Analysis

SNIC, the Brazilian national cement industry union, was being cautious this week but signs of improvement were there. Its cement sales data showed a 3% year-on-year rise to 40.5Mt for the first nine months of 2019 from 39.4Mt in the same period in 2018. SNIC President Paulo Camillo Penna was keen to pour cold water over the figures with a reminder that the truck driver’s strike and an economic slowdown in 2018 had unnaturally depressed industry sales. He didn’t want to ruin the party too much though. Comments followed about a National Confederation of Industry (CNI) survey forecasting growth for the next six months and market research supporting growing residential construction.

Graph 1: Cement sales in Brazil for Q1 – 3, 2014 – 2019. Source: SNIC.

As Graph 1 above shows the local industry has been through the wringer in recent years. Cement sales peaked in 2014 before the national economy was hit by falling commodity and oil prices that contributed to a recession as well as the Petrobras political crisis. At the start of 2017 Camillo Penna described the situation as the worst in the industry’s history. From the peak to the trough cement sales plummeted by 27%.

Camillo Penna’s caution now may have something to do with his previous prediction that the industry was going to recover from the second half of 2018. The sales may not have perked up but merger and acquisition activity did, with the European multinationals Buzzi Unicem and Vicat buying stakes in BCPAR (Grupo Ricardo Brennand) and Cimento Planalto (Ciplan) respectively. So far in 2019 it has been quietly optimistic but not without the odd hiccup. There have been a few new plant project announcements from Brennand Group, Votorantim and CSN Cimentos. Yet, InterCement converted its integrated Pedro Leopoldo plant in Minas Gerais to a terminal. Cimento Tupi reportedly ran into trouble with its investors when it tried to merge with its parent company following defaulting on loan payments in 2018. Notably, the country’s two cement associations also released a Cement Technology Roadmap to 2050 in April 2019. It plans to reduce specific CO2 emissions by over 30% from 2014 to 375kg CO2/t of cement in 2050 amongst other ambitions.

On the corporate side, Votorantim’s domestic sales rose by 3% year-on-year to US$771m in the first half of 2019 from US$745m in the same period in 2018. It attributed the growth to improved prices. Other news of note included the acquisition of a mortar plant in Belém, Pará state and plans to upgrade its clinker grinding unit at Pecém in Ceará. InterCement’s cement and clinker sales volumes rose by 6.8% to 4.04Mt from 3.78Mt. It declared that this was way ahead of the industry average of 1.5%. Sales revenue fell slightly, possibly due to high production overcapacity and competition on prices. Earnings were also reported as having improved in the second quarter partly due to a ‘significant’ reduction in its cost structure.

On the supplier side, refractory manufacturer RHI Magnesita reported that its margin recovery was ‘going quite well’ in Brazil during the first half of 2019. Stefan Borgas, RHI Magnesita’s chief executive officer (CEO) forecast that the margin in that country would help drive its business in the second half of 2019 and that the business was returning to the global average. RHI Magnesita also announced a Euro57.1m upgrade to its plant at Contagem, Belo Horizonte in Minas Gerais this week, including building a new regional headquarters for its South American business.

Everything seems to be coming together slowly for Brazil’s cement industry. Yet Camillo Penna and SNIC are right to be careful for another reason. The United Nations (UN) and various analysts are warning about the growing risk of global recession in 2020 based on indicators like the US yield curve. This could be especially devastating for an economy like Brazil’s that is heavily dependent on commodity markets. History may not repeat itself but the strength of that recovery may be tested sooner than anyone would like.

The race to find a buyer for Emami Cement heated up this week with the announcement in the local press that both LafargeHolcim and HeidelbergCement had submitted expressions of interest. The Hindu newspaper and others were also linking Nuvoco Vistas Corporation, Shree Cement and Dalmia Bharat to the sale. India’s market leader UltraTech Cement was also in talks with the company back in June 2019.

The subsidiary of Emami Group is being sold by the parent company to cut debt. Speculation on the value of Emami Cement has varied in the media from US$800m to up to US$1.26bn. This variation is possibly linked to upgrades that the company has on the way. It operates a 2.5Mt/yr integrated plant at Risda in Chhattisgarh and a 2.5Mt/yr grinding plant at Panagarh in West Bengal. It acquired a 0.6Mt/yr grinding plant at Bhabua, Bihar in 2018. This unit is being upgraded to 1.8Mt/yr. It is also yet to commission a 2.5Mt/yr grinding plant at Jaipur in Odisha. In addition, the firm has mining assets in Guntur in Andhra Pradesh and near Jaipur in Rajasthan.

Global Cement Magazine staff are attending a variety of industry events this week including the Cembureau Energy Market Prospects (CemProspects) conference in Krakow, Poland, the TÇMB International Technical Seminar in Antalya, Turkey and the European Slag Association (Euroslag) conference in Thessaloniki, Greece. Watch out for reviews of each of these either in forthcoming issues of the magazine or on the website.

Of note to India, various speakers on the first day at CemProspects were extolling the virtues of that market. The country was reported as ‘promising’ in a general review of world cement markets amongst a very mixed situation. Specifically on energy markets, Darren Malone, IHS Markit said that coal imports were ‘ahead’ so far in 2019 as US suppliers benefitted from power plants maintaining orders in an election year. Imports are growing at 7%/yr as the country’s industries need energy. In the long term his view was that India would become the world’s biggest coal importer unless domestic production increases its share. Anecdotal evidence was also raised on exporting SRF from the UK to India as cement kiln coprocessing rates slowly start to rise. This point is matched by the various Indian waste deals we’ve been noticing on our sister website Global CemFuels in recent years.

Coal markets are pertinent to the Emami Cement sales because some sources quoted in the Indian media have pointed out that the cement producer does not have any coal linkages. As such it is more vulnerable to market variations. This kind of talk is clearly part of the bargaining process but, in the wider picture, cement producers’ energy sources are critical. In the context of the Emami Cement sale, this might just determine which side of US$1bn the transaction ends up on. The sale continues.

No overarching theme this week but rather four changes of note in different markets. The first is Lehigh Hanson’s agreement to buy the integrated Bath plant in Pennsylvania, US, from Giant Cement, a subsidiary of Mexico’s Elementia. Lehigh Hanson, a subsidiary of Germany’s HeidelbergCement, plans to pay US$151m for the 1.1Mt/yr unit giving it a cost of US$137/t of cement capacity. That’s a similar price that Elementia paid when it acquired Giant Cement in 2016. The Mexican conglomerate paid US$220m for a 55% stake in 2016 for three cement plants with a combined production capacity of 2.8Mt/yr or US$143/t.

The purchase by HeidelbergCement draws a line following problems selling its business activities in Ukraine. The group blamed a drop in profit in the first half of 2019 on this. Since then though it has been linked to a takeover of UltraTech’s stake in Emirates Cement, the owner of the 0.5Mt/yr Emirates grinding plant in Dhaka, Bangladesh. Buying a cement plant in North America, its second most lucrative region after Western and Southern Europe, looks set to be a wise investment.

The timing here is interesting given that Elementia, the building materials company partly-owned by ‘Mexico’s richest man,’ Carlos Slim, has been steadily expanding in recent years. As stated above it only acquired Giant Cement in 2016. However, its net sales and earnings fell in the second quarter of 2019 caused by a market contraction in Mexico affecting all of its businesses. Sales from its cement businesses in the US and Central America grew but they fell by 6% at home in Mexico. Elementia said that proceeds from the sale of the Bath plant will be used for debt repayment and ‘general’ corporate purposes. Notably, Ricardo Naya Barba, the president of Cemex Mexico, has also described the local market as ‘difficult’ this week, in comments reported upon by local media.

Meanwhile in Africa, China’s Huaxin Cement purchased Maweni Limestone from Athi River Mining (ARM) Cement in Tanzania as part of the latter’s on-going administration process. Local press reported the transaction as costing US$116m and subject to regulatory approval. This one’s interesting because it shows a major Chinese cement producer buying related assets outside of China. This is likely part of the country’s Belt and Road Initiative to develop industry and infrastructure around the world and to give its overproducing industries new markets. Perhaps the surprise here is that Huaxin Cement hasn’t gone after the rest of Kenya’s ARM Cement… yet.

The other African news story of note this week was the confirmation that Singapore’s International Cement Group (ICG)’s intended purchase of Schwenk Namibia had failed. This deal was announced in March 2019 but it later ran into trouble when the Singapore Exchange blocked the proposed acquisition in June 2019 on the grounds that ICG didn’t appear to have the money to pay for it.

Lastly, Yamama Cement announced that it wants to sell its Production Lines 1-5, which have a daily clinker production capacity of 5600t/day. The producer previously temporarily shut down the lines in 2017 and it has been planning to build a new cement plant. Since then though it has faced shrinking sales and profits in the tough Saudi Arabian market.

The takeaway from all of this is that, despite the doom and gloom of a world producing too much clinker, some cement companies are targeting growth in specific territories. Sometimes these schemes succeed, as in the case of HeidelbergCement and Huaxin Cement, and sometimes they don’t, as ICG has found out. Heavy building materials like cement are costly to move around so a plant or assets in the right place at the right time can make a fortune.

Dalmia Cement threw down the gauntlet this week with the announcement of a large-scale carbon capture unit (CCU) at one of its plants in Tamil Nadu, India. An agreement has been signed with UK-based Carbon Clean Solutions Limited (CCSL) to use its technology in building a 0.5Mt/yr CCU. The partnership will explore how CO₂ from the plant can be used, including direct sales to other industries and using the CO₂ as a precursor in manufacturing chemicals. No exact completion date or budget has been disclosed.

The move is a serious declaration of intent from the Indian cement producer towards its aim of becoming carbon neutral by 2040. Dalmia has been pushing its sustainability ‘journey’ for several years now hitting targets such as reaching 6Mt of alternative raw materials usage in its 2018 financial year and reaching a clinker factor of 63% at the same time. In an article in the November 2018 issue of Global Cement Magazine it said it had achieved CO₂ emissions of 526kg/t from its cement production compared to 578kg/t from other Indian members of the Cement Sustainability Initiative (CSI). In its eastern operations it had gone further to reach 400kg/t.

Using CCU is the next step to this progression but Dalmia’s approach is not without its caveats. Firstly, despite the size of the proposed project it is still being described as a ‘large-scale demonstration.’ Secondly, the destination of all that captured CO₂, as mentioned above, is still being considered. CCSL uses a post-combustion capture method that captures flue gas CO₂ and then combines the use of a proprietary solvent with a heat integration step. Where the capture CO₂ goes is vital because if it can’t be sold or utilised in some other way then it needs to be stored, putting up the price. Technology provider CCSL reckons that its CDRMax process has a CO₂ capture price tag of US$40/t but it is unclear whether this includes utilisation sales of CO₂ or not.

The process is along similar lines to the Skyonic SkyMine (see Global Cement Magazine, May 2015) CCU that was completed in 2015 at the Capitol Cement plant in San Antonio, Texas in the US. However, that post-combustion capture project was aiming for 75,000t/yr of CO₂. Dalmia and CCSL’s attempt is six times greater.

Meanwhile, Cembureau, the European cement association, joined a group of industrial organisations in lobbying the European Union (EU) on the Horizon Europe programme. It wants the budget to be raised to at least Euro120m with at least 60% to be dedicated to the ‘Global Challenges and European Industrial Competitiveness’ pillar. This is relevant in a discussion on industrial CO₂ emissions reduction because the scheme has been supporting various European cement industry projects, including HeidelbergCement’s work with the Low Emissions Intensity Lime And Cement (LEILAC) consortium and Calix at its Lixhe plant in Belgium and its pilots in Norway. As these projects and others reach industrial scale testing they need this money.

These recent developments provide hope for the future of the cement industry. Producers and their associations are engaging with the climate change agenda and taking action. Legislators and governments need to work with the cement sector to speed up this process and ensure that the industry is able to cut its CO₂ emissions while continuing to manufacture the materials necessary to build things. Projects like this latest from Dalmia Cement are overdue, but are very encouraging.

Pradeep Paunrana’s latest attempt to wrest back control of ARM Cement was dismissed this week in Kenya. Administrators PricewaterhouseCoopers rejected a US$12.5m guarantee to stop the sale to a rival, according to Business Daily newspaper. Paunrana, the former managing director and majority shareholder of ARM Cement, had teamed up with Rai Group to thwart a rival bid for his company from National Cement.

The guarantee was a 20% portion of a full bid of US$63m by Paunrana and Rai Group but the administrators rejected it on the grounds that it had a nine-month time limit. They were reportedly concerned that legal proceedings over ownership of the cement producer could last beyond this. A deal to sell ARM Cement to National Cement for US$50m was agreed in May 2019. However, Paunrana fought back and the courts are expected to deliberate over the issue for some time.

ARM Cement entered administration in August 2018 following a growing loss in 2017 and poor markets in Kenya and Tanzania. At the time the cement producer blamed its poor performance on elections in Kenya causing reduced cement demand, a coal import ban in Tanzania causing production issues at its Tanga cement plant and increased competition in both countries.

The implications of National Cement actually succeeding in its bid for ARM Cement would mean a realignment of the local industry. LafargeHolcim’s subsidiary Bamburi Cement leads the sector by production capacity and market share. It operates one integrated and one grinding plant. Mombassa Cement and then a variety of smaller companies, trail it.

The Devki Group-backed National Cement has steadily been expanding in recent years. In April 2018 it was announced that the International Finance Corporation (IFC) was going to invest US$96m in National Cement and that Devki Group chairman Narendra Raval was going to commit a similar sum towards a new integrated line in Kenya and two new grinding plants in Kenya and Tanzania. More recently it acquired the long-running Cemtech plant project in West Pokot, along with its mineral deposits and licences. If it were able to successfully buy ARM Cement it would become Kenya’s second largest cement producer by market share.

ARM Cement is not the only Kenyan cement producer facing these kinds of problems. The Kenyan government is the majority shareholder East Africa Portland Cement Company (EAPCC) and it has been working on a rescue package for it since early 2019. The local market had similarly negatively affected the EAPCC’s financial performance and it has been attempting to cut its debts. In its case, it has been trying to sell land to pay off its debts but it has faced disputes with local residents. It has also tried reducing its workforce, with varying degrees of success. Its integrated plant at Athi River near Nairobi was reported to be operating at a 50% capacity utilisation rate in late 2018.

Table 1: Cement production in Kenya, 2015 – 2019. Source: Kenya National Bureau of Statistics (KNBS).

Overall cement production in Kenya peaked at 6.7Mt in 2016 and has fallen since. It fell by 2.8% year-on-year to 2.9Mt in the first half of 2019 from 3Mt in the same period in 2018. Consumption fell by a similar amount to production in the first quarter of 2019. Analysts like Knight Frank have blamed this on a slowdown in the real estate market, although it holds up hope for government house building scheme to rescue the situation.

In this kind of market it is understandable that the cement market is rationalising. The World Bank has forecast gross domestic product (GDP) growth of 5.8% in 2019 and better in the years ahead. Whoever is left in the cement business once the corporate dust settles stands to benefit.