Cement In Central Asia

Cement in CENTRAL ASIA CENTRAL ASIA CENTRAL ASIA

Prashant Singh, CW Group, reviews the state of the cement and construction sectors in Central Asia.

When 2021 rolled around, there was renewed optimism across the world on the back of expectations for a rebound year after a largely disastrous 2020 both in terms of the global economic impact and the loss of life from the pandemic.

Central Asian Overview

Central Asia has been experiencing stable growth since 2019, including last year despite the pandemic. According to CW’s Global Volume Forecast Report May 2021, Eastern Europe and the CIS region’s cement demand is expected to grow at a rate of 4.2% in 2021.

Growth expectations for Central Asia are moderately higher at an estimated 5 – 6%. The spread of the pandemic has made its presence felt in the region, adversely impacting economic growth and societal well-being. Still, Uzbekistan was only one of the three European and Central Asian economies that was able to maintain positive economic growth in 2020.

The region’s cement demand is expected to remain robust especially in the major markets of Kazakhstan and Uzbekistan.

Uzbekistan

Uzbekistan’s economy is export-driven with a strong reliance on gold, petroleum gas, and natural cotton yarn. In Uzbekistan, cement production in 2021 is expected to be around 16.4 million t according to the Uzstroymaterialy Association’s forecast. Effectively this would translate into an increase of almost 30% or 3.9 million t more than 2020. Demand, however, is expected to be between 17 to 18 million t driven by strong construction demand, primarily housing construction.

At the beginning of 2021, a total of 33 cement plants were operational, with the main concentration of production sites in Tashkent, Navoi, and Fergana. More than three-quarters of all cement produced in Uzbekistan comes from only six enterprises: JSC Kyzylkumcement, Akhangarantsement, Kuvasaycement, Bekabadcement, Jizzakh, and Sherabad cement plants (part of Almalyk Mining and Metallurgical Plant JSC).

With sustained cement demand growth expected to remain a permanent fi xture for at least the next two decades given the requirement for 145 000 new housing units annually to keep up with population trends as well as the replacement of old housing stock, additional capacity is expected to come online. In 2021 alone, 10 new enterprises with a cumulative capacity of 5 million t are expected to be launched. Over the 2021 – 2023 timeline, an additional investment of US$500 million and a capacity of 3 million t is expected to be implemented in the autonomous Republic of Karakalpakstan located within Uzbekistan.

The region has seen growing Chinese infl uence over recent years, especially in the construction sector, with an increasing number of companies making a play, as China focuses on expanding the Belt and Road Initiative (BRI), an important strategic project linking China through Russia to Europe, as discussed in depth in CW Group’s World Cement Report. It is expected that the coming years will see yet more Chinese players making investments in the Uzbek cement sector.

Numerous infrastructure projects will help to sustain demand diversifi cation and reduce dependence on housing construction. The Uzbekistan-Kyrgyzstan-China railway is an extremely important strategic project that is expected to be completed in the next few years, and will aid in improving the transport links between the three countries. This is especially important given that both Uzbekistan and Kyrgyzstan are land-locked.

This route gains even more signifi cance given a previously agreed plan (02 February 2021) to build a 573 km route from Mazar-e-Sharif to Peshawar, via Kabul, thus linking Pakistan, Uzbekistan, and Afghanistan. This was even hailed in Uzbekistan as ‘the event of the century’ because of its possible transformative impact on Uzbekistan’s economy. This project has an estimated cost of US$5 billion, will open Pakistani seaports on the Arabian Gulf to Uzbekistan, and is expected to aid in Afghanistan’s gradual integration into the Central Asian economic system.

However, given the deteriorating security situation in Afghanistan, in addition to differences in railway gauges utilised in the three countries and the inhospitable terrain of the Hindu Kush mountains, where a signifi cant portion of the construction will take place, it is expected that the railway link through China remains the most likely, if not the most economical project. This will ensure that Uzbekistan’s reliance on China only grows.

There are numerous other railway projects including additional lines for the Tashkent and upgrading over various railway lines across the country. Additionally, some 29 road infrastructure projects are currently expected to be implemented and completed between 2020 – 2025. These projects were announced last year and are currently being fi nalised, with work having commenced on some of them.

Kazakhstan

Kazakhstan is the region’s largest economy by some way, with a strong reliance on exports of natural resources, namely crude oil and petroleum gas among others. In 2020, the country’s GDP was negatively impacted as the global economy experienced its worst year since the great depression with oil consumption drastically declining. With proactive measures from the government and the national banking regulator, various measures were adopted that helped mitigate and defray the impact of the economic challenges brought about by the pandemic.

In April 2020, the Nurly Zhol State Infrastructure Development Programme for 2020 – 2025 was adopted by the government and aims to implement 112 infrastructure projects with a total value of 5.5 trillion tenge (approximately US$12.8 billion) between 2020 to 2025. In April 2021, the number of construction projects from 2021 to 2025 increased to 158, in addition to 23 specifi c transportation and 58 mining projects.

The construction sector in Kazakhstan is, much like its neighbour Uzbekistan, driven by housing construction. In 2021, a total of 11 cement plants are operational (with a total production capacity of 16.5 million tpy), as opposed to 12 plants the previous year. Given the strong prospects for the Kazakh economy, as crude oil and natural gas prices rebound on the back of global economic recovery, there remain prospects for further developments in production capacity. As with most other countries in the region, China is expected to be a major player in the market as the country continues to increase its presence across the BRI region, especially as production capacity and rigorous environmental measures in China restrict domestic avenues for growth.

In 2020, there were 15.3 million m2 of housing construction completed for 1.9 trillion tenge. The Ministry of Industry and Infrastructure Development stated that in 2021 the state expects 17 million m2 to be constructed. In total, during the period of 2021 – 25, an estimated 103 million m2 of new housing will be constructed.

The period from January to April 2021 saw a 16% increase in the price of building materials. Kazakhstan’s construction sector has been negatively impacted by its reliance on imports, with 50% of all steel structures and over 99% of sheet glass being imported. While the country is, for the time being, self-reliant in terms of cement and concrete, pressure on these sectors is expected as demand continues to be robust.

A growing cause of concern is the bottlenecks put in place by the state itself. Currently, only the

Kazakhstan Housing Company provides a ‘warranty’ in cases where the construction company is unable to complete a project. Under the current regulations set by the National Bank, there is a limit to the guarantee that can be provided to a construction project. For example, if a major developer invests in a project, only one-fi fth is covered by guarantees.

With the increase in building material prices, and government mandates requiring specifi c volumes of public housing construction at previously agreed prices, there is rising fear amongst construction companies that a wave of defaults is next to certain unless the government issues a decree revising the prices of existing contracts that were in place from January 2019 to 2021.

Kyrgyzstan and Tajikistan

Tajikistan has 19 cement plants with a total estimated production capacity of about 5.6 million tpy, with the commissioning of a 0.6 million tpy grinding plant in the Jaloliddini Balkhi district of Khatlon province by Mohir Cement. Chinese-Tajik joint ventures dominate the cement industry landscape in the country and will likely continue to determine the sector’s growth going forwards. Kyrgyzstan’s total cement capacity is 3 million tpy. Domestic consumption remains below 2 million tpy, while the remaining production is destined for exports, predominantly to Uzbekistan. This scenario is likely to continue for the next few years while domestic demand catches up to existing production capacity. Further investment in the country’s cement sector is not expected in the short-to-medium term.

Summary

CW’s outlook for the Central Asian region in terms of cement demand in 2021 is positive, but comes with some important caveats. It assumes that the recovery trajectory continues in the same vein into the second half of 2021 and that there is suffi cient vaccine supply to provide the necessary confi dence boost to consumption and consequentially, to employment, thus leading to a sustained global economic recovery and more importantly, a recovery in the demand for oil.

About the author

Prashant Singh is the Associate Director at CW Group. Prashant is responsible for providing business insights for CW Research and aiding in advisory project implementations. He also holds Bachelor’s Degrees in International Business and Economics from Saint Peter’s University and a Master of Science degree in International Business from Seton Hall University, USA.