Mediterranean cement producers eye Middle East supply gap, rising energy costs

Cement and clinker buyers and traders are increasingly turning to Mediterranean producers to fill supply gaps left by disruptions in Middle Eastern output, rising Asia prices and freight challenges, but rising energy costs are threatening to limit their ability to capitalize on the opportunity, according to multiple market participants.

Turkish producers acknowledge the opportunity but remain cautious about their ability to fill the void. "As far as Turkey is concerned, yes, it will turn into a key supplier to cover the shortfall, but the concern is the cost fueled by the energy crisis because it will affect the production and FOB costs as well," another Turkey-based source said.

Another Turkey producer said it expects its cost pressures from surging fuel prices to be around 15%, while Egyptian producers noted fuel cost increases of approximately 17%.

"Turkish FOB prices are likely to go up a few dollars. I don't think anybody will sell clinker at $45/mt FOB anymore," the producer said. "The prices should go up due to the cost increases."

An Egyptian producer said, "Due to the current geopolitical situation, we are facing a period of uncertainty. Freight prices are highly volatile, and local diesel prices have increased significantly by around 17%."

The supply disruptions stem from the Middle East war affecting producers, with shipments canceled from Saudi Arabia, the United Arab Emirates and Oman, according to multiple trader and producer sources, and that would impact buyers globally from the US to Africa.

"We are unable to ship to Africa, and the US via Strait of Hormuz and our exports are currently limited within the Gulf," a Saudi Arabian producer told Platts.

Traders expect a global CFR price increase as other supply sources compete to fill the gap left by Middle East producers.

Additionally, Platts assessed Vietnam clinker prices at $36.5/mt FOB March 12, up 50 cents/mt from a week ago, and traders expect further price increases as global supply tightens. With freight from Vietnam to West Africa skyrocketing, Asian supply doesn't seem competitive at this point, sources said. Further, African grinding mills are reluctant to purchase at elevated cost-and-freight prices, creating a demand stall despite the supply shortage, sources said.

"We are in discussions with suppliers in Asia, but the difference between the seller and the buyer is so big that there is not much that can be done, as we cannot fix spot freight at current levels and meet the buyer's aspiration, so there is a deadlock," a Europe-based trader said.

Traders said that while requests for cement have increased due to cancellations and delays, actual demand remains flat. "Requests [from West Africa] are popping up because of cancellations and delays but overall demand is flat," the trader said

Contract prices are expected to hold for now, though Turkey producers warn that prolonged geopolitical instability and sustained energy price increases could force a reassessment.

"For now, contract prices should be conserved. But if the war goes on for a long time and the energy prices go up significantly, then factories may have to reassess the issue," the Turkish producer said.

Platts, part of S&P Global Energy, last assessed ordinary Portland cement (CEM I 42.5R) (bulk) at $54/mt CEMDEX Turkey on March 5, up $2/mt week over week, while the assessment for Cement clinker (OPC grey clinker) was at $45/mt, stable on the week.