Must-know: Cement industry drivers and indicators

Cement demand drivers

Cement demand is primarily derived from the following segments—housing at 60%–65%, infrastructure at 20%–25%, commercial construction at 10%–15%, and industrial at 5%–10%.

Housing

Housing accounts for a major portion of total domestic cement demand, ~60%–65%, as seen in the Homebuilder’s Index.

Infrastructure

An increased focus on infrastructure development increases cement demand. This effect is prominent in emerging economies. A substantial portion of this demand comes from infrastructure projects. The projects are funded by the government. Infrastructure development can be tracked through the government funds that are allocated for the projects.

Commercial construction

The commercial construction sector can be divided into retail, office space, hotels, and other civil structures—hospitals, multiplexes, and schools.

Other indicators

• Home inventories – A declining level of inventories is a leading indicator of cement demand.
• Global economic recovery – Economic growth is directly related to increased demand of construction material.
• Capacity utilization – Capacity utilization of cement companies can be tracked to gauge their operating health.
• Capex plans – Capex plans of large industrial groups leads to a surge in demand during that period.
• Special events – Historically, special events that are organized on a large scale have led to a higher demand for cement.

These indicators can be used to effectively track cement manufacturers like CRH plc (CRH), Cemex, SAB de CV (CX), Eagle Materials Inc. (EXP), James Hardie Industries SE (JHX). Investors can access the cement industry through the Vanguard FTSE Emerging Markets ETF (VWO).