The cement market consists of any activity that is aimed at the manufacturing and distribution of cementitious material. Companies usually provided aggregates such as gravel and sand. Customer-specific products such as ready-mix concrete and asphalt are also part of the market. The market consists of several global manufacturers and distributors such as Cemex, Heidelberg, and Lafarge as well as regional power players (Allied Market Research, 2017). There are a lot of barriers to entry into the industry and new markets. The market is expected to annually increase in demand, thus exceeding available supply and capacity in emerging markets. The industry strongly relies on the construction and building activity since concrete and mortar are the most common cement products used for this purpose. However, the cement manufacturing sector is strongly influenced by government regulation and macroeconomic, financial trends (Transparency Market Research, n.d.).
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External Environment Scan
Table 1. PESTEL Analysis. (self-generated).
|Political||Governments control various critical aspects regarding the cement industry. Raw materials and energy sources such as coal are usually price regulated. Tariffs may apply during the transportation of copious quantities of material such as cement. The excise tax is applied to production.|
|Economic||The industry is dependent on the GDP and economic growth in a region. Infrastructure development is based on economic factors. Economic recessions and stagnation decrease market demand.|
|Social||The industry consists of a sizeable organized sector and small private companies. Low-level consumers may choose to buy from local businesses rather than branded cement.|
|Technological||New technologies are necessary to improve the quality of cement while decreasing energy use. Every aspect of cement manufacturing is technologically based. Impact on cost and value chain structure in the industry.|
|Environmental||Regulations and trends for sustainability require the use of alternative fuels and materials. Necessary to decrease pollution from cement production. Climate change calls for sustainable methods of production and changing attitudes towards cement usage in developed countries.|
|Legal||Government regulation may limit growth or force restructuring of assets during entry into new markets, particularly through acquisition such as when Cemex purchased Rinker in the U.S. Adherence to various laws regarding safety, quality, and anti-trust.|
Table 2. Porter’s Five Forces Analysis. (self-generated).
|Porter’s Five Forces Analysis|
|Industry Rivalry||The industry is extremely competitive as global and regional corporations are seeking to maintain control of the cement market and compete for any arising demand. There is an insignificant variation to the product for companies to differentiate themselves.|
|Buyer Power||The cement industry is fully dependent on buyers of the material. Therefore, buyers hold a lot of influence and are strongly valued by cement manufacturers. It is common and profitable to hold close contractual relationships with major buyers that will use the cement for their construction projects.|
|Supplier Power||Many companies have independent limestone and coal reserves necessary for production. Suppliers usually do not have a significant impact on the industry other than the price of raw materials, which in turn may raise prices for cement products.|
|Threats of New Entry||There are significant barriers to entry on any noticeable or global scale since the market is oversaturated with competition for essentially a similar product. The economies of scale are difficult to achieve with numerous regulations in place.|
|Threats of Substitutes||Practically all cement is similar in substance and production techniques, available to any major companies and has not been modified for decades. There are minor variations in quality or materials used according to the customer’s needs. Overall, cement as a construction material has no direct substitutes (IBEF, 2017).|
Market Size and Growth
In the last several decades, the cement industry has experienced globalization. It is a competitive market in established and developed economies. Countries or whole regions may become more susceptible to the cement market growth due to the level of demand or the availability of raw materials. Emerging markets such as India, China, Brazil, and Eastern Europe are approximately 70% of the global cement demand with the other 30% being North America (Lafarge, 2007). The global market was valued at $6.56 billion in 2016 and is expected to grow to $8.3 billion by 2023 at 3.4% CAGR (Allied Market Research, 2017). The global Portland cement market is set to reach 5.2 billion tons in 2020 (Transparency Market Research, 2017). The U.S. cement industry has experienced growth in the last several years, due to increased demand by a slowly revived construction sector. In 2012, the U.S. customers purchased 76.6 million metric tons of cement for approximately $7.5 billion worth of shipments which is a 9.1% increase year over year (Portland Cement Association, 2013). This shows that the market offers the potential for increased growth but should be closely monitored for activity in the construction sector which is closely correlated to economic development.
Due to declining expansion in China and low oil prices, the construction industry has experienced stagnation in 2015. The cement market declined by 5.4% after experiencing a 4.3% growth in the previous three years. 2016 saw a modest 0.8% growth with a gradual increase in the following years (Cision, 2016). Cement is increasingly being used in a variety of construction applications including infrastructure and application. The importance of Portland cement in these applications will perpetuate growth on the global market. The need for grouts and mortars in the production of roadbeds, foundations, plasters, and screeds will increase demand (Transparency Market Research, 2017).
Environmental sustainability remains a key trend in the global cement industry. It is exemplified by several practices. The use of alternative fuels is encouraged to reuse and recycle waste during the cement production process which traditionally uses coal to operate the cement kiln. Innovative progression in terms of development is required to become sustainable. Large production volumes of cement produce significant air pollution. Therefore, the trend is to develop a type of cement with high-operating efficiency with a decreased environmental impact. Furthermore, there is an increased demand for “green” cement which is derived from alternative fuels and recycled materials, while adhering to environmental regulations for sustainability (Business Wire, 2017).
Cemex’s global export strategy is focused on optimizing capacity utilization by diverting resources from markets showing signs of stagnation to ones experiencing demand growth, thus maximizing profits (Securities and Exchange Commission, n.d.). The company can be financially proactive by observing macroeconomic drivers be an early entrant as a supplier at a target location. Cemex maintains a strategy of differentiation by providing cement with a high-operating efficiency at a low cost. It positions its strategy as not merely as a provider of raw building material, but as an opportunity for development. Cemex should pursue emerging markets and locations as their target. There has been a significant focus worldwide on creating infrastructure in areas that have not been traditionally booming markets for cement. In the United States, that may be rural areas or locations with aging infrastructure that needs critical replacement.
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The target market should be picked based on the most lucrative regional segment, using economic forecasts for growth and development. The interdependence of cement sales with the construction industry requires focusing on locations with rapid urbanization and socio-economic improvements which would drive up the demand. Large commercial projects that are tied to government contracts or events (such as Olympics) increase possibilities within a given target market. The Asia Pacific, as well as North America, are predicted to emerge as the most profitable market segments for Portland cement (Transparency Market Research, 2017).
Construction remains the primary sector of demand in the cement industry. It can be divided into major segments of civil engineering (industrial), residential and commercial projects, or renovation (Lafarge, 2007). The market is usually segmented by region and countries, with Asia-Pacific expected to see a 4.3% CAGR growth. The type of cement also segments the cement market. White Portland cement is the primary product, maintaining a market share of approximately 50%. White masonry cement has approximately a 30% market share with a CAGR growth of 2.6%. Other types such as Calcium Aluminate cement only hold a small share of the market since white cement is more applicable, both practically and aesthetically, at a lower cost (Allied Market Research, 2017).
The cement industry has a wide variety of customers, some of which include concrete producers, pre-cast concrete producers, contractors, and builders. There are also small-scale purchases by masons and renovators. Customers may have varying requirements for the cement performance and characteristics based on the type of construction or project. There has been an increasing trend for cement produced using energy-efficient methods with low environmental impact. Order purchases are usually placed in large volumes or per contract basis over some time (Lafarge, 2007). Cemex strives to meet customer demands according to their construction needs. Cooperation with clients is based on manufacturing and engineering expertise which the company provides so that the product will meet the requirements outlined by the customer.
Allied Market Research. (2017). White cement market by type (white portland cement, white masonry cement, and others) and by end use (residential, commercial, and industrial) – global opportunity analysis and industry forecast, 2017-2023. Web.
Business Wire. (2017). Cement market – trends and forecasts by technavio. Web.
Cision. (2016). The global concrete and cement market key trends and opportunities to 2020. Web.
IBEF. (2017). Cement. Web.
Lafarge. (2007). Information on Lafarge. Web.
Portland Cement Association. (2013). Cement industry overview. Web.
Securities and Exchange Commission. (n.d.). Certain information with respect to Cemex. Web.
Transparency Market Research. (2017). Global portland cement market: Increasing infrastructure development projects to fuel demand, says TMR– 2024. Web.
Transparency Market Research. (n.d.). Cement market – global industry analysis, size, share, growth, trends, and forecast 2016 – 2024. Web.