Analysis

Cementa’s prospects for continued mining limestone in Sweden beyond the end of October 2021 have been looking dubious recently. The subsidiary of Germany-based HeidelbergCement wants to carry on mining limestone at its quarries near its integrated Slite plant in Gotland after 31 October 2021 when its current permits expire. However, the Supreme Land and Environmental Court rejected its renewal application in July 2021 on the grounds that the impact of the quarries on groundwater had not been sufficiently investigated. Then the Supreme Court ruled that it had no basis for appeal at the end of August 2021. This leaves the cement producer hanging on for proposed government plans to make legislative changes to keep limestone mining ongoing for another eight months until mid-2022 and then for whatever scheme the legislators cook up next.

In July 2021 construction multinational Skanska publicly said that it was taking the situation ‘seriously’ because its concrete suppliers had warned it of the impending risk that they would potentially be unable to meet demand in the third quarter of 2022. At the same time the Swedish Construction Federation and related bodies noted that up to 175,000 jobs in construction could be adversely affected with a loss of investment of nearly Euro2bn/month due to the predicted cement shortage. In their view, increasing imports in the short term was unrealistic due to capacity constraints at ports and import terminals. Understandably, the Swedish government has been scrambling to keep the quarries open to protect cement supply and has been accused by both the local press and environmental bodies of circumventing legal norms in the process.

This is not a good situation to be in for either Cementa or anyone who might want to use cement locally in the near future. The cement producer operates both of Sweden’s integrated plants, at Slite and Skövde respectively, with Slite holding around 80% of the company’s production capacity. On its own, the Slite plant alone supplies 75% of the country’s cement, with about another 10 – 15% provided by importer Schwenk Zement. As a whole Cembureau data shows that the country’s market was just under 3Mt/yr in 2020 and stable despite the coronavirus pandemic. A small decline in the residential segment was reported, coupled with a ‘flat’ infrastructure segment, although increased demand from wind farm construction was noted. Cementa stopped production at a third local integrated plant, Degerhamn, in mid-2019 due to low profitability at the site and tightening environmental regulations.

Cementa and HeidelbergCement are putting up a fight by publishing lots of information on Cementa’s website about the permit application process and working towards both solutions in the short and longer term. In early September 2021 Nordkalk signed a deal with Cementa to supply it with limestone. However, as Thomas Lind, the head of cement for HeidelbergCement Northern Europe, pointed out in August 2021, the agreement won’t cover the entire shortfall, nor would it be ideal from logistical or environmental angles. On the opposing side, the Swedish Society for Nature Conservation has joined with the Supreme Land and Environmental Court in opposing the quarry permit renewal along with other environmental groups. Plus the government decision to force through a permit reprieve has also given ammunition to its political rivals.

The argument over Slite’s quarry sums up some of the challenges facing society over continued cement production in a world with ever-tougher environmental legislation. Cement plants are likely to face mounting opposition on environmental grounds but most governments will panic when facing the potential consequences of societies running out of essential building materials. There are many ways to avoid this scenario, such as far greater community and political involvement on the part of cement companies, recognition by governments of the importance of building materials, supporting the development and uptake of concrete made with less Ordinary Portland Cement or switching to higher ratios of other building materials and so on. Yet, without preparation, legislators elsewhere will also find themselves in similar positions to the one the Swedish government is in now.

Slite’s problems have arisen in part over a perceived direct threat to local drinking water, although Cementa says that this is absolutely not the case. Typically, cement plants in similar battles find themselves in opposition to local communities due to the immediate impacts of quarrying or production on water, or due to noise or dust. Yet the hidden consequence of clinker production is significant process CO₂ emissions with resulting global climate change. The particular tragedy in Gotland is that HeidelbergCement is one of the more sustainable-minded cement companies, with investment to match. In June 2021 it announced ambitions to upgrade the Slite plant to become the world’s first carbon-neutral cement plant through bio-based fuel substitution and a carbon capture and storage unit by 2030. This may be eight years away but it is one of very few full scale cement plant carbon capture upgrades that have been promised worldwide.

It’s time for a macroscopic view of the Chinese cement sector this week with the release of the half-year financial results by some of the larger Chinese cement producers. On the national level the picture so far in 2021 has been one of continued recovery from the coronavirus lockdowns at the start of the year and then a slowing market as state controls on real estate speculation started to take effect. However, poor weather in the spring and mounting raw material prices appear to have compounded the effects of the real estate regulations, leading to price falls.

Cement output data from the National Bureau of Statistics of China in Graph 1 shows that local production took a knock in the first quarter of 2020 due to the coronavirus pandemic and this strongly recovered in the same period in 2021. The market recovered fast in mid-2020 and so the year-on-year growth for the second quarter was less in 2021. Output on a monthly basis remained ahead year-on-year from April 2020 and stayed ahead until May 2021. However, output in June 2021 was behind the figure in June 2020 and the figure for July 2021 was behind both July 2020 and July 2019.

Graph 1: Cement output by quarter in China, 2019 – mid-2021. Source: National Bureau of Statistics of China.

The Chinese Cement Association (CCA) was lamenting falling cement prices at the start of July 2021. It blamed the situation on slowing infrastructure development in some regions, increasing government restrictions on real estate development, especially poor mid-year weather and higher input prices such as for steel. China Resources Cement (CRC) expanded upon the point about increasing real estate regulations in its financial results for the first half of 2021 explaining that the Chinese government has been promoting a policy that aims to ensure that “residential properties are not for speculation” including controls on the financing of real estate. Later in mid-August 2021 the CCA reported that prices were recovering in east and central-southern regions although the situation remained poor in Guizhou province with shipments down to 60% of normal levels. Production control measures are expected to be implemented to stabilise the situation.

Graph 2: Sales revenue of large Chinese cement producers in first half of year, 2019 – 2021. Source: Company reports.

On the corporate side the sales revenue from some of the large Chinese cement producers mostly show the usual gap-tooth pattern that coronavirus has created everywhere as the market recovered. Notably Anhui Conch managed to avoid falling sales year-on-year in the first half of 2020. However, the CCA’s observation above about rising input costs is visible in the falling profits of some (but not all) of the companies covered here. For example, Anhui Conch’s net profit fell by 7% year-on-year to US$2.32bn in the first half of 2021. It blamed this on a significant rise in the price of raw coal. CRC also reported falling profits attributable to increased production costs.

CNBM reported an increase to cement and clinker sales volumes of 7.6% to 177Mt and concrete sales volumes by 13.4% to 52Mm³. It noted that, “In the first half of 2021, the national cement market showed the characteristics of high price level fluctuation adjustment.” From January to April 2021 local fiscal policy boosted demand for cement but from May 2021 continuous heavy rainfall and increasing bulk commodity prices slowed infrastructure project development. Anhui Conch’s cement and clinker sales volumes for both production and trading grew by 11.5% to 208Mt. It reported stable market demand in eastern, central and southern regions but noted falling prices in the west.

Looking ahead, two issues, among many, to consider are carbon trading and imports. The former has been coming for a while and was launched formally online nationally in mid-July 2021 for the power generation industry. The carbon price was nearly Euro7/t in late July 2021 in China compared to around Euro53/t in the European Union. Cement and steel are expected to join the Chinese national scheme in the next phase although analysts believe that issues such as data gathering, permit allocation rules, accounting standards, sector reduction targets and related financial support all need to be improved before this can happen. Imports are a connected issue and it has been interesting in recent months to hear financial analysts point out the risks, for example, of major exporting nations such as Vietnam relying on China so much. The CCA reckons that China imported 33.4Mt of clinker in 2020, an increase of 47% year-on-year, with 60% of this derived from Vietnam. With the Chinese government trying to tackle cement production overcapacity and meet growing environmental targets, imports look set to become a ‘hot ticket’ issue. In this context it is telling to see talk from the CCA of ensuring standards for imports such as verified carbon emissions. Naturally, the imports that could be trusted the most will probably be the ones from plants that Chinese cement producers have built themselves overseas. As waste importers into China found out previously, relying heavily on one market with strong state controls carries considerable risks. Cement exporters in South-East Asia take note.

Holcim Schweiz hit a milestone recently with the aerial drone programme at its Siggenthal cement plant. The project with Voliro, a Switzerland-based technology start-up, has started to use multi-rotor drones to conduct official measurement flights. They used them to take measurements to determine the steel wall thicknesses of the cement kiln and the cyclone preheater. The work has been part of Holcim’s ‘Plants of Tomorrow’ industrial automation plan with unmanned aerial vehicles (UAV). Key features of the particular drones being used are that they can be rotated around all axes by a special rotor system and can even fly upside down.

Holcim has been using drones in and around cement plants for a few years now. When it launched the Plants of Tomorrow plan in 2019, Switzerland-based drone supplier Flyability said that the cement company had chosen its Elios 2 model to perform confined space inspection. Earlier in 2017 another supplier, SenseFly, said that LafargeHolcim Tanzania had been using its fixed-wing products. Holcim is also far from alone in its use of drones. A few examples among many include Cemex USA’s work with Kespry earlier in 2021, HeidelbergCement’s work in North America and Germany in 2020 and 2021 and Votorantim’s testing at its Córdoba and Niebla plants in Spain back in late 2015. 

UAV usage by armed forces dates back to examples like unmanned incendiary balloons being deployed in the 19^th century to Azerbaijan’s reported decisive use of drones in its war against Armenia in late 2020. The current era of industrial UAVs began after 2000 when governments starting issuing civilian permits, miniaturisation occurred and improvements in cameras, sensors and computing power followed. For the mineral processing sector the trend started with drones being used for stockpile management and quarry surveying. At present this is the main area that UAVs are used for by the sector, often coupled with photogrammetry techniques. CalPortland’s Adam Chapman’s paper at the 2021 IEEE-IAS/PCA Virtual Cement Conference described one company’s use of UAVs in the cement industry since 2016, looking at licensing, cost, quality of data, drone technology, fleet management and field experiences.

More recently though, tests of drones used to survey cement plant buildings and structures have started being publicised such as Holcim’s work at Siggenthal. A presentation by consultant John Kline and Chris Place of Exelon Clearsight summarised the use of drones for structural inspection at cement plants at the Global CemProducer 3 webinar in January 2021. The key benefits they promoted of using an UAV in this way were: improved safety because workers have reduced risk from climbing, working at height or in confined spaces; less time to conduct a survey; higher resolution photographs and video; better coverage through grid method surveying; and an overall lower cost. However, on that last point, other commentators have noted that market-leading drones for surveying are relatively expensive and easy to damage. Drones have since been used to start going inside structures at cement plants with Kline demonstrating their use to inspect the condition of refractory within the cooler, kiln, pre-heater and cyclone of a production line at the Global CemProducer 2 webinar in July 2020. HeidelbergCement has also been doing similar things, with an inspection trial using a drone of the kiln at the Schelklingen plant in Germany during the 2021 maintenance shutdown period at the site.

So far the use of drones by the cement industry has mostly been in a surveying or inspection capacity. Given the short time that UAVs have been used like this there is likely to be scope for lots more development both within existing fields and new ones as the sector works out how best the technology can be used. One application we couldn’t find in the research for this short article was the use of drones for security and surveillance tasks at cement plants and quarries although this may be happening already. However, there could be a more active role for drones if or when a company finds a way for them to start making basic repairs or carrying out simple maintenance in those hard to reach areas that drones excel at accessing. Research examples exist of UAVs being used to spray concrete or repair materials onto minor defects in concrete structures. Yet considerable challenges face these kinds of applications such as the weight of a loaded multi-rotor drone or damage from rebound. Before we all get too worried about drones replacing our jobs though it is worth considering that Amazon’s plan to deliver packages by UAV was first announced in 2013 and it still hasn’t happened yet. It may yet, but for now in most situations humans remain cheaper and more practical than robots or drones.

Our latest look at South America starts by posing the question: how far can the market in Brazil keep growing? As Graph 1 shows below, cement sales skyrocketed through the coronavirus pandemic, due to a general recovery locally that started in 2018 and relatively weak lockdown measures compared to other countries. Rolling annual totals on a monthly basis from the National Cement Industry Association (SNIC) suggest that this growth period tailed off from May 2021. SNIC was also keen to point out that, despite nearly hitting nearly a 20% growth rate at one point, the sector was still 11% behind where it was before the lull that lasted from 2015 to 2018. As ever the association has an eye on potential risks. At present these include legislative reforms, price inflation and carbon pricing. It noted that Mexico, Colombia, Chile and Argentina all price carbon already but said that the country ‘has a great ally in the Brazilian cement industry’ on the issue.

Elsewhere the big story in Brazil has been the ongoing sale of Holcim’s local assets. The latest news at the start of August 2021 was that the bidders included CSN Cimentos, Cimentos Mizu, Cimento Apodi, InterCement and Votorantim. The first three companies were reportedly working in a consortium in an attempt to buy 10 production plants while InterCement and Votorantim were focusing on smaller bids to avoid the ire of the competition regulators. Aside from this, CSN Cimentos agreed to buy Cimento Elizabeth for US$220m in July 2021 and Companhia Nacional de Cimento (CNC), part of Italy-based Buzzi Unicem’s 50% subsidiary BCPAR, acquired CRH Brasil following approval by the regulators. Of note on the production side, Votorantim Cimentos started operation of a new production line at its Pecém grinding plant in Ceará in July 2021.

Graph 1: Cement sales in selected South American countries in first half of year, 2019 – 2021. Source: Local cement associations and national statistics offices.

Over in Peru the now familiar gap-tooth pattern of stunted growth in 2020 can be seen in the sector’s cement sales, but sales rebounded far stronger than comparable sized markets in Argentina and Colombia. Sales nearly doubled to 6.42Mt in the first half of 2021 from 3.33Mt in the same period in 2020 and were significantly higher than the 4.94Mt recorded in the first half of 2020. Imports are also worth watching. Combined cement and clinker importers nearly doubled from 0.76Mt in the first half of 2019 to 1.4Mt in the first half of 2021. Clinker imports made up about two thirds of this figure and the Association of Cement Producers (ASOCEM) noted in June 2021 that 88% of the imported cement came from Vietnam while about two thirds of the clinker came from Japan and Indonesia.

Away from the market data, both Cementos Pacasmayo’s and Unión Andina de Cementos’ (UNACEM) financial results bounced back in the first half of 2021. Cementos Pacasmayo attributed the rebound to sales of bagged cement to the self-construction sector and public sector reconstruction demand. UNACEM also noted the effect of the self-construction sector and said it expected its ‘solid’ cement despatches to continue for the rest of the year despite the risk of a third wave of coronavirus in the country and the messy presidential elections. Other stories of note so far in 2021 include new developments in Cementos Interoceanicos long-held plans to build a 1.0Mt/yr cement plant in Puno and a major upgrade planned to Yura’s integrated plant in Arequipa.

In Colombia local cement despatches grew by 34% year-on-year to 6.20Mt in the first half of 2021 from 4.61Mt in the same period in 2020. Cementos Argos reported major improvements in sales, sales volumes of cement and earnings due to the lockdown in 2020. However, a national wave of protests calling for social reform that started in the spring of 2012 forced the company to shut down its integrated Yumbo plant for over a month. This represented 18% of its national sales. The output of other plants in the country was also negatively affected by roadblocks created by the unrest. Cemex reported the same problems in the country.

Finally, Argentina’s cement despatches rose by 44% to 5.52Mt in the first half of 2021 from 3.83Mt in the same period in 2020. Loma Negra reported that its sales, sales volumes and earnings were all up by a similar rate. The subsidiary of Brazil-based InterCement started up the kiln on its new 2.7Mt/yr production line at the L’Amalí cement plant in Olavarría in June 2021 and commissioning of the new mill and despatch centre on the line were reportedly coming soon in early August 2021. Earlier in the year, in May 2021, Holcim Argentina inaugurated a new 0.5Mt/yr clinker production line at its Malagueño cement plant in Cordoba. These expansion projects were ordered long before coronavirus appeared so it will take a while to see their effects upon the local market. However, the government intervened in June 2021 when it persuaded some building materials producers to agree to reference prices in a bid to curb mounting inflation.

This is what recovery looks like so far in 2021 in the larger cement producing countries in South America. The Brazilian market’s growth phase may be waning after a furious period that even coronavirus wasn’t allowed to slow. Peru’s potential seems set to take off, Colombia’s rebound should have been greater (but it was dented by social unrest) and Argentina seems to be resetting to its usual level. Whatever else happens in the coming months the story to watch going forward will be which company picks up Holcim’s assets in Brazil.

Dalmia Bharat managing director Puneet Dalmia characterised India’s cement industry as one of ‘many regions and many players’ in an interview on 10 August 2021. It is equally an industry of many plants – which are seemingly larger and more numerous by the week.

On 9 August 2021, Orient Cement announced an investment of US$215m to increase its Devapur, Telangana, cement plant’s capacity by 53% to 11.5Mt/yr from 7.5Mt/yr. Another Southeast Indian producer, Ramco Cements, plans to invest a total of US$135m in upgrades in the 2022 financial year; it completed US$53.9m (40%) of the planned investments in the first quarter alone. NCL Industries is planning a US$13.5m expansion of its 2.7Mt/yr Mattapalli, Telangana, cement plant by 33% to 3.6Mt/yr and the establishment of a new 0.66Mt/yr grinding plant at nearby Anakapalle for US$26.9m by 2022. Thus, a single state has at least 5.56Mt/yr-worth of new capacity in the pipeline with US$337m-worth of pending investments. If the central government grants the Telangana government’s 6 August 2021 request to reopen Cement Corporation of India’s Adilabad cement plant in the state, this will be joined by a further 4.0Mt/yr of ‘old’ capacity.

Nationally, investments in on-going cement plant projects total US$1.81bn. What is remarkable here is the continued drive to expand despite existing overcapacity. Puneet Dalmia estimates that Indian capacity utilisation will be 70% in 2021. Despite this, his company plans to increase its installed capacity by 17% to 36.0Mt/yr in the (current) 2022 financial year and by 57% to 48.5Mt/yr with the realisation of all on-going projects by the 2024 financial year, from 30.8Mt in August 2021. By 2030, the group aims to more than triple its installed capacity to over 110Mt/yr. Dalmia says that, if it is to achieve this, it will be not as another South and East Indian regional company, but a ‘pan-India, pure play cement producer.’

Dalmia’s confidence is founded on the belief that overcapacity will abate. His assurance is more than just that of an investor: when, in July 2021, the Department for Promotion of Industry and Internal Trade established an advisory body, the Cement Industry Development Council (CIDC), to help tackle the oversupply issue, it appointed him as chair. Puneet Dalmia predicts that capacity utilisation will rise to 85% ‘within a few years’. Consolidation is key: over the same hazily defined time period, the top five producers’ 57% share of the cement market will rise to 65%, he believes. Rising fuel costs and restrictive limestone mining licencing will deter would-be cement plant start-ups; anticipated carbon costs should clear away a lot of old wood.

Demand is the other half of the coin in India’s attempt to pitch market forces against overcapacity. In the first quarter of the 2022 financial year, cement demand fell by an estimated 20% amid the Covid-19-led collapse of rural housing’s bagged cement uptake. This type of sales roughly accounts for a third of Indian cement consumption. Other construction segments have proved more resilient. Prime Minister Narendra Modi’s government, never infrastructure-shy, chose to resume national projects after India’s Covid-19 lockdown ended on 10 May 2020, keeping them running through subsequent waves of the pandemic. The National Highways Authority of India (NHAI) continued with 480 projects covering 25,000km of road. In Andhra Pradesh, the state government is building 122,000 new homes. Cement producers have been able to corner pent-up demand to shift their stock at a generous margin.

The Confederation of Real Estate Developers' Associations of India (CREDAI) claimed on 9 August 2021 that the price of cement is hampering the realisation of affordable housing targets, and lobbied the government to reduce the goods and services tax on cement to 18% from 28%. In parts of the country, state governments have taken the matter into their own hands. The Kerala government set out to take over 25% of the Keralan cement industry on 5 July 2021. Its plan: increasing cement production, a policy which it is already implementing via state-owned Malabar Cements and Travancore Cements.

Puneet Dalmia claimed on 10 August 2021 that India’s per-capita cement demand is 200kg/yr, corresponding to a total national demand of 276Mt/yr and 60% below the purported global average of 500kg/yr. Given India’s development trajectory, growth is nearly inevitable. Puneet Dalmia is unequivocal in his medium-term prediction: Indian cement revenues will rise at a rate of 9–10% per annum, outstripping forecast gross domestic product (GDP) growth by 2%.

Indian cement’s tale of rebound and growth is borne out in the latest financial reports. UltraTech Cement’s first-quarter sales in the 2021 financial year were US$1.59bn, up by 54% year-on-year from US$1.03bn in the first quarter of the 2020 financial year. Its cement sales rose by 47% in the period to 21.5Mt from 14.6Mt. In its 2021 first-half report, Ambuja Cements recorded year-on-year sales growth of 41%, to US$930m from US$659m, and cement sales growth of 36% to 13.5Mt from 9.95Mt. This is echoed both in the other Indian producers’ reports and internationally: France-based Vicat named India alongside its home country as an area of particular sales growth in the first half of 2021, especially in the second quarter.

The UN Intergovernmental Panel on Climate Change’s demonstration of the impacts of human activity on the climate in a report published on 9 August 2021 might lead an observer to ask “What’s the good?” in all this growth. In the face of the immense benefits cement offers to the lives of Indians, a more pertinent question would be “How best can growth happen?” Ambuja Cement’s aforementioned plan to grind clinker with fly ash is a step in the right direction. Another is Vedanta Aluminium’s proposed fly ash and bauxite residue supply deal, for which it is seeking a cement industry partner. The new Cement Industry Development Council’s remit extends to the coordination of the sector’s efforts towards maximising efficiency and eliminating waste. ACC and Ambuja Cements are participating in parent company Holcim’s Plants of Tomorrow programme, which aims to increase the efficiency of cement production through better plant optimisation, higher plant availability and a safer working environment. Dalmia Bharat has a goal of net zero CO2 cement production by 2040, and a plan for getting there.

Pan-Indian producers are on the rise. Big companies desperate to modernise and implement their models of sustainable growth are blazing a trail. The size gains will be a national marvel - if the promises of sustainability are realised. What will be lost is the Indian cement industry’s festival of local and regional producers. Though still an industry of many regions and many players, its regions are increasingly close together, its players increasingly few.