Hopefully you won't have noticed, but Global Cement is a magazine (and newsletter, website, global cement directory and series of conferences) produced in the UK. I say that I hope that you won't have noticed, because we do try not to concentrate too much on what is happening in the UK, even if we do receive a lot of information about 'local' events. Hopefully, we have as much on happenings in other interesting parts of the world - we try to, at least.
However, please forgive me if I start off my column this month by mentioning two trends in the UK that could soon be manifested elsewhere around the world: Extreme anticartelisation and a forthcoming electrical energy crunch.
You may have read in this month's issue already that the UK competition commission is set to introduce yet more competition into the UK's cement industry, a matter of months after it forced a newly-combined producer to sell its largest cement plant. Now - seemingly as an afterthought - the combined producer - Lafarge-Tarmac - may be required to sell off another of its other cement plants and some ready-mixed plants to a new market entrant. Didn't they think about this before the merger? Oh well.... no-one wants to rile the competition commissioner, since they seem to have vast powers to disrupt business and operational systems that have been built up over decades. These systems and arrangements may benefit the producer, but that doesn't necessarily mean that they disadvantage the consumer. After all, the UK is an island with plenty of ports that would be convenient for imports, situated on the edge of a continent with a serious over-supply problem - if a cartel was in play and prices rose too high, imports would flood in.
Where will all this lead? Perhaps the competition authorities will start to see conspiracies everywhere they look and decide that two cement plants for a cement company is one plant too many: could we see the advent of single plant cement companies by government edict? The fact is, it is happening already, with Hope Construction Materials being established at the behest of the commission, and another single-plant cement company coming soon too.
Forgive my cynicism, but if producers from two plants in an industry want to raise prices, they don't have to be in the same company to manage to make a deal. Better for the competition commission to be vigilant and ready with hefty fines (and for consumers to have the ready threat of class action lawsuits) to dissuade producers from sharp practice. However, a trend is underway towards extreme anticartelisation measures, and I wouldn't be surprised to see it extended to its (il)logical conclusion of industry de-rationalisation and then exported.
The energy crunch is coming - certainly in the UK and Europe, and probably in many other areas of the world as well. Excess capacity in the UK will fall from around 14% in winters just a couple of years ago, to less than 5% in 2015 - and to even lower levels of cover in the coming years1, as coal- and oil-fired power stations are obliged to close by EU environmental regulations and new nuclear plants are delayed by post-Fukushima trepidation. In Germany, the realisation that 'green' policies will massively increase electricity prices has been known in analyst circles for years (wind-power is not cheap - and nor is the additional capacity that must be kept idle-but-ready in case the wind doesn't blow at the right time) but the expensive change is being rammed home to the populace by the swift closure of the country's nuclear capacity. Where will the electricity come from now? From nuclear France? Despite the EU's plans for us all to cut our consumption and to decarbonise our electricity industries by 2020, it's not likely to happen as fast as they would wish it, or at all. Electricity is about to become a lot more expensive for us all - including all our cement plants, where electricity already makes up about a third of cement production expenses.
As bad as high costs for the industry is the possibility of widespread power cuts. Will the lights go out? Well, they might, if California's electricity crisis is anything to go by.2 You may recall that through a combination of market manipulation (including by the reviled Enron Corporation) and an ill-thought-through deregulation regime, California's well-supplied energy market (45GW of generating capacity for a demand of 28GW) suffered crippling rolling blackouts and widespread 'brownouts' (where voltage is reduced). It was estimated that the crisis cost California US$40-45bn.
It is notable that in case of electrical energy supplies in the UK that, after voltage reductions ('brownouts') and energy imports via sub-sea interconnectors have been used to their maximum extent, it will not be households that are switched-off first, but industry.
1 https://www.ofgem.gov.uk/ofgem-publications/40203/electricity-capacity-assessment-2012.pdf
2 http://en.wikipedia.org/wiki/California_electricity_crisis
