With infrastructure spending and the UK government's pledge of nearly GBP22 billion for carbon capture and storage projects making headlines in the week to Oct. 4, the industry impacted by both announcements -- cement -- is waiting for more clarity in the upcoming budget to assess the potential impact.
On Oct. 4, S&P Global Commodity Insights interviewed Ian Riley, the CEO of World Cement Association, an independent organization that works globally on behalf of the cement and clinker industry and its stakeholders, to discuss government policies, cement demand and decarbonization in the UK, Europe and China.
Commodity Insights: What is the potential impact of the UK government's proposal on infrastructure spending and carbon capture for the cement industry?
Riley: Broadly speaking, the Labor Party in the run-up to the election said what people in the cement industry wanted to hear about infrastructure projects, but at this point, it is quite hard to know what will happen. We are, therefore, waiting for the budget to see how much money will be allocated for infrastructure spending to assess any potential impact on the cement industry.
Regarding the government's announcement about GBP21.7 billion funding for carbon capture, the two sites that the government has approved to develop projects for carbon capture and storage -- Teeside and Merseyside -- if you look at the catchment area, they include only one cement plant. For example, UK’s largest cement plant is not included. So, the project will make a difference, but the networks approved only include less than 20% of the cement industry, and for producers outside the area, it is a challenge and a competitive advantage for the producers inside. For example, the Peak Cluster that includes most of the cement and lime producers in the country is not included.
Commodity Insights: How do you see cement and clinker demand evolving over the next few years?
Riley: We are working on a forecast, which will be published by the end October. A number of other forecasters project a large increase in cement demand until 2050, which we don't see is realistic. Cement demand in 2024 fell 8.6% globally compared with 2020, and we will continue to see a gentle decline as expansion in Africa and India is more than offset by the significant drop in China.
We are already seeing a reduction in clinker demand in Europe toward substitute materials. There is more pressure to optimize use of concrete in the supply chain, which will lead to a reduction in wastage and hence lower overall demand.
There are several clinker-free alternatives that are being tried. There is plenty of scope to replace clinker with new materials and use more cementitious materials such as calcined clay.
All of these, even if you don’t see a reduction in construction demand, will lead to lower cement and clinker demand.
It is difficult to say when it would happen, but it will happen in Europe first.
Commodity Insights: Last month, China published a draft policy stating that by the end of 2024. China’s emissions trading scheme will be expanded to cover the cement industry. How do you see this impacting the industry?
Riley: China is serious about decarbonization. Whenever they have set sustainability targets in the past, they have always met them. We expect carbon pricing in China to stay low for a while, and around 2030, it will start to increase rapidly with the government supporting practical decarbonization steps with incentives.
We expect the cement industry in China to decarbonize before 2060, and China will reduce its carbon emissions in line with commitments. The way Europe's carbon border adjustment mechanism evolves in practice also remains to be seen, as China is interested in their own CBAM.
If we take an optimistic view, the CBAM will gradually lead to more standardization in the cement market globally.
