Building blocks: calcium carbonate and the construction industry

By Kasia Patel
Published: Monday, 28 April 2014

Since the financial crisis, construction investment in many regions has been drastically cut. Kasia Patel, Senior Reporter, takes a look at the outlook for construction and where opportunities lie for calcium carbonate producers.

On 28 April IM published the below article but with incorrect information which suggested that Imerys supplies calcium carbonate through its Filtration and Performance Additives business, rather than through its Energy Solutions and Specialities business. We at IM pride ourselves on being factually correct at all times, but on this occasion we fell short. We apologise for the error and any inconvenience it may have caused. Please find a correct version of the article below.

Calcium carbonate is a naturally occurring rock which accounts for around 4% of the Earth’s crust, and can be found in several forms depending on the rock forming process, which supplies the rock with various properties useful in different filler applications. Depending on whether a filler is derived from chalk, limestone, or marble determines what industrial use it will have, for example in plastics, rubber, paper, or construction.

Limestone and chalk are formed in the first stage of the calcium carbonate sedimentation process.

Chalk is classed as a poorly compacted sedimentary calcium carbonate rock with incomplete diagenesis, meaning the conversion of sediment to a sedimentary rock. Limestone is the result of a completed sedimentation process, and marble is the result of recrystallised limestone under high pressure and temperature.

Dolomitisation, the formation of calcium magnesium carbonate from calcium carbonate rock, may also occur if the process takes place in magnesium-containing water, as calcium ions are replaced by magnesium ions, leading to the formation of dolomite.

The main use of calcium carbonate is in the construction industry, either as a building material or limestone aggregate for road building, as an ingredient of cement or as the starting material for the preparation of builder’s lime.

The various forms of calcium carbonate, depending on purity, whiteness and particle size distribution, lend themselves to a variety of applications in the construction industry as a raw material used in concrete, asphalt, roofing, tiles and bricks.

Construction applications

Calcium carbonate is used as a high quality filler in the concrete market for paving stones, tubes and sewage tanks, as well as in ready-mixed and pre-cast concrete. In cement, the mineral speeds up the hydration of the cement matrix and increases durability of the product through better permeability, while calcium carbonate’s light colour makes it ideal for applications in architecture.

In concrete roofing tiles, which must conform to standards such as water permeability, freeze-thaw performance and strength, calcium carbonate increases the density of the concrete matrix, while iron oxide pigments are added for colour.

The growth of the clay tile and brick market has also led to growth in calcium carbonate’s use as a filler for its chemical properties and as a pigment. Advantages of adding calcium carbonate to clay mixtures include lightening the colour of the natural clay, decreasing shrinkages, and decreasing air contamination during the clay burn process.

The mineral also finds applications in asphalt, manufactured from a blend of bitmen, calcium carbonate filler, gravel and sand. Calcium carbonate improves the workability of the mixture as well as its mechanical resistance by acting as a sand modifier.

Increasing production costs

Leading producer, Mineral Technologies Inc. (MTI), supplies both precipitated calcium carbonate (PCC) and ground calcium carbonate (GCC). Approximately 60% of the company’s GCC output is sold into the construction industry, which the company said is a major driver of limestone demand.

“Regional dynamics due to product usage and acceptance, as well as customer plant expansions or closures, can have significant impact on demand,” the company told IM.

“Certain segments also face offshore competitive issues. In addition, customers are always challenging producers to improve their competitiveness by improving product performance or lowering their total formulation costs,” it added.

In terms of specific applications for GCC, MTI told IM it is always looking for adjacencies in its markets and new demand drivers. In the Middle East for example, the construction industries in hot climates have found the reflective nature of GCC can help to reduce heating and cooling costs. The company adds that the unique particle size distribution in GCC production can also help to lower the cost of manufacturing without giving up strength properties.

In paint and coatings, the company said its GCC titanium dioxide (TiO2) extenders also help to lower manufacturing costs without compromising optical and toughness characteristics.

However, though demand for calcium carbonate in construction remains stable, with MTI predicting a 5% to 10% increase of the mineral in construction if economic growth does not retreat, a key issue affecting the industry is the cost of production.

“Prices are regionally affected primarily by competitive market dynamics. In all cases, the overall costs involved in mining, manufacturing, regulatory compliance, energy, and business related expenses are all key drivers,” MTI told IM.

“We also see the cost of transportation, lack of infrastructure investment, and in some regions lack of trucks as key future issues facing our industry,” the company added.

The increasing costs of production have led to the majority of major producers, Imerys and Huber for example, to hike prices by between 3-10% in the last six months, with further price increases potentially anticipated.

Other key concerns for the industry are, according to MTI, increased regulation in terms of GCC manufacturing, energy costs, the pressure of urban sprawl and sustainable transportation infrastructure.

North American construction growth

Calcium carbonate producer Imerys raised prices for the mineral in December 2013. The company said that: “The price increase supports continual investments and increasing costs in environmental compliance, manufacturing, quality systems, maintenance and new product development.”

Imerys also imposed surcharges in addition to the price increases for unique packaging configurations, which the company explained were necessary to minimise increased packaging and shipping costs it has been experiencing.

Imerys’ Energy Solutions and Specialities business group supplies to the agricultural and food industries as well as in plastics, paint, rubber and, driven by demand for new buildings and renovation materials, in the construction industry.

The company supplies calcium carbonate to a variety of markets and has reported that over the course of 2013 carbonates activity saw significant growth thanks to a resilient consumer goods sector and an upturn in the construction industry in North America. Activity in carbonates also benefited from an increase in markets and geographical developments.

Imerys added that 2013 was marked by the gradual stabilisation of the economic environment in Europe, which has led to a greater stability in the construction industry.

“Activity levels in the second half of 2013 were on the whole, comparable with the same period of 2012. The construction and industrial equipment industries are still however at a low level,” Imerys said.

“In North America, strong demand was particularly perceptible in the construction and consumer durables sectors. The growth rate was more moderate in emerging countries,” the company added.

Though the business group benefited from the upturn in construction and the very firm automotive sector in North America, activity remained low in Europe, and Imerys additionally saw a domestic drop in the new housing market.

“The sustained decline in sales of new individual housing over the last 12 months continues to be reflected by a drop of 5.7% in construction of new single family housing (approximately 156,700 units begun in 2013 according to the French Ministry of the Ecology, Sustainable development and Energy),” the company said.

European construction stabilises

According to Adrian Malleson, RIBA Enterprises Head of Research, Analysis and Forecasting, the European Economic Area has been in a state of crisis, uncertainty and contraction since the start of the recession in 2007.

However, at the end of 2007, the region experienced a greater degree of stability, supporting optimism for growth in the construction industry from 2014 onwards.

In his construction industry outlook for the coming years, Malleson predicts growth in Europe, with potentially higher levels of growth in the UK.

“The UK is the third largest construction market in Europe (after Germany and France), but it accounts for only 13% of European construction output,” Malleson said. “A pick-up in the UK doesn’t always mean increased demand for construction products across Europe.”

Although construction output in Europe is predicted to expand between 2014 and 2016, growth is not expected to be equal across the continent due to the political and economic complexity of the construction sector.

Malleson divides the region into four areas, each with a different outlook in construction over the next few years.

Steady growth is expected in Western Europe, which includes the UK, Netherlands, Switzerland and Austria, with the largest economy, Germany, expected to have an average growth in the construction industry of 1.2%. Malleson predicts France will have the slowest growth in Western Europe, while Ireland, which experienced the largest decline following the crisis in 2007, is anticipated to see large growth.

Underlying growth is expected to continue in the Scandinavian countries; Norway, Denmark, Sweden and Finland.

Significant growth is expected in Central and Eastern Europe, with Poland accounting for 60% of construction output in the region. Though the country experienced a small dip between 2012 and 2013, growth is expected to resume over the next year, while the other counties in the region are returning to either stability or growth.

Underlying European issues

However southern European countries, which, Malleson said, will have lost a large amount of construction output between 2007 and 2015, are still struggling. This includes Spain, which lost 80% of its annual construction output, as well as Portugal and Italy, which lost a quarter of its output.

“The next few years look set to be more about stabilisation, a halting of the rapid decline, rather than a return to growth. But after the past five years, this is to be welcome,” Malleson added.

According to figures from the construction forecast group, Euroconstruct, 2013 marked the lowest point of development in terms of construction volumes. The European research group, which consists of 19 European countries (EC19), also predicts that construction output will begin to increase, although growth is expected at a slow pace from 2014.

“If we compare the volume of construction output in 2007 with the forecast volume at the end of 2013, we can see a decline by more than 26% (in constant prices). The forecast for further development for 2014 estimates growth by +1.4%, by +2.2% in 2015, and by +2.3% in 2016,” Euroconstruct said.

As construction output in inextricably tied to the state of the economy, the standstill in GDP growth after 2007 and 2011 was reflected in a rapid decline in construction output across all three sectors; residential, non-residential and civil engineering.

“The total volume of construction in Euroconstruct countries decreased from 2007 to the present year by 22% (Û360bn). In the group of Western European countries (EC15), this drop in production is very significant, the current value (Û1,214bn) comparable with the level in the middle of the 1990s,” Euroconstruct said.

It added that 60% of the decline is attributed to Spain, while Central and Eastern European countries (EC4) have been more successful in staving off a decline. According to Euroconstruct, the construction value of EC4, which includes the Czech Republic, Hungry, Poland, and the Slovak Republic, was at Û70bn at the end of 2013, comparable with the 2006-2007 period when the region was still undergoing rapid growth.

However, the research group has an optimistic outlook for construction growth in Europe, noting that the period of turbulence accompanying European residential construction since 2007 came to an end at the end of 2013.

Both residential and non-residential construction in EC19 countries is expected to see a resurgence, set to continue on into 2016, with up to 2.3% growth expected. Civil engineering construction on the other hand is predicted a smaller rate of growth at between 1.2%-1.7% from 2014 to 2016.

Figures from Euroconstruct indicate that civil engineering construction projects in the majority of EC19 countries were delayed, downsized or completely cancelled due to lack of funds. Though GDP is expected to gradually increase, debt and budget deficit problems are still likely to hinder significant investments.

Despite positive growth forecasts for Europe, Malleson concludes with a cautionary note that both Europe and the UK are facing issues that are unlikely to be resolved in the next few years. Should the economy fail due to factors such as the decreasing share of Europe’s global GDP, the increasing total of European debt, poor productivity in some countries or high banking insolvency risk, the construction sector will inevitably be heavily impacted.

“But it’s fair to say that European economies are more stable now than they have been since the recession started. We have no compelling reason to expect the worst,” he added.

Opportunities in China and India

According to AECOM’s 2013 Asia construction outlook, the region is predicted to be the fastest growing market between 2013 and 2020. The Asian construction market has maintained growth while Western economies have slowed, accounting for around 40% of global construction spending in 2012 and resulting in the largest regional construction market worldwide.

As Asian countries become increasingly dependent on domestic demand, driven by increasing affluence and urbanisation, AECOM expects the construction industry to shift from non-residential structures to infrastructure and eventually towards residential projects.

China, which accounts for 41% of the Asia Pacific total construction spend, is expected to lead growth based on its size and growth potential with increases in construction spending followed by India, Indonesia and Vietnam.

AECOM’s report draws attention to the opportunities in the construction market presented by India, stating that, “despite having a population comparable in size to that of China, its construction sector is only about one third the size of the Chinese market.” However the report adds that growth will depend on India’s ability to attract private finance.

“Overall (É) Asia’s construction market offers excellent prospects for growth and profitability over the short-, medium- and long-term,” AECOM said.

Future growth in the region is expected at a higher rate than other major regional markets, with AECOM predicting above average construction spending growth in Bangladesh, China, India, and Japan out to 2018 (see figure 4).

Growth is expected to be led by China and India longer-term, although at slightly slower rates than current increases. However growth in the Japanese construction market is expected to be short lived as currently growth in construction spending is being driven by efforts following the Japanese tsunami and earthquake in 2011.

Fox Marble

UK-listed Fox Marble, a natural stone building materials company, has eight marble quarries under license with four quarries open in Kosovo and in commercial production.

With production up and running, Fox is now focusing on distribution and marketing of its products. Marble from these locations is now being sold, with six types of marble being commercially extracted and sold to the US, UK, Greece and Asia through distributors to the UK and North America, Fox’s sales office in Italy and newly established distributors in China and Dubai.

The marble extracted by Fox occurs very close to the surface so there is not much of an overburden before it is then sent for processing. Large blocks of marble are extracted, cut into slabs and pushed through the polishing line. The company takes care to cut specifically at this point to get the best visual effect for use in building.

“The target is to build a processing plant in Kosovo which the company is doing, as marble is currently sent to Italy for processing where it’s cut and polished,” Chris Gilbert, Fox’s CEO, told IM. “The marble that we produce competes with other premium marble from Italy and Spain.”

Gilbert explained that man-made stone, used in kitchen tops for example, is a market that Fox directly competes with other suppliers in. However, Gilbert told IM that the company has the upperhand wherever there is demand for natural stone, this is in retail, bathrooms and living spaces, which is viewed as being of a higher quality to man-made stone.

“You can’t replicate natural onyx Ñ which is honey yellow produced from one of the quarries Ñ and onyx is expensive,” Gilbert said.

The grey marble sold by Fox, composed of dolomite and limestone, is priced lower than some of the other types produced by the company and is easy to sell thanks to demand for the product.

Fox has had its marble products tested by Pisani, an international authority on the use of stone in the construction industry, with geophysical tests demonstrating that the product had features found in the top quarter of all desirable qualities; heat resistance being one of these qualities.

“The marble produced at the quarry in Kosovo is ideal for the market because of its heat resistant properties. Fox however faces direct competition from the ceramic market, though marble is more-high end,” Gilbert told IM.

“The company is now pitching for its big signature project,” Gilbert added.

“The project in Kosovo has not been without its challenges. In November 2012 the company’s licences were held to contention - this was well documented - but the situation was very quickly rectified,” Gilbert said. At the end of 2012, Fox was told the licences for four of its five quarries in Kosovo had been revoked for legal reasons. The company was resolute that the licences were legal and, at the start of 2013, had all four licences restored subject to compliance.

As a large employer, and the first British company to invest in Kosovo, Fox has strong local support from those it provides jobs for and the government hoping for investment in the region.

Once the processing plant is up and running, Fox will be targeting the local market in H2 2014. The company also plans to announce more distribution channels over the next year as so far there has been an absence of markets in China, the Middle East and India. This presents the Fox with exciting market opportunities as the construction sectors in these regions continue to grow at a steady rate.

“China has a lot of local marble, however, it buys 60% of the global market from Turkey, Greece and Italy,” Gilbert said.

Fox believes it is a natural supplier to the Chinese market where urbanisation continues to drive demand.

“Cities in China are expanding and demand there is increasing; once one city buys a certain type of marble, it is often taken up by others,” Gilbert told IM.

“Not all marble is created equally,” he added. “There is marble that has unique properties, and there is only one quarry currently producing white sivec for Chinese customers.”

Gilbert expects demand for marble to continue, as between 2009 and 2010 world production increased from 105m to 111m tonnes, and growth has been at a similar rate since then.

“The marble industry is a fragmented industry though there is plenty of opportunity for a new type of company, particularly one that is publically listed which can access the corporate market. Fox is also the first publically licenced company in Kosovo,” he said.