Report Structure
This report is designed to be a comprehensive update of the global cement sector. Our last
piece was written at the start of 2007; please refer to “Cement 2007 – still the place to be“,
dated January 29th 2007. It is structured as follows:
Valuation - comparison of multiples. We are currently Buyers of all three of our cement
stocks Lafarge, Holcim, Cemex. We believe cement is the only building material worth
owning in the current uncertain market environment.
Trading – only 5% of global cement is traded around the world. The rest is manufactured
and sold locally. Nevertheless imports/exports represent the marginal flows of
consumption/supply and are therefore critical for global pricing. We expect a year of tight
global balance, with overall trading down 10% yoy:
􀂄 Imports: demand from the US and Spain will clearly fall on the back of weak housing
markets, in our view. Middle East imports will remain very high, despite the financial
market view of a flood of excess capacity round the corner.
􀂄 Exports: we expect Chinese exports to fall sharply as the Government closes old
capacity. This is a key factor for global balance. We only see Turkey and Pakistan as
having substantial additional exportable capacity in 2008. Both face infrastructure
constraints to deliver to customers and are currently inundated with orders.
M&A – we look at the implications of industry consolidation after another busy year with the
Cemex-Rinker, HeidelbergCement-Hanson and Lafarge-Orascom transactions.
2008 Outlook: volumes, prices and supply – we expect 7.3% global consumption growth
in 2008, a slight slowdown from 8.4% in 2007. Excluding China (which accounts for half of
global demand), we forecast growth of 4.7% in 2008E versus 5.1% in 2007E. We go through
markets by region and look at the supply-side where relevant:
􀂄 Mature markets – we expect housing to weaken in both the US and Western Europe.
However price increases combined with import cuts will keep profits stable in these
regions for 2008E in our view. Managing the cut to Spanish imports is the key challenge.
􀂄 China and the Middle East, our non-consensus viewpoint – we see a closure of small
kilns, falling exports and more M&A as radically reshaping the Chinese cement sector in
2008. The Middle East will become the world’s biggest importer in 2008 in our opinion,
with the intended massive surplus capacity from Saudi Arabia and Iran not coming
through. We believe the financial market is not focused on these crucial supply-side
angles at present.
􀂄 Other emerging markets – we see demand rising strongly in India, Africa. Latin
America and Eastern will also enjoy solid demand growth although we see some fallout
from the global credit crunch in these regions.

Table of Contents
Report Structure................................................................................ 3
Valuation ............................................................................................ 4
Share price performance...........................................................................................................4
Investment case – Lafarge, Holcim and Cemex .............................. 6
Themes common to Lafarge, Holcim and Cemex.....................................................................6
Lafarge – the Long March.........................................................................................................6
Holcim – Setting the Standard ..................................................................................................8
Cemex – strong cashflow and leveraging ...............................................................................10
Cement Trading ............................................................................... 11
Shipping .................................................................................................................................12
M&A activities in 2007 .................................................................... 14
2008 Outlook – Riding on a Star..................................................... 15
China – riding to the rescue?...................................................................................................16
Middle East – we think consensus is too negative .................................................................20
US – history repeats itself .......................................................................................................26
Western Europe – deteriorating rapidly ..................................................................................30
Eastern Europe – on-track? .....................................................................................................32
India – high growth with low risk ............................................................................................34
Key events/catalysts ...............................................................................................................35
Capacity commissioned..........................................................................................................36
Pakistan – a regional key in 2008 ............................................................................................37
SE Asia – mixed picture but improving ...................................................................................38
Latin America – a new paradigm?...........................................................................................42
Africa – still going strong.........................................................................................................43