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Cement short cuts
Written by David Perilli, Global Cement
14 October 2020
There’s no single theme this week, just a few news stories of note that may have wider significance.
Firstly comes the news that Semen Indonesia subsidiary Semen Padang has been exporting 25,000t of cement to Australia. This follows a consignment of 35,000t of clinker to Bangladesh. The company is hoping to hit a cement and clinker export target of 1.58Mt in 2020 in spite of the on-going coronavirus pandemic. It reached 1.09Mt (about 70%) of this by mid-September 2020 through exports to Bangladesh, Myanmar, Philippines, Australia, Sri Lanka and Maldives.
The wider picture here is that local sales in Indonesia fell by 7.7% year-on-year to 27.2Mt in the first half of 2020 from 29.4Mt in the same period in 2019, according to data from the Indonesian Cement Association (ASI). Cement and clinker exports are up by 32.8% to 3.7Mt from 2.8Mt. Semen Indonesia’s revenue is down but it has managed to hold its earnings up so far. During press rounds in late August 2020 its marketing and supply chain director, Adi Munandir, told local press that he expected domestic demand to fall by up to 15% in 2020 due to effects of coronavirus on private construction and government infrastructure plans. Analysts reckon that the worst of the demand slump hit in the second quarter of 2020 when government-related coronavirus restrictions were implemented, so Semen Indonesia’s third quarter results will closely scrutinised.
One of Semen Padang export targets is the Maldives. This chimes with another story this week because Oman-based Raysut Cement has just bought a majority stake in a cement terminal from Lafarge Maldives for US$8m. The 9000t capacity Thilafusi cement terminal is located on the island of Thilafusi, Kaafu and was expanded in 2015. Raysut Cement has tended to stick to markets in the southern Arabian Peninsula and the east coast of Africa, with projects planned in Madagascar and Somaliland. Yet expansion plans in places further away such as India and Georgia have also been mentioned publicly. A greater presence in the Maldives is a solid step towards Raysut heading eastwards. This would also mirror the plans of the country’s gypsum sector to dominate African and Asian markets and a general longer term shift in global markets from west to east.
One place west that has been doing well in cement though is Brazil. National Cement Industry Union (SNIC) data for September 2020 show a 21% year-on-year boom in cement sales to 5.8Mt and a 9.4% year-on-year increase to 44.6Mt for the first nine months of 2020. Earlier in the year the country’s limited coronavirus suppression methods were attributed for letting the recovering cement sector grow. Now, SNIC has directly thanked government support for civil construction. However, Paulo Camillo Penna, the president of SNIC said. “The results are surprising so far, but that doesn't give us security in the long run,” due to a bubble of real estate and commercial activity that already appears to be declining. Given the slump in cement demand from 2015 to 2018 it’s understandable that SNIC is taking the recovery cautiously.
And to finish we have two connected stories about Cemex. Following the release of its resilience strategy in September 2020, the company has now declared that its integrated Rüdersdorf cement plant in Germany will be the centrepiece of its CO2 reduction plans as part of ‘Vision Rüdersdorf.’ Details are light at present but we expect some kind of carbon capture and storage or usage project. An addendum to this – or perhaps it’s the other way round (!) – is that Cemex has also just announced further credit amendments but with sustainability-linked metrics. Cemex’s chief financial officer (CFO) Maher Al-Haffar said, “We are especially proud that this transaction represents one of the largest sustainability-linked loans in the world.” The teeth of this arrangement remain to be seen but the integration of finance and sustainability has serious implications generally.
Watch out for a research and development themed interview with Cemex and Synhelion in the December 2020 issue of Global Cement Magazine
Çimsa targets white cement
Written by David Perilli, Global Cement
07 October 2020
Çimsa and its parent company Sabancı Holding renewed their ambition to become a global leader in the global white cement market this week with the formation of Cimsa Sabanci Cement. The new subsidiary brings together most of Çimsa’s international white cement companies including Cimsa Americas Cement Manufacturing and Sales Corporation in the US, Cimsa Cement Sales North in Germany, Cimsa Cementos Espana in Spain and Cimsa Adriatico in Italy. Notably, the new entity does not include businesses in Romania and Russia or at home in Turkey. The move coincides with regulatory approval from the Comisión Nacional de los Mercados y la Competencia (CNMC) for Çimsa’s purchase of Cemex’s white cement business in Spain, including its integrated Buñol white cement plant, for around US$180m, which was first announced in March 2019.
The acquisition in Spain came with conditions though since Çimsa has now become the market leader in both bagged and bulk white cement locally, with a combined share of over 50% in the case of bulk white cement. Firstly, Çimsa has agreed to give Cementos Molins the rights to use its silo in Alicante along with a customer list over the last three years. Secondly, it has agreed to supply all its customers previously supplied from a silo in Seville from one in Motril instead for two years. The Motril terminal was purchased from Cemex. The idea here is to give Cementos Molins time to establish itself in the new market and for customers in the south of Spain to find alternative white cement suppliers if they want to. The latter condition was enough for the CNMC to approve the Cemex purchase in Spain. It was proposed on 24 September 2020 and then approved by the end of the month.
The wider picture is that Çimsa has been playing up its ambitions in white cement for a while now. At the time that the acquisition in Spain was announced, Tamer Saka, the president of Sabancı Holding Cement Group and chairman of Çimsa said, “With the integration of the Buñol white cement plant to our production and distribution networks, we will increase our white cement production capacity by 40%, translating into Çimsa becoming the world's largest white cement company.” This compares to Cementir’s self-declared world share of around 27% white cement production capacity, through its Aalborg White brand and others. Other recent developments at Çimsa include the commissioning of a 0.35Mt/yr white cement grinding plant in Houston, Texas by Cimsa Americas Cement Manufacturing and Sales Corporation in July 2019 with commercial sales starting later that year.
Back home in Turkey the domestic grey cement industry has faced difficulties in the last few years as the economy suffered, the capacity utilisation rate fell, competition increased in export markets and then coronavirus-related lockdowns caused further stress this year. By contrast the world white cement market has remained quite buoyant over the last decade, rising by around 7% year-on-year to 21Mt in 2018 and then remaining at a similar level in 2019.
HeidelbergCement memorably described white cement as a “niche product” when it left the scene in 2018 by selling its remaining shares in Lehigh White Cement in the US to Cementir. It has faced problems of its own this week with the decision by the European General Court (EGC) to uphold the European Commission’s (EC) previous ruling in 2017 to block a proposed takeover of Cemex Croatia by HeidelbergCement and Schwenk Zement. Funnily enough, that acquisition also revolved around a cement terminal. In this case the EC didn’t think that the offer by the potential buyers to grant access to a cement terminal in Metković in southern Croatia would be enough to assuage concerns about reduced competition following the transaction. Some you win, some you lose.
Update on Egypt: September 2020
Written by David Perilli, Global Cement
30 September 2020
The one thing that the Egyptian cement industry really didn’t need this year was any more jolts. Since the gargantuan 13Mt/yr government/army-run El-Arish Cement plant at Beni Suef opened in 2018, the sector has been stuck in production overcapacity and struggling to catch up. Yet, like the rest of us, they got one nasty surprise in the shape of the coronavirus pandemic. This has added stress to the whole situation and we can see some of this in various news stories that Global Cement has covered recently.
HeidelbergCement’s local subsidiary Suez Cement has been busy in recent days making changes to its corporate structure in the form of a tender offer to buy a 100% stake in Egyptian Tourah Portland Cement. Production stopped at Tourah Cement in June 2019 due to market conditions. This follows yet more lacklustre financial results earlier in September 2020 that show the pain that it and other cement producers have been enduring. Suez Cement’s loss nearly doubled year-on-year to Euro38m for the first half of 2020 and its sales fell by 18% to Euro145m. This was blamed on production overcapacity and a coronavirus-related lockdown. Other producers, both multinational and local, have experienced a similar situation.
Suez Cement also announced in mid-September 2020 that its Ready Mix Beton subsidiary had secured a contract for the supply of concrete for the construction of two new monorail lines connecting the country’s new city projects. Unfortunately, as Suez Cement’s chief executive officer (CEO) Jose Maria Magrina explained in an interview to Daily Egypt News in July 2020, “the New Administrative Capital (NAC) is a very big project, but in the end it has not offset the decrease in informal buildings that have been stopped.” Despite Suez Cement being a major supplier and the proximity of its plants to the site, overall sales have gone down.
Graph 1: Cement consumption in Egypt. Source: Cement Division of the Building Materials Chamber of the Federation of Egyptian Industries.
Magrina’s gloom is shared by other industry figures with a general assumption that perhaps up to a quarter of the country’s 20-something cement plants may have to close in the next year or so. Coronavirus has only deepened this view as the government’s response was to cease issuing construction licences for private buildings in Greater Cairo, governorate capitals and major cities from late May 2020 for six months. Solomon Baumgartner Aviles, the CEO of Lafarge Egypt, said in July 2020 that local cement demand fell by 6.5% year-on-year in the first half of 2020. He added that coronavirus had ‘strongly’ impacted the building materials sector with a big effect on the individual market, and with the licence halting exacerbating the situation further. As data from the Cement Division of the Building Materials Chamber of the Federation of Egyptian Industries shows above in Graph 1 demand peaked at 56.5Mt in 2016 and has since declined to a low of 48Mt in 2019. By month the sector recovered in January and February 2020 respectively with growing cement sales on a year-on-year basis but this has since declined with losses in most months subsequently. This is set against a production capacity of 81.2Mt/yr in 2018, giving an excess of 30Mt/yr and a utilisation rate of 59%.
One story that was mentioned in the local press this week is that Arabian Cement Company (ACC) had started negotiations with the European Bank for Reconstruction and Development and the Commercial International Bank – Egypt to secure new loans worth over US$20m. The ACC has denied this publicly in a statement to the Egyptian Exchange but it’s a sign of the trouble that is expected in the sector given the current circumstances.
All of this leaves cement producers scrabbling to hold on until the market picks up again, takes action in other ways or the government intervenes. Some analysts expect the market to stabilise in the medium to longer term as work on large infrastructure projects like the NAC mounts. Suez Cement’s Jose Maria Magrina has said that, “the government must, within the law, dictate norms that will rationalise the market, while making sure that companies survive since current prices do not cover the costs of production.” Local press has since reported that the Ministry of Trade and Industry has started trying to help cement companies, including measures such as limiting production to balance supply and demand, and decrease the surplus in the market. Another option is a coordinated export subsidy programme in coordination with the government but nothing appears to have happened yet after several years of discussion. Unhelpfully for any export aspirations, Egypt finds itself in a very cement export-heavy part of the world, wedged as it is between North Africa, Turkey and Southern Europe.
Hope springs eternal though as, almost unbelievably, Egyptian Cement Group’s CEO Ahmed Abou Hashima surfaced last week to remind everyone that his company still plans to inaugurate its new integrated cement plant in 2021. The project to build a new 2Mt/yr unit in Sohag has been brewing since 2017 when it was announced with China-based Sinoma on board as the engineering partner. It was originally scheduled to open in the first half of 2020 but it was delayed by coronavirus. Let’s hope the picture looks better when it finally opens.
The race to zero
Written by David Perilli, Global Cement
23 September 2020
Cemex last week. HeidelbergCement and LafargeHolcim this week. China yesterday. One can’t seem to move for major building materials companies (or their owners) issuing carbon neutral strategies at the moment. This week HeidelbergCement first launched its ‘Beyond 2020’ plan, a mixture of financial, portfolio and sustainability goals. Then, LafargeHolcim said that it had signed a pledge with Science-Based Targets (SBT) towards meeting intermediate targets by 2030. Last night, President Xi Jinping told the United Nations (UN) General Assembly in New York that China was aiming to hit peak emissions before 2030 and carbon neutrality by 2060.
The timing of these various sustainability goals are directly or indirectly linked to Climate Week NYC, a notable annual event on the climate change calendar that is taking place at the moment. So it’s a good time for large-scale industrial CO2 emitters, like building material producers, to have something positive to say.
China’s announcement steals the limelight given that the country produces around half of the world’s cement and holds a higher share of clinker production capacity. Western media has pointed out the geopolitical implications of Xi’s statement that was delivered shortly after a speech by US president Donald Trump, a notable climate change sceptic. Xi’s speech didn’t contain any details so it may simply have been an attempt to demonstrate global leadership. Yet if the Chinese government makes a go of it, the effect could be profound. Data from the Centre for International Climate and Environmental Research (CICERO) shows that the Chinese cement industry emitted an estimated 782Mt CO2 in 2018 compared to 1.50Gt CO2 from the cement industry globally and 37.1Gt CO2 from all human-related sources. In other words, the Chinese cement industry was responsible for 2% of all CO2 emissions in 2018. And this industry is mostly owned by a government that has just publicly declared a carbon neutral target.
In some ways the other announcements, by the western-based multinational building material companies, are even more radical since these producers are subject to market forces. These companies don’t have to do this. They also contain more specifics than Xi’s words so far.
HeidelbergCement says it has brought forward its CO2 emissions target for 2030 of 525kg CO2/t (specific net CO2 emissions per tonne of cementitious material) to 2025. That’s a 30% decrease from 752kg CO2/t in 1990. Its new goal for 2030 is below 500kg CO2/t. The main emission reduction methods it outlines include: increased use of alternative raw materials and fuels; increased use of secondary cementitious materials to reduce the clinker factor of cement; investment in plant efficiency and CO2 reduction at the plant level; and increased share of low-carbon concrete products.
Chart 1: HeidelbergCement’s path to net carbon zero concrete: Source: Leading the way to carbon neutrality, HeidelbergCement.
Chart 1 above outlines HeidelbergCement’s thinking post-2030 with further reductions to CO2 emissions mainly achieved through circular economy methods and different carbon capture techniques. Two points to hold in mind here. One: note the current uncertainty about which route will provide the biggest share of the reduction. Two: this chart considers concrete, not cement.
LafargeHolcim’s announcement was that it has joined Science Based Targets initiative (SBTi) ‘Business Ambition for 1.5°C.’ It says that by doing so it has become the first global building materials company to sign the pledge with intermediate targets for 2030, validated by SBTi. This is slightly confusing given that other building materials companies have had different dealings with the SBT as it has worked towards its current scheme. Earlier this month, for example, we reported that Taiwan Cement had started an SBT project in 2019 and had some targets approved by the SBTi in June 2020. Grupo Cementos de Chihuahua (GCC) said it was joining SBTi at the start of 2020 and HeidelbergCement reported its SBTi approved targets in mid-2019. Finally, India-based Dalmia Cement is also on the SBTi ‘Business Ambition for 1.5°C’ list but it is a stretch to describe it as a ‘global’ company.
The core of LafargeHolcim’s statement is a further reduced target for CO2 intensity in cement of 475kg CO2/t by 2030. So far it’s decreased its CO2 intensity by around 23% to 516 kg CO2/t in 2019 from ~730kg CO2/t in 1990. There’s less looking ahead after 2030 compared to HeidelbergCement but the measures outlined until then include: more use of low-carbon and carbon-neutral products; increased use of alternative raw materials and fuels; doubling waste-derived fuels in production to reach 37%; greater use of calcined clay and developing novel cements with new binders; and operating the company’s first net zero CO2 cement production facility.
Many of the various networks and initiatives across the climate action community came together in June 2020 as part of the UN backed ‘Race To Zero Campaign,’ an attempt to align the disparate leading net zero initiatives ahead of the 26th United Nations Climate Change Conference (COP), due to take place in November 2021 in Glasgow, Scotland. This swirl of different net zero schemes also partly explains the confusion over the different organisations backing sustainability targets that companies can sign up to. So it’s a good thing to see closer collaboration here.
More cynical readers will have latched on to president Xi’s opportunity to show up President Trump in the climate change action stakes. They may also prefer news stories about activist investors prompting change at shareholder-owned companies as they increase their portfolios or stories like Morgan Stanley’s announcement this week that it has a new commitment to reach net-zero financed emissions by 2050. If the investment bank actually means it and other financiers follow suit then the fiscal incentives for net zero draw closer and the rest should follow. Moneys talks… and hopefully CO2 stays buried in the ground.
For sustainability comparisons among the top global cement producers see the October 2020 issue of Global Cement Magazine
Cemex gets resilient
Written by David Perilli, Global Cement
16 September 2020
Cemex’s transition from a multinational building materials producer to a regional one continued this week with the launch of its ‘Operation Resilience’ strategy. The plan is a stew of coronavirus response, earnings growth, debt reduction, portfolio sharpening and sustainability measures. Yet the intent to “construct a portfolio more weighted towards the US and Europe” marks a public confirmation of the company’s direction in recent years.
Chart 1: Geographic breakdown of Cemex’s revenue in the first half of 2020. Source: Cemex.
This direction of travel for the company has at least two threads that can be seen in the announcements surrounding its new strategy. The first covers the geographical spread of its current portfolio of assets. European countries and the US represented a little under half of Cemex’s revenue in the first half of 2020 as can be seen in the chart above. So focussing on these territories makes sense from an existing portfolio perspective, especially if growth has continued throughout the coronavirus crisis, as is the case in the US. In the general information accompanying its new strategy it broke down revenue by business line so far in 2020 as cement (42%), concrete (41%) and aggregates (17%).
To be fair to Cemex, its decision to focus on certain geographical regions mirrors recent moves at other multinational producers like LafargeHolcim and CRH. The former (mostly) sold its operations in South-East Asia in 2018 and 2019. Albert Manifold, the chief executive officer (CEO) of the latter, memorably favoured the safe and stable earnings of investing in assets in Europe or North America over doing so in somewhere ‘more exotic’ in an earnings meeting in 2019. However, Cemex doesn’t seem overly wedded to sticking to assets in Europe and/or the US either. It recently decided to mothball its South Ferriby integrated cement plant in the UK and sold a plant owned by its Kosmos Cement subsidiary in the US earlier in the year. Fernando A González, the chief executive officer (CEO) of Cemex, confirmed this in the questions and answer session after the strategy launch on 10 September 2020. When asked whether the company was considering selling assets in Asia and Latin America he replied that Cemex was open to divestments in Latin America or in the Mediterranean or in Asia but that driving down debt was the motivator, not coronavirus.
Debt is the other factor that has been persuading Cemex to focus on the US and Europe. It has been the smell clinging to its decisions over the last decade since its poorly timed acquisition of Rinker in 2007. The company stuck out with a high debt to earnings ratio when this column looked at the state of the major cement producers as the coronavirus lockdowns started in Europe: hence all the talk of paying down debt in its ‘Operation Resilience’ strategy. The company now hopes to whittle its net leverage down to at most 3x by 2023. At the same time as this market-calming announcement, it is in the process of changing some of its credit agreements such as extending a US$1.1bn loan from 2022 to 2025. It has also priced another US$1bn worth of senior secured bonds this week in its ongoing drive to raise more funds. This reliance on loans may explain why Cemex has shrunk back towards ‘safe’ markets over the last decade.
Cemex isn’t alone in cooing out market-calming noises as the coronavirus crisis continues. Buzzi Unicem has done the same thing this week for example. Yet, these announcements are instructive because they show what’s on the minds of these companies at least, or what they think investors want them to be thinking about. In Cemex’s case it could be summarised as: make more money more efficiently, cut debt and try to factor sustainability into all of this. Note, however, that as dominance in both industry and geopolitics heads east, Cemex is sticking to the west.