Sayak Datta, Roland Berger, outlines key strategic imperatives that Southeast Asian cement producers must embrace to remain competitive in an increasingly complex market.

Around 7% of global cement production comes from Southeast Asia (SEA), signifying the region’s importance in the global landscape. The SEA cement sector is at a pivotal point due to five key trends in recent years.

Macro factors such as rising interest rates, slow-down from COVID-19 reducing government spending on large-scale projects, and continuing geopolitical uncertainty have increasingly put pressure on the overall construction sector in SEA. As a result, combined across Vietnam, Indonesia, Thailand, and Malaysia, while the domestic demand for cement increased at 2.3% CAGR from 2016 to 2019, it then slowed down and has largely remained stagnant (0.3% CAGR) from 2019 to 2023. Moving forward, domestic demand for cement in the same four SEA markets is expected to grow at 3% CAGR from 2023 to 2030: the number showcases some signs of relief, but it also reveals that expectations today are muted compared to what was envisioned for this period in SEA just a few years ago.

The cement market is facing an over-capacity in several SEA markets: in most of the countries, utilisation levels are expected to remain in the 50 – 60% range by 2030, factoring in domestic demand.

Rising input costs, especially the surge and volatility in coal prices, have increased margin pressures on SEA cement players, given that it is not likely that they will be able to fully pass-through cost increases to the end-consumers. As an example, the cost on a per ton basis for Semen Indonesia Group – Indonesia’s largest cement player – increased by around 13% from 2021 to 2023, while EBITDA on a per ton basis reduced by around 6% in the same timeframe.

The competitive landscape in key cement markets in SEA is heating up, partly due to Chinese cement producers. The total production capacity of Chinese cement players in SEA – i.e., in Indonesia and Vietnam – has increased to 24 million tpy in 2023, roughly 10% of the total capacity across these two countries.

There are signals of increasing sustainability pressure on SEA cement players. The cement sector will need to play a significant role in enabling countries in the region to achieve their Nationally Determined Contribution (NDC) targets.

In Thailand, the Thai Cement Manufacturer Association (TCMA) has published a roadmap for net zero 2050. Indonesia is contemplating a carbon pricing scheme, involving carbon tax and an emissions cap-and-trade mechanism; the announcement made in 2023 for the power sector is likely to get extended to other hard-to-abate sectors, such as cement.

Investor pressure is also on the rise: for example, in 2024, Danske Bank excluded Anhui Conch Cement and Siam City Cement from its investment list due to climate and environmental concerns.

A deeper look at the financial performance of some of the larger cement players in SEA reveals that profitability for most has rather dropped from 2021 to 2023, despite revenue increases, in some cases. In contrast, many of the global players appear to have performed better over the same timeframe.

Therefore, the SEA cement industry is at a pivotal point, citing a clear need for players to think and act differently. This article outlines five key must-win themes for SEA cement players.

SEA cement players should proactively consider diversifying their revenue streams beyond core cement and concrete. For global cement players, such as Holcim, Heidelberg Materials, and Cemex, approximately 40 – 45% of the total revenues are currently from cement, as of 2023.

This is a stark contrast to SEA cement players, for many of whom cement still constitutes more than 70% of the total revenues in 2023. Depending on the product or service, diversification beyond cement can not only add new revenue streams, but impact profitability and strategic supply security.

For SEA cement players, there are opportunities to explore.

Expansion into raw materials, specifically minerals such as raw limestone, ground calcium carbonate, etc., can help SEA cement players not only improve supply security but also generate revenue from sales to external industries such as nickel, iron & steel, and agriculture.

Expansion into services such as waste management can help SEA cement players generate revenue from waste collection and contribute toward sustainability, through co-processing in cement kilns.

Revenue stream diversification for SEA cement players can also be on a geography basis – i.e., export markets – both for cement, and other building materials and services.

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