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Update on Russia, February 2022
Written by David Perilli, Global Cement
02 February 2022
Russia made imports easier last week. At the end of January 2022 an order from Rosstandart, the national standisation agency, relaxed inspection controls allowing for simpler imports from countries outside the Eurasian Economic Union (EAEU). Previously each such batch required a 28 day inspection period. This has now been dropped to encourage more imports of cement. Deputy Industry and Trade Minister Viktor Yevtukhov explained the reasoning behind the measure to InterFax, “In order to avoid problems in the domestic Russian cement market in the future, it is necessary to spur competition. It will balance the prices for this basic building material and will restrain their growth in case of such risks.”
Some idea of the situation facing the Russian cement market at the moment can be gleaned from market data supplied by CM Pro. Production rose by 7% year-on-year to 56.4Mt in the 11 months to November 2021. Imports rose by 26% to 1.6Mt at the same time. The Ministry of Industry and Trade has attributed this to a construction boom created by growth in both government-funded infrastructure projects and domestic housing. It also noted a local shortage and price increases in the Central Federal District in the autumn of 2021, although it said it redistributed cement from other regions to remedy the situation. This imbalance in the country’s main cement producing and consuming region, including Moscow, can also be seen in the figures. Production was about 2Mt below consumption in this area in 2019 and 2020. Yet so far, to November 2021, this gap grew to 2.7Mt. At the same time the price of cement reportedly jumped by 20% from November 2020 to December 2021.
Graph 1: Cement production in Russia, 2015 – 2021. Source: CM Pro and estimate from Global Cement.
It has been reported that the Ministry of Industry and Trade has also been wondering publicly why a study conducted in 2021 found that the national cement sector had an apparent operating capacity of 65Mt/yr compared to a total production capacity of 105Mt/yr, including mothballed and inactive plants and production lines. In other words the sector has been operating at a 62% production utilisation rate and the government is trying to coax it higher by opening up imports. And just to make sure that there was no confusion on the matter, Yevtukhov added, “I am sure that if the domestic producers will cope with the task of increasing the real volume of cement production and will not allow prices for their products to increase above the rate of inflation, the market will self-regulate, and additional imports of cement to Russia (which are traditionally small) will not be needed."
Given the country’s large size, imports seem to be mainly a threat to producers in the big population centres around Moscow and the Volga with good international transport links. Producers appear to have received and understood the message from the government as they have pledged to increase real operating capacity by 3 – 5Mt. The bear in the room for both Russian and European cement producers though is what happens in Ukraine in 2022. With North Atlantic Treaty Organization (NATO) members threatening economic sanctions and Russia supplying a significant share of Europe’s gas supply, any progression from the current rhetoric could cause discomfort to markets in both Russia and Europe. Turkish cement exporters, manufacturing in a NATO member country and hoping to take advantage of increased exports to Russia, could be in a particular bind if events heat up. All of this indicates that Smikom picked an interesting time to buy Russia’s largest cement producer, Eurocement, back in mid-2021. There’s an ongoing construction boom but also risks aplenty.
With apposite timing, LafargeHolcim Russia announced this week that it was going to reopen its integrated Voskresensk cement plant near Moscow. The unit was originally stopped in 2016. Now it plans to spend Euro23m on restarting the plant and building a dry construction mix unit at the site. Who says big government doesn’t work?
Update on Uzbekistan, January 2022
Written by David Perilli, Global Cement
26 January 2022
An acquisition in Uzbekistan by Russia-based Akkerman Cement this week highlights resurgence in the local market.
The subsidiary of USM has just purchased a majority stake in Akhangarancement with the help of financing from Gazprombank. No value for the acquisition has been disclosed. However, the move follows the sale of Russia-based Eurocement to Smikom in early 2021. Then in June 2021 Eurocement sold off its majority stake in Akhangarancement to Cyprus-based Lamanka Enterprises for US$53m. Now, as part of the sale to Akkerman Cement, the start of a new 2.5Mt/yr dry process production line at Akhangarancement in 2021 has also been highlighted. As for Akkerman Cement’s interest in become a multinational cement producer, it said that, “The investment in Akhangarancement, like all USM investments in Uzbekistan, is primarily aimed at the development of this country, the small homeland of Alisher Usmanov, the main shareholder of USM.”
Aside from any potential sentimental yearnings from a billionaire, the Akhangarancement deal follows a few developments in the Uzbek market in recent months. At the start of January 2022 the state assets management agency UzAssets agreed to sell the government’s majority stake in Qizilqumcement for US$174m to United Cement Group (UCG). This was a significant move locally given the size of UCG in the Central Asian states. UCG operates two integrated plants and one grinding unit in Uzbekistan. The acquisition of Qizilqumcement’s 3.4Mt/yr plant now makes UCG the largest cement company by production capacity in the country. It has also been building a new production line, like Akhangarancement, with commissioning last reported as scheduled as sometime in 2022.
Finally, the other recent development in Uzbekistan occurred in December 2021 when China-based Anhui Conch announced that it had started building a new 2.5Mt/yr cement plant in the Akhangaran district in Tashkent. The project has a price tag of US$200m.
Graph 1: Cement production in Uzbekistan, 2016 – 2020. Source: State Committee of the Republic of Uzbekistan on Statistics.
In early 2021 the government suspended tariffs on cement imports and this was then later extended into late 2022. President Shavkat Mirziyoyev says he signed the decree to keep house prices low. Subsequently, imports grew by 26% year-on-year to 2.2Mt in the first nine months of 2021. The main importers were Kazakhstan (44%), Tajikistan (25%) and Kyrgyzstan (25%). Graph 1 above shows recent annual production trends over the last five years. So far in 2021, to September 2021, overall domestic cement production rose by 17% to 9.08Mt. In 2020 annual production was about the same as the country’s production capacity of 10.3Mt/yr.
The mixture of Russian and Chinese companies involved with the recent plant acquisitions and new projects chimes with the general position of the Uzbek economy and its geographical position between the larger economies of Russia and China. For example, January 2022 data from the Uzbek State Statistics Committee showed that bilateral trade with Russia overtook that with China in 2021 for the first time since 2014. The two countries have had similar trade turnover with Uzbekistan over this period. Since the mid-2010s the national economy has liberalised and investment by foreign companies into industries like cement reflects this. The sale of Qizilqumcement also shows the further movement of state assets into private ownership. With apparent production utilisation closing to 100% and the government encouraging imports, it’s a good time to be a cement producer in Uzbekistan. Accordingly, foreign cement companies are investing.
China - Happy New Year?
Written by David Perilli, Global Cement
19 January 2022
The cement output data for December 2021 is out for China and we’re starting to see the effects of a rather tough autumn. Lower coal supplies, consumer prioritisation for energy supplies, higher input costs and a slowing real estate market all contributed to a reduction in output.
Graph 1: Cement output by quarter in China, 2019 –2021. Source: National Bureau of Statistics of China.
As can be seen in Graph 1 above, output took off after the shock of the coronavirus outbreak receded at the start of 2020. This then continued until mid-2021 when things changed. Overall cement out was 2.36Bnt in 2021, an annual drop of nearly 1.2% compared to 2.39Bnt in 2020. Note that the 2021 output figure is about average for China’s annual output since it hit a high of nearly 2.5Bnt in 2014. However, the months from September 2021 onwards have seen output drops of above 10% year-on-year. It’s been from a high base but if it were to continue it could signal a more ominous trend. As the China Cement Association (CCA) describes it, cement output started to slow from May to August 2021, in part due to seasonal factors and repeated local outbreaks of Covid-19 around the country. This trend then started to accelerate for the reasons mentioned above.
Looking at energy first, coal future prices in China hit a near-decade high in October 2021 due to a variety of market disruptions. This looked set to worsen at the start of January 2022 when the country’s biggest overseas supplier, Indonesia, banned exports for a month due domestic shortages. However, data has since emerged this week from the National Bureau of Statistics showing that Chinese coal production grew by 4% year-on-year to 4.07Bnt in 2021, with faster monthly growth, as the industry ramped up output to meet demand.
On the real estate market, the CCA views it as having run ‘hot’ and then ‘cold’ in 2021. At the start of the year the government introduced new government regulations (its so-called three red lines of policy) to reduce borrowing in the sector. The real estate market subsequently declined, not withstanding certain hot-spots. In the western press this process has been symbolised by the fortunes of Evergrande and its debts of over US$300bn. It started missing bond payments in September 2021 before formally defaulting in December 2021. As the Financial Times newspaper reported in a summary on the situation, in late December 2021, Evergrande said that work at 92% of its projects, which number in the hundreds across China, had resumed. Separate data though showed that its housing sales had slumped by 99% year-on-year in the same month. The newspaper has compared the Chinese government’s approach to Evergrande to its handling of conglomerate HNA Group, which was eventually declared bankrupt in 2021 after a slow disintegration. In its opinion the government may try to control the collapse of Evergrande through a series of quiet interventions over a long period. However, Evergrande’s debts appear to be double those of HNA Group’s and there may be further risks from other companies in the real estate sector. All of this presents risks to local cement output.
To round up, Chinese cement output in the second quarter of 2022 is the figure to watch to assess how well the industry is coping with its current issues. Production is likely to slow in the first quarter due to seasonal factors such as the New Year holidays, winter shutdowns and the hangover from the problems in the autumn. Once the spring arrives then we may have a glimpse of how cement companies are coping with coal supplies, the real estate market and all the rest.
And finally... Global Cement Weekly invites readers to explore Austria-based W&P’s virtual tours of three of its plants. The presentation is a fancier version of the panorama photo applications one can find on most smartphones but with some added mapping and visualisation settings. It’s a fantastic addition to the set of community outreach tools a cement company can use. Check it out here: https://alpacem.com/360/
Acquisitions in the Pacific North-West and Lafarge’s ‘Kodak’ moment
Written by David Perilli, Global Cement
12 January 2022
There have been a couple of acquisitions of note this week in the north-western US and Holcim has picked up another building solutions company. To find out how the latter relates to former photography products producer Kodak, read on.
Starting with the north-western US, HeildelbergCement announced that it finalised the acquisition of Corliss Resources, a large family-owned aggregates and ready-mixed concrete company, for an undisclosed sum. The purchase includes major aggregate operations with sales volumes of about 2Mt/yr and reserves and resources of about 170Mt and four ready-mixed concrete (RMX) plants selling about 0.3Mm3/yr in the Greater Seattle area.
Global Cement normally sticks to cement but Holcim did something similar last week. It completed the acquisition of Cowden, another ready-mixed concrete and aggregate producer based in Bellingham in Washington state. This sale includes two RMX plants, eight aggregate facilities and a hauling fleet. Again, there was no word of the price.
Both the HeildelbergCement and Holcim purchases in the north-western US fit the selective bolt-on approach both companies have favoured in recent years. Looking specifically at the US, the United States Geological Survey (USGS) reported that estimated production for consumption of construction sand and gravel grew by 7% year-on-year to 753Mt in the first nine months of 2021. Estimated total construction aggregate production rose by 5% to 1.9Gt. Within the country, Washington’s sales of construction aggregates increased by 16% to 33Mt, the third largest rate by state nationally. Meanwhile, cement shipments for the country grew by 4% to 79.9Mt although they actually fell by 3% in Washington. This compares to annual growth of 2.8% in cement consumption in 2021 that the Portland Cement Association (PCA) was forecasting for the Pacific region of the US in the middle of 2021.
Holcim has been snapping up aggregates or RMX assets in established markets throughout 2021. These include US-based Marshall Concrete Products in December 2021, US-based Utelite Corporation in September 2021, Germany-based Heinrich Teufel in July 2021, the aggregates business and two RMX plants from Greece-based Halyps in May 2021 and Edile Commerciale and Cemex Rhone Alpes in Italy and France in February 2021. At the same time HeidelbergCement was mainly divesting itself of aggregates and RMX assets. It sold Halyps to Holcim and later in the same month agreed to sell its US West region to Martin Marietta Materials for US$2.3bn. The deal included cement, aggregates, RMX and asphalt businesses in California, Arizona, Oregon and Nevada. This covered two of its cement plants, with the exception of the 1.5Mt/yr Permanente cement plant in California, related distribution terminals, 17 active aggregates sites and several downstream operations. This makes the acquisition of new aggregate and RMX assets in Washington by HeildelbergCement interesting as we can see the company adjusting to its new market position. Although subsidiary Lehigh Hanson does not have a cement plant in the state it does operate a terminal in Seattle as well as other aggregate and RMX operations. North across the border in Canada though it still runs the integrated Delta Cement plant and terminal near Vancouver.
Returning to Holcim’s other acquisition this week brings us to Holcim’s target to expand the net sales of its Solutions & Products division to 30% of the group total by 2025 as part of its plans to decarbonise. This week it took one more step towards this goal with an agreement to buy France-based PRB Group, a manufacturer of coatings, insulations, adhesives and flooring systems. Global Cement Weekly has covered this topic a few times but, to recap, it started in January 2021 when Holcim announced it was buying roofing and building envelope producer Firestone Building Products for US$3.4bn. Various other related acquisitions have followed including an agreement to buy US-based Malarkey Roofing Products in December 2021.
How any of this relates to Kodak is as follows. Holcim’s predecessor Lafarge previously owned a major business away from cement, concrete and aggregates, namely gypsum. The gypsum wallboard business, like roofing, emits far less carbon than clinker production. In 2010 Lafarge’s gypsum business constituted nearly 9% of group revenue and it described itself as the third largest company in the sector worldwide. This was divested in the early 2010s in response to debts accrued by Lafarge’s acquisition of Orascom Cement in 2008. A decade later this decision appears to be the opposite of Holcim’s current strategy and indeed much of the cement sector’s current attempts to lower its carbon risk.
Kodak infamously filed for bankruptcy in 2012 after failing to move from analogue photography products to the digital market. The question cement company strategists should be asking themselves is whether their sector faces the same kind of disruption from the government and investment response to climate change. Lafarge apparently didn’t think so 10 years ago. Its successor Holcim does.
Cementos Progreso grows in Central America
Written by David Perilli, Global Cement
05 January 2022
We start 2022 with the news that Cemex is selling up to Cementos Progreso in Costa Rica and El Salvador. On 20 December 2021 Cemex announced that it was selling one integrated cement plant, one grinding plant, seven ready-mix concrete plants, one aggregate quarry and one terminal in Costa Rica and one terminal in El Salvador. The sale is valued at around US$335m with an expected completion date in the first half of 2022 subject to regulatory approval.
This sale is noteworthy because it concerns Mexico-based Cemex selling off assets in its ‘back yard’ of Central America. Once the sale completes it will retain operations in Panama, Nicaragua, Guatemala and Colombia under its Cemex LatAm subsidiary. It will also continue to operate in the Caribbean in the Dominican Republic, Jamaica and Puerto Rico. Previous divestments by Cemex over the last five years or so have tended to focus on piecemeal (or bolt-off) divestments in the US and Europe. This latest sale could be viewed in a similar way if Central America and the Caribbean are seen as a region rather than individual countries. For its part Cemex describes the divestment as part of its ‘Operation Resilience’ plan to optimise its global portfolio.
Why it chose to sell up in Costa Rica is curious given that Cemex LatAm’s cement sales volumes for the region were reported as ‘flat’ in 2019 with the exception of Colombia and El Salvador. 2020 was then a shock, like almost everywhere else, as coronavirus caused disruption reducing sales volumes. 2021 saw recovery in all of Cemex LatAm’s national markets over the first nine months. Notably, both Cemex’s revenue and operational earnings in Costa Rica grew when comparing the first nine months of 2019, before the pandemic, to the same period in 2021, unlike Colombia and Panama. For the third quarter of 2021 Cemex said that growing cement sales volumes in Costa Rica had been driven by infrastructure and housing sectors. It also added that “Our cement footprint in the country is also a very relevant component of our regional trading network. We continued exporting during the quarter, mainly to our operations in Nicaragua.” In may be coincidence but it was interesting timing to add a comment like that.
From Cementos Progreso’s perspective the new assets in Costa Rica and El Salvador are part of an ongoing expansion phase outside of its home base. At home in Guatemala the company operates three integrated plants. The third, the San Gabriel plant, started up in 2019. In the same year the company purchased Cemento Interoceanico and its grinding plant in Panama. Then in July 2021 the group commissioned its new Belmopan grinding plant in Belize as part of its Cementos Rocafuerte subsidiary. The new proposed acquisitions in Costa Rica and El Salvador start to fill in the gaps in Cementos Progreso’s network between Guatemala and Panama. The price seems on the high side for a 0.9Mt/yr integrated plant and a 0.9Mt/yr grinding unit. Yet the associated quarry, concrete plants, terminals and, crucially, the location may have made it one well worth paying. For comparison Peru-based Unacem agreed to purchase a grinding plant from CBB in Chile this week for around US$30m. Back in 2013 Lafarge sold assets in Honduras, including an integrated plant and a grinding unit, to Cementos Argos for Euro232m.
Both parties may do well out of this transaction. Cemex continues to show that it is fully prepared to sell assets anywhere as it sharpens up its operations. Cementos Progreso meanwhile is turning itself into a regional player to watch.