Three Reasons Cement Companies Are as Durable as Their Product

Cement’s “value to volume” ratio, among other factors, sets cement companies in a profitable position.

Key Takeaways

  • Cement is heavy and cheap and therefore has a low “value to volume” ratio, making it expensive—often prohibitively—for competitors to ship their product long distances. This shields local cement companies from distant competition—particularly foreign competitors who face the added expense of import duties—allowing domestic producers to exercise pricing power in their local markets.
  • Limestone reserves—the chief raw material in cement—are typically owned by incumbent cement producers, and the cost to build a cement plant runs in the hundreds of millions of dollars. These barriers to new entrants in local markets further limit competition.
  • High demand for cement should continue for decades due to secular urbanization and population growth trends in emerging and frontier markets, where an expanding middle class and the shift from agriculture to manufacturing and services industries create a huge need for cement-intensive construction projects such as high-rise apartments, office towers, and modern transport infrastructure.

Contributors

Harding Loevner Analyst Babatunde Ojo, CFA contributed research and viewpoints to this video.

Disclosures

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