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Invest like an Egyptian
Written by Global Cement staff
12 September 2012
Lawlessness, strike action and increases in energy inputs are the three factors hindering Turkish investment in Egypt.
These concerns arose in a meeting held last week between the Minister of Industry and Foreign Trade Hatem Saleh and a Turkish trade delegation. It was also reported that Turkish investors have applied to build a cement plant in the Sinai region of Egypt.
Investing in Egypt by a cement company seems risky given that both Italcementi and Lafarge have shown problems in the country in their recent financial reports. Italcementi reported a loss in sales in its first half results for 2012 partly due to the Egyptian market. Lafarge saw volumes fall by 11% in its second quarter in Egypt due to limited gas supply.
Nationally cement demand fell by 8% in 2011 to 45.2Mt due to the political unrest of the 'Arab Spring'. In January 2012 the government cut energy subsidies to heavy industry, including cement, to narrow its budget deficit.
Lawlessness is certainly a concern. In August 2012 Suez Cement suspended construction of a plant expansion project amid civil unrest. It had also suffered from strikes at its plants earlier in the year. Earlier in the month Egypt launched air strikes in the Sinai region close to the border with Gaza killing 20 people. Previous to this a group of Chinese cement workers working in the Sinai were kidnapped in January 2012.
Yet Titan, despite its losses so far in 2012, reported in its first half results at the end of August 2012 that the construction sector maintained its positive momentum in the country. In addition, it said that demand for building materials grew absorbing production from new cement plants entering the market.
Recent developments supporting this optimistic trend have included Arabian Cement increasing its capacity to 5Mt/yr with the opening of its second production line. FLSmidth recently won a contract to operate and maintain two production lines for Egyptian National Cement. ASEC Cement expects full production of 1.9Mt/yr at Minya to begin by the first quarter of 2013.
With a mixed picture emerging, the cement industry in Egypt shows potential for those producers willing to take the risks, or those able to minimise them. Even at the proposal stage the new Turkish project in Sinai has been linked with the al-Maghara coal supplies of the northern Sinai.
Ash Wednesday: cement in the Philippines
Written by Global Cement staff
05 September 2012
Coal ash seems to be in short supply in the Philippines. Lafarge Republic has signed a deal with a local energy producer to buy coal ash from a new 600MW coal plant.
Although the cost of the deal was not announced, the agreement will run from when the plant starts operation until 2019. This move follows a similar arrangement by Cemex Philippines in June 2012. In that instance Cemex agreed to purchase coal ash from the 200MW Kepco SPC Power Corp plant in Naga, Cebu for US$0.95/t.
Distinctively both arrangements were set up in conjunction with local government. For the Lafarge deal part of the agreement involved donating at least 10,000 bags of cement per month for use in various infrastructure projects of the province. Bataan governor Enrique Garcia put the value of the deal at US$1.19m/yr. For the Cemex deal the Cebu Provincial Government signed the agreement. In November 2009 Cebu Province and Kepco entered into an Ash Disposal Agreement, where Cebu Province was granted exclusive rights to the ash produced by the power plant.
Adding to the suspicion that the Philippines lacks sufficient coal ash, back in the autumn of 2011, the Cement Manufacturers' Association of the Philippines (CeMAP) asked the Department of Trade and Industry (DTI) to impose mandatory quality standards on raw materials, such as coal ash. This followed accusations by CeMAP that poor quality coal ash might be behind complaints from contractors working on infrastructure projects. In 2009 a DTI profile on the cement industry placed the demand for Portland cement at 73% and the demand for pozzolan cement at 27% of the total.
Cement sales in the Philippines have been steadily growing over the last decade. Lafarge Republic announced in August 2012 that it was increasing its capacity to just below 9Mt/yr in 2013. Around the same time CeMAP released data showing that sales were up 20% year-on-year for the first half of 2012. The local industry reported combined sales of 15.6Mt in 2011. Previous to this, Holcim Philippines announced the US$9.46m upgrade to a previously closed mill in Batangas.
Texan standoff
Written by Global Cement staff
29 August 2012
Texas Industries (TXI) made the surprising move this week of appealing to the US authorities to investigate 'unfair' imports from Greece and the Republic of Korea. Of note was the accusation that imports from these countries had risen by 40% from 2009 to 2011, with a further rise over the first six months of 2012.
Given the distances involved and the rising optimism shown for the North American market in the latest financial results for the cement industry, targeting imports might at first seem odd. However looking at US Geological Survey (USGS) data shows that for January to May 2012 the top cement importers to the US, after Canada, were the Republic of Korea and Greece. Mexico, the USA's other land neighbour, could only manage fourth.
According to USGS data Texas was the leading cement-producing state in the US in 2011. In 2011 total imports of hydraulic cement and clinker from South Korea rose by 64% to 1.40Mt from 0.86Mt in 2009.
By customs districts Texas imported 0.99Mt in 2011 or 15% of the US total. Alarmingly though, Texas has already imported 0.77Mt from January to May 2012. If this rate continues for the rest of 2012 Texas could be facing a total imported figure of 1.84Mt, a rise of 85%!
Given that the Global Cement Directory puts Texan capacity at just under 14Mt/yr this might explain why one of the state's biggest producers has decided to take action. The problem of 'cheap' Greek imports looks likely to get worse as the economic troubles of the Eurozone drag on, especially if Greece exits the zone. If that happens, any Greek producer that can still afford to make cement may well be able to undercut the domestic production of any country willing to import it. TXI's move might be seen as a pre-emptive strike 'shot across the bows' to discourage increasing US demand for sucking in more imports, in order to shore-up demand for domestic production (and to firm up domestic pricing).
However, one place Greece or South Korea will have difficulty exporting their cement to is the moon.
Serious thought on creating cementituous materials on the moon dates back decades but last week NASA awarded US$135,000 to UC San Diego structural engineer Yu Qiao for research on the subject using materials that are readily available on the moon. Given that it currently costs from at least US$4m/t to put mass into low earth orbit, the lunar cement industry can rest easy from the threat of cheap Greek imports for the time being.
European bargain hunt
Written by Global Cement staff
22 August 2012
The news this week that GSO Capital Partners has patched together a group of investors to recapitalise Giant Cement and its owner Cementos Portland Valderrivas (CPV) has been a long time coming.
Giant may be based in the US but CPV is Spanish. Here cement production fell by 28% year-on-year for the first half of 2012. For its 2012 forecast Oficemen, the country's domestic producers association, forecast in July that consumption will fall by 25% compared to 2011, to 15Mt/yr, representing a drop of 73% from a high of 56Mt/yr in 2007. Potentially the Spanish cement industry could regress to a per capita consumption of only 325kg/capita, figures not seen in the country for nearly 50 years! It has already hit a 48-year low.
In other words it is the perfect time for cash-rich foreign firms to pick up a bargain. Yet the question that should be asked, especially by anybody else thinking of investing in highly indebted European cement assets, is how do investors expect to make any return?
Simply waiting for the market to improve is one strategy for those who can afford it. According to the Global Cement Directory 2012, Spain has 38 cement plants with a capacity of 48Mt/yr. Of this the big players – Cemex, Holcim, Lafarge and CPV – comprise 28Mt/yr. Even if the smaller producers stopped producing cement overnight the big producers would still have the capacity to produce twice as much cement as is currently required.
However, the focus on the CPV subsidiary Giant Cement is telling. The owner of CPV, Fomento de Construcciones y Contratas SA (FCC), was originally reported as trying to sell Giant by March 2012. With the US market starting to pick up, Giant would make an attractive acquisition. FCC's last attempt to sell Giant was, however, delayed by CPV's debt.
With a Giant sale delivering some return to the GSO Capital Partners investors, followed up by further on-going debt repayment from CPV, the only loser would be the future development of the Spanish cement industry outside of that done by the multinationals. Heavily indebted European cement producers with profitable overseas assets must be looking very attractive indeed to international investment firms. The bargain hunt has begun.
Lucky strike for imports to South Africa
Written by Global Cement staff
15 August 2012
Pakistan's Lucky Cement received the 'all clear' for its cement imports from the South African regulators last week. The situation exposes the increasingly competitive market in the country after the South African Competition Commission cartel investigations in 2011.
Sales of Lucky Cement were originally shut down in 2011 due to accusations made by its competitors, including Pretoria Portland Cement (PPP) and Natal Portland Cement (NPC). They complained that Lucky was not complying with South African standards. South Africa's National Regulator for Compulsory Specifications (NRCS) then ran its independent investigation and released its results last week.
The regulator's full 28-day test found no evidence that Lucky Cement imports were non-compliant with regards to their quality. A minor infringement concerning underweight bags was found and fixed. However, about a week beforehand, Lafarge South Africa's CEO said that his company was considering approaching another trade body with concerns about 'low-quality cheap cement' imported from Pakistan.
More serious criticism came from the Cement and Concrete Institute when the NRCS admitted that it didn't know how much cement had been imported into South Africa so far in 2012. The NRCS is supposed to inspect and approve the testing bodies each producer and importer uses for every 500t of cement.
Lucky Cement has been a regular importer of cement to South Africa since 2009. It exports around 1.65Mt/yr to over 22 countries in South East Asia, the Middle East and Africa. CCI figures reckon that 140,000t of cement was imported to South Africa in the first quarter of 2012, mostly by Lucky Cement. According to the Global Cement Directory 2012 South Africa's capacity is around 11Mt/yr.
Four domestic producers – Lafarge, PPC, AfriSam and NPC – were accused of cartel activity by the South African Competition Commission, in a case that has been running since 2008. PPC confirmed the existence of the cartel, whilst Lafarge and AfriSam were fined US$19.6m and US$16m respectively.
By letting Lucky Cement resume the sale of its cement in South Africa, the NRCS has arguably done more than the Competition Commission to prevent cartel activity. With reports surfacing that other producers in Pakistan and India are considering exports to South Africa, domestic producers are going to have to become more inventive and more competitive.