Hanson Cement Comment: Q1 2019

Andrew Simpson, National Commercial Director Hanson Cement is BMBI’s Expert for Cement & Aggregates.

The Mineral Products Association (MPA) reported that seasonally adjusted demand for mineral products declined in Q1 2019 compared to Q4 2018. Aggregates, ready mixed concrete, mortar and asphalt all performed adversely compared to the previous quarter. Annual rolling averages indicate a positive trend though as results are distorted due to a poor Q1 2018. The ONS forecasts indicate that housebuilding and infrastructure will drive the majority of construction activity in 2019. The commercial sector is expected to remain weak in 2021. Some surveys show increased optimism for 2019 to some extent muted by political and economic uncertainty.

The MPA reports that the UK economy grew 0.4% in Q1 2019 driven by an increase in household spending, following an increase in earnings of 1.5%. Retail sales were higher in the first quarter of 2019 with extra consumer activity anticipated in builders’ merchants and DIY chains, especially given the mild weather in the first quarter.

The future of carbon pricing is a significant issue for cement producers. In May, the government published a consultation paper on it in the UK. In addition, the Committee on Climate Change (CCC), who are advisers to the government, published their report on a target for net zero carbon emissions by 2050.

Carbon pricing is integral to meeting CCC objectives for industries such as glass, chemicals, steel and cement. From 2020 onwards the price of carbon allowances will be based on a UK carbon trading system linked to the European Union Emissions Trading Scheme (EUETS). An EU carbon allowance is the right to emit one tonne of CO2. By 2030, the price of an allowance is forecast to rise from a current price of £23 to £80. Quantities of allowances issued are reduced each year.

To put this in context, cement producers emit circa 800 kilograms of CO2 a tonne of cement. Operators already receive less than their annual emissions so they’ll need to invest to reduce emissions or purchase allowances in the market to meet their requirements. In the long term, increased costs will be passed through to consumers as increased prices, a similar situation to that of electricity production costs in the past 10 years.

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