Regional disruptions force cement sector to reassess freight, energy risks: TEPAV

Disruptions to energy infrastructure and shipping routes are increasing freight, insurance, and input costs for cement producers, challenging supply chains built around low-cost transportation, Muhdan Saglam, director of the Energy and Climate Change Studies Center at The Economic Policy Research Foundation of Turkey (TEPAV), said Sept. 9.

Speaking at the Cement Industry Conference Intercem in Istanbul, Saglam said the impact of regional conflict extends beyond oil and gas transportation to production, refining, vessels and deliveries to end markets.

Energy facilities, refineries, transport vessels and other critical infrastructure have become exposed to regional disruptions, Saglam said. The effects can include higher costs for fuel, diesel, spare parts and other inputs used by industrial sectors, including cement.

Oil prices have not risen to the levels some market participants initially expected, with inventories cushioning physical supply disruptions, Saglam said.

Financial prices can react quickly to expectations, negotiations and information, while the physical market may continue to function as vessels move and inventories remain available, she added.

Natural gas markets, in particular, have faced additional competition for liquefied natural gas cargoes as Asian buyers seek alternative supplies, potentially pushing up prices in Europe.

Freight, supply-chain costs rise

The disruptions are also changing the way companies assess supply-chain costs, Saglam said. A business model based on globalization and the lowest available transportation costs is becoming less reliable as companies place greater value on resilience and alternative routes.

Higher freight costs can affect cement producers indirectly, even when cement itself is not transported in containers. Producers still depend on container shipping to import plant equipment, spare parts and other materials, particularly from Asia.

Higher container and port costs can therefore increase maintenance and investment expenses, Saglam said.

Regional disruptions have also affected established trade flows involving Turkey and Israel, Saglam said, forcing market participants to consider alternative destinations and suppliers at potentially higher transportation costs.

Freight rates could increase further in September and October as additional cargoes move through affected routes, she said.

Carbon costs add to competitiveness pressures

Saglam said cement producers serving the European Union must increasingly account for the carbon embedded in their products. Companies that do not reduce emissions could face additional costs when supplying the European market.

The combination of freight and embedded carbon costs is changing how market share and profitability are calculated, she added. Producers must consider not only manufacturing costs but also delivery expenses, carbon intensity and exposure to supply chain disruptions.

The transition to lower-carbon energy could also help protect cement producers from external energy shocks, Saglam said.

Greater use of renewable power and other lower-carbon technologies, including solar, hydropower and small modular reactors, could improve the resilience of industrial energy systems, she added.

Cement producers will continue to need oil products and other conventional fuels during the energy transition, Saglam said. However, companies will increasingly have to assess competitiveness on the basis of their full cost structure, including production, freight, delivery and carbon-related expenses.

Platts, part of S&P Global Energy, assessed CEMDEX Turkey at $56/mt Sept. 3, unchanged week over week.