At first glance, the global cement industry seemed to be facing a dismal future. In Europe, growth opportunities were limited, with volumes remaining flat or declining and valuation multiples being low. Companies struggled to attract talent and faced significant costs in their pursuit of net-zero emissions. This presented a complex puzzle that needed to be solved, yet it could potentially mark the beginning of a new era for the industry.

Unlock the Potential of SCMs for the Cement Industry's Future

The Current State of the Cement Industry and the Challenges Ahead

Players in the cement industry are currently grappling with substantial challenges. Projections suggest that the industry will plateau in terms of volume by 2050. Shrinking demand, due to the redesign of buildings and infrastructure to reduce CO2 emissions or deal with constrained clinker supply, is one of the main factors. For instance, in Europe, clinker demand is expected to shrink from 145 million metric tons in 2023 to 122 million metric tons in 2035. In the US, where many micromarkets are clinker-constrained, concrete players are seeking alternatives to mitigate high clinker costs.Costs also pose a significant hurdle. Decarbonizing the cement industry, especially clinker, is expensive, and these costs can double the price of cement in some cases. Moreover, many decarbonization options in the cement and concrete value chain are not yet mature or economically viable. Innovation and technical breakthroughs may change the cost equation, but it will take time.Valuation multiples have fallen as well, partly due to the lack of overall industry growth and uncertainty around decarbonization costs. For example, the valuations of the four largest international "cement majors" have dropped from eight to nine times EBITDA a decade ago to six to seven times EBITDA in the past five years, and even lower in Europe.In these challenging economic circumstances, cement and concrete players find it difficult to pursue decarbonization with enthusiasm, especially if they don't have a sufficient base of customers willing to pay for low-carbon solutions in the near term.

The Potential of Supplementary Cementitious Materials (SCMs) and Fillers

Among the available decarbonization options, SCMs and fillers stand out due to their technological maturity, current level of integration with existing standards, and economic viability. According to our analysis, they are expected to be the best solution for the industry in the next five to ten years.SCMs and fillers can replace clinker in cement mixes, reducing cement's emissions profile by 70 to 80 percent in some cases. Traditional SCMs include fly ash, ground granulated blast-furnace slag (GGBFS), and silica fume, while innovative SCMs and fillers include calcined clay, increased limestone use, and recycled concrete. Some researchers are even working on truly innovative SCMs with zero or even negative carbon footprints.SCMs may also have a secondary benefit in markets where clinker supply is constrained. They can enable the cement and concrete industry to produce more tons of cement per ton of clinker, relieving the pain points from limited clinker supply.SCMs and fillers are already approved in building standards and are widely available, with EBIT margins for SCMs and fillers expected to exceed 50 percent by 2035 in Europe. However, the industry is not yet fully utilizing this technology.Over the next few decades, the use and mix of SCMs and fillers are expected to shift. For example, in Europe, players face domestic supply constraints for existing industrial SCMs, but global imports may help mitigate these constraints. Innovative SCMs and fillers may play a more significant role in the long run.

The Transition from Cement to Cementitious: A Vision for the Industry

As the world decarbonizes, cementitious solutions - SCMs and fillers - are expected to be the most effective path forward for the cement industry. Players with established footprints can adopt a start-up mindset to build new SCM businesses and take advantage of the massive value-creation opportunity.Several factors are expected to shape the future cementitious industry. There will be healthy regional demand growth, especially for infrastructure needed in the energy transition. Material prices are expected to increase due to rising carbon costs and other factors. The supplier landscape is expected to consolidate, and the industry is likely to shift toward new solutions and business models.These factors will influence player considerations as the cement industry becomes a cementitious industry, built around SCMs, to support global decarbonization and cement growth in clinker-constrained regions.

Regional Deep Dives: Varying Drivers and Projections

Although the changes are global in scope, the drivers vary by region. In Europe, demand for cementitious materials is expected to be slightly positive due to infrastructure growth and retrofit activities. In one scenario, cement prices could rise above €200 per metric ton by 2035, and EBITDA margins for sustainable materials could exceed 30 percent in certain markets.In North America, demand growth is projected to be robust driven by GDP growth and infrastructure initiatives. However, the industry may face material and labor shortages. In other regions like India, China, and the rest of Asia and Australasia, the cementitious markets will see their own shifts driven by local dynamics and global trade flows.In India, the market is expected to grow driven by demand from large cities. In China, despite an oversupplied market, there is pressure to decarbonize, and companies are investing in SCM processing capacity. In the rest of Asia and Australasia, some countries are likely to continue as exporters, while others may start exporting SCMs. In the Middle East and Africa, some nations are leading net-zero projects, while others focus on basic infrastructure.

A Blueprint for the Industry's Future

The global cement industry could turn around its sluggish growth and declining multiples over the next ten years. To succeed, four mindset shifts are crucial.Proactively reshaping clinker asset footprints toward sustainability is essential. Players can assess the long-term competitiveness of each asset and adjust their footprints accordingly. This may involve converting or closing assets, installing CCUS, or building new cementitious assets.Endorsing SCMs and fillers to capture growth is another key aspect. SCMs and fillers will not only help decarbonize existing assets but also represent a new growth segment with low capital expenditures. Established players can explore building new start-up businesses centered around SCMs.Building solution capabilities is also important. Regulatory positioning, strategic sourcing, and enhanced portfolios are critical. Companies can look into SCM "enablers" and improve circularity by using construction and demolition waste. Tailored solutions for customer needs can also be created.Finally, creating partnerships and platforms can help players secure access to SCMs and fillers, share risks, and expand financial resources. Partnerships can multiply participation in growth initiatives and joint innovation.Looking forward, the global cement industry could achieve greater growth from novel solutions, higher margins, and greater global integration. But players need to act quickly and take the initiative to succeed in the coming cementitious landscape.