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Positive Macroeconomic Development Drives Infrastructure Growth

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World Cement Demand Will Increase Substantially

HeidlebergCement, a top-three producer of white cement and aggregates worldwide, just reported its 4th quarter earnings and the results are interesting to say the least. The company reports group revenue is up 10% worldwide on increased sales volumes of cement, aggregates, and ready-mix products. The news is no surprise, really, infrastructure spending has been on a steady rise for years and there is no end in sight. The news is interesting, however, because the outlook for this hum-drum and underappreciated sector is brightening.

In the report HeidlebergCement gives a preliminary 2019 outlook. They cite positive macroeconomic development as a leading driver of cement demand in 2019. They expect to see demand increase over the course of the next 12 months as growth projects in key developing regions accelerate. These regions include India, sub-Saharan Africa, Indonesia and the US. Global risks remain high, specifically US/China trade and the Brexit, but are not expected to materially impact cement demand.

“Considering the overall positive outlook for the global economy, we are confident about the future,”

Cemex, the world’s largest producer of white concrete and cement products, issued a similar report. While its management did not specifically mention increased or increasing demand they did report 6% top-line growth across all regions and expectations they would meet corporate targets in 2019 and 2020.

“We are pleased with our 6% top-line growth during 2018, supported by higher consolidated volumes and prices in our three core products,” said Fernando A. Gonzalez, Chief Executive Officer of CEMEX.

The Global Cement Market Report issued by Radiant Insights expects to see the market expand at a “significant CAGR” through the 2022 period. The attribute this to the rise of industrialization and urbanization ongoing globally. Cement is an important tool in virtually all major construction projects and construction/infrastructure spending is on the rise worldwide.

Like Craig Noble, Portfolio Manager at Brookfield’s Global Listed Infrastructure Income Fund, the driving force in infrastructure spending is two-fold. On one hand, there is the build-up of new infrastructure and services in developing markets while on the other there is the maintenance, upkeep, and expansion of services in developed areas.

What does this means for investors? It means your infrastructure and materials focused real-assets investments (if you have them) will continue to perform well into the foreseeable future. Demand for cement is only the tip of the iceberg and is at worst a coincident indicator of strength in other aspects of the infrastructure universe.

Aside from positive outlook for demand growth the sector offers high income, a measure of inflation protection, and diversification within a portfolio. The Brookfield Global Listed Infrastructure Income Fund is a closed-end fund trading under the ticker (INF). It focuses on infrastructure companies on global stock exchanges with an emphasis on the US, Europe, Canada, and Asia/Pacific. It yields about 8.25% at current share prices.