 2019. Although the production growth of the sector continued in the first two months of 2020, the Covid-19 pandemic experienced worldwide has affected the cement sector negatively as well as many other sectors. While the pandemic adversely affects the industry both in the domestic market and in the foreign markets, the uncertainty about the duration of this pandemic is also one of the most important problems of the sector.
Intense competition hurt pricing power, when Covid arrived
Along with the shrinking production and the domestic market, the suppression of the sale prices due to the intense competition on the supply side was one of the factors that negatively affected the profitability of cement producers in the last period. Increasing production costs, the high unutilized capacity and the high interest rates in the first eight months of 2019 have led to the weakening of the financial structures of many companies in the sector. After two years of adverse conditions experienced throughout the sector, the current contraction due to the Covid-19 pandemic has increased the burden of the companies. The measures taken by the government and the packages announced to protect against the negative effects of this crisis, support the sector companies to maintain their sustainability. In addition to this, it is considered that the practice of their own crisis management in an effective manner is highly important for companies, in order to achieve a more successful cash flow performance and a healthier financial structure in the post-pandemic periods. Although it is not known when the Covid-19 pandemic will be over, the sales are expected to increase significantly after the pandemic especially on the export side due to the delayed investments and the expenditures during this pandemic.
Reprinted by permission from TURKRating, Turkey’s national rating agency
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