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Finding a place for slag – review of EuroSlag 2017
Written by David Perilli, Global Cement
18 October 2017
Putting two speakers from the European Commission front and centre at the start of this year’s European Slag Association Conference (EuroSlag) in Metz, France was always going to cause a ruck. Once Coal and Steel Research Unit head Hervé Martin and steel sector policy officer Gabriele Morgante said their pieces and the panel opened up then the verbal punches started flying. Okay, this may be slightly exaggerated, but after a bunch of policy-heavy presentations, suddenly the situation became crystal clear. Was the agricultural use of ferrous slag going to be allowed to continue? What would be the classification of the slag? And so on. One Russian delegate commented afterwards, “I thought we had environmental problems in Russia.”
Jérémie Domas, Centre Technique et de Promotion des Laitiers Sidérurgiques (CTPL) explained in a later presentation that the heart of the current debate goes back to the European Waste Framework Directive (2008/98/EC). This legislation created an ambiguity over the status of slag between classifying it, as a waste or as a by-product, that the European industry has been battling over ever since. A multi-coloured map in Aurelio Braconi of the European Steel Association’s (Eurofer) presentation depicted the disarray this has caused with the varied legal statuses of slag across Europe. To add to this, Braconi’s home country of Italy, for example, is split into designating slag as both a product and a waste. His response was to say that the ‘human factor’ was important back home for utilising slag. The European Union (EU) is now working on its Circular Economy Package, which includes revised legislative proposals on waste, and it has been consulting on various issues throughout the year. It is this process is that been making slag producers twitchy.
Other delegates on the first session’s panel provided a bit more context, with Thomas Reiche of the German Technical Association for Ferrous Slag (FEHS) saying that the waste legislation didn’t need to be changed but that public procurement laws did. Eric Seitz of the French Association of the Users of industrial By-products (AFOCO) added that slag products had been sold for decades without any problems. However, he definitely wanted ‘strong’ support from the EU on the issue.
Moving on, Craig Heidrich of the Australasian (Iron & Steel) Slag Association (ASA) provided some interesting figures in his presentation on worldwide slag production that differ from the data often reported by trading companies. Heidrich reckoned that 567Mt of slag was produced in 2015 with a breakdown of 347Mt blast furnace (BF) slag and 220Mt steel slag.
Andreas Ehrenberg of the FEHS presented research on converting electric arc furnace (EAF) slag into a hydraulic material that could be used in cement or concrete production. Given that, using Heidrich’s figures for example, about a third of ferrous slag production is steel slag often created in an EAF, the potential implications of this line of inquiry are important. Unfortunately, the main disadvantages of the original EAF slag analysed in Ehrenberg’s work compared to BF slag are the lower CaO and SiO2 contents and the higher MgO and Fe oxide contents. Laboratory-scale tests confirmed in principle the feasibility of forming clinker or ground blast furnace slag-like materials based on EAF slag. But the reduction and treatment steps in the process require a lot of effort and the economical value of the recovered metal is low. Taking the research further will require much more work on the semi-technical scale.
The other paper with particular relevance to the cement industry was Chris Poling of SCB International unveiling his company’s ground blast furnace slag (GBFS) micro-grinding mill, the Nutek Mill 2. The new mill is intended to allow slag grinding to take place in a much wider range of locations, along similar lines to the modular clinker grinding mills made by Cemengal or Gebr. Pfeiffer’s Ready2Grind line. The pilot project is being installed now in New York State, US. The mill has a GBFS capacity of 10 - 12t/hr with a target of 40 – 45kWh/t when fully optimised. Further units at the same location are planned for early 2018 with approval sought from the New York State Department of Transportation.
The 10th European Slag Conference is expected to take place in 2019. With more clarity expected from the EU on its Circular Economy Package there will be much to discuss.
Hold that cement empire!
Written by David Perilli
11 October 2017
Well it doesn’t normally happen like this. In late September 2017 Ash Grove Cement announced that it was set to be bought by Ireland’s CRH. The words it used were a ‘definitive merger agreement.’ Then suddenly this week on 5 October 2017 Ash Grove said that it had received a higher offer from an unnamed third party and that it was extending its so-called ‘window shop period.’ So much for definitive! The following day Reuters revealed that the new bid was from Summit Materials.
The on-going board machinations at LafargeHolcim and the PPC-AfriSam merger saga in South Africa show that the cement industry has its moments of boardroom high drama. Indeed, both of these long-rumbling stories have had murmurs this week with the early departure of LafargeHolcim’s finance director Ron Wirahadiraksa after less than two years and Dangote Cement’s decision to exit the ring from the PPC bidding. However, it’s rare that cement companies are publicly announced as sold and then get gazumped instead.
The Ash Grove debacle also carries a personal dimension. Ash Grove chairman Charlie Sunderland initially described CRH as his company’s biggest customer and one with a close relationship to the firm. Yet a US$300m higher bid suggests how much those ‘kind’ words were actually worth. To add insult to injury the chief executive officer (CEO) of Summit Materials, Tom Hill, used to work for CRH. This no doubt gave him an idea of how the management of CRH thinks. CRH’s public response so far has been that it has noted the extended shareholder approval period at Ash Grove.
At first glimpse Summit Materials and CRH have a similar cement production base in the US. Both companies operate two integrated plants in the country. Summit Materials runs plants at Hannibal, Missouri and Davenport, Iowa. CRH runs plants at Sumterville, Florida and Trident, Montana. Summit then has 10 cement terminals along the Mississippi River from Minnesota to Louisiana compared to CRH US’ five cement terminals in Detroit, Michigan, Cleveland, Ohio, Dundee, Michigan, Buffalo, New York and Duluth, Minnesota.
Yet, CRH also has two plants in Canada. Then the sheer scale of CRH’s other operations in North America simply dwarfs Summit’s. CRH Americas reported sales of US$16.7bn in 2016, more than 10 times higher than the US$1.6bn that Summit Materials declared. Both companies cover aggregates, asphalt, readymix concrete and cement but CRH is by far the larger of the two. So much so in fact that Summit Materials might potentially be taking on a serious amount of debt to finance the Ash Grove sale. As such any blip to the US cement market over the next few years could have serious repercussions to an overleveraged Summit Materials.
On face value the possible engagement with Summit Materials might appear to show that there is a lack of trust between CRH and Ash Grove. However, this cannot be inferred. As its shares are traded over the counter, Ash Grove’s shareholders have allowed a two-week shop window to enable other companies to counter-offer. This is to ensure that they get the best possible value. Talking to Summit is part of this process and may, or may not, mean that the last remaining US-owned cement producer stays based in the US after all.
Closing the demand gap in India
Written by David Perilli, Global Cement
04 October 2017
It’s been a pessimistic month for the Indian cement industry with Ministry of Commerce & Industry data showing that cement production has fallen year-on-year every month since December 2016. This was followed by the Cement Manufacturers Association (CMA) saying that the industry was sitting on 100Mt/yr of excess production capacity. Now, the credit ratings agency ICRA has followed the data and downgraded its forecast for cement demand growth to not more than 4% for the 2017 - 2018 financial year.
Graph 1: Annual cement production in India. Source: Ministry of Commerce & Industry.
Graph 2: Monthly cement production growth rate year-on-year in India: Source: Ministry of Commerce & Industry.
Graph 1 shows a production peak in the 2015 - 2016 financial year before falling monthly production broke the trend in the 2016 - 2017 period. Graph 2 pinpoints the month it started to go wrong, November 2016, when the government introduced its demonetisation policy. Production growth went negative the following month in December 2017 and it hasn’t managed to right itself since then and grow. It’s convenient to blame the government for the slump in production but it troughed in February 2017 before taking a lower level of decline since then.
The Reserve Bank of India (RBI) annual report in August 2017 suggests that the policy failed in its principal purpose of reducing the kind of corruption that a cash heavy economy can hide such as tax avoidance. People reportedly managed to find ways to bypass the bank deposit limit and may have successfully laundered large amounts of cash without being caught. However, as commentators like the Financial Times have pointed out, the longer term implications of forcing the economy towards digital payments and increasing the tax base could yet be beneficial overall.
Graph 3: Cement production capacity utilisation rates in India. Source: UltraTech Cement.
Moving on, the CMA has blamed production overcapacity for the current mess and Graph 3 shows the problem starkly. If anything the CMA appears to have downplayed the over capacity crisis facing India, as UltraTech Cement’s figures (using data from the Department of Industrial Policy and Promotion) show an overcapacity of 155Mt in the 2016 – 2017 year and this will grow to a forecast 157Mt in the next financial year, even though the utilisation rate is expected to rise slightly. UltraTech Cement’s estimates don’t see the utilisation rate topping 70% until the 2020 – 2021 financial year. Analysts quoted in the Mint business newspaper concur, although they reckoned it would the rate would bounce sooner, in 2019 - 2020. Last month when the CMA moaned about the industry's excess capacity it pinned its hopes on infrastructure schemes like the Mumbai-Ahmedabad bullet train. This prompted an official at JK Cements to say that he didn't think that one train line was going to make much of a difference.
This is one reason why ICRA’s and the other credit agencies’ growth rate forecasts for cement demand are important, because they indicate how fast India might be able to close the gap between production capcity and demand. Unfortunately demonetisation scuppered ICRA’s growth prediciton for 2016 – 2017. It forecast a rate of 6% but it actually fell by 1.2%! So downgrading its forecast for 2017 – 2018, with fears of weather and the implementation of the Goods and Services Tax (GST) in the second half of the year, is ominious. Major cement producers such as Ultratech Cement and Ambuja Cement have based their road to recovery in their latest investor presentations on a 6% growth rate or higher. Pitch it lower and the gap doesn’t close. Here’s hoping for a brisk second half.
CRH enlarges its North American cement presence
Written by David Perilli, Global Cement
27 September 2017
The last week marked a step change to the US industry with the news that Ireland’s CRH has agreed to buy Ash Grove Cement. The latter is the largest remaining cement producer still owned by an American company. Its history dates back 135 years to its founding in 1882, with links to the Sunderland family for over a century. Following the acquisition, each of the top five cement producing firms in the US will be operated by multinational corporations based in foreign countries.
Although this scenario is not new to many other countries around the world, it is rare for a nation with a cement industry of this scale. The US is the third biggest cement producer worldwide. Out of the top ten cement producing nations Global Cement Magazine identified in its Top 100 Report 2017 feature in December 2016 only Egypt doesn’t have a local company to match the multinationals. China has China National Building Material (CNBM), for example and India has UltraTech cement and so on and so forth.
The actual sale covers Ash Grove Cement’s eight cement plants and 23 cement terminals, as well as its ready mix concrete and aggregate businesses, for US$3.5bn. Altogether its cement plants have a production capacity of 9.5Mt/yr and this really puts into contrast the Cementir Italia deal last week. HeidelbergCement has agreed to buy that company for around Euro57/t. CRH is buying Ash Grove Cement for US$368/t. That’s more that five times as much!
To be fair they are very different markets, with Italy’s cement sector consolidating near the bottom of a business cycle and the US growing with some promise. For comparison with other recent US acquisitions, CRH is offering to pay about the same as Summit Materials did to Lafarge for a cement plant and seven terminals in mid-2015. Other than that a few of the more recent transactions have been between US$200 – 300/t. The gradual price inflation for cement production capacity indicates that there is confidence in the US cement market.
In terms of CRH’s enhanced presence in North America following the completion of the deal, it currently operates two cement plants in the US: the American Cement Sumterville plant in Florida, a joint venture with Elementia, and the Trident plant in Montana. The CRH US division also runs five terminals in the Midwest and Northeast. This compliments Ash Grove Cement’s presence in the West, Midwest and South. Throw in CRH’s Canadian cement plants in Ontario and Quebec and CRH has the makings of a seriously strong cement business in North America. The only obvious impediment could be the close proximity of the CRH Trident plant and the Ash Grove Cement Montana City plant. Both are in Montana within 115km of each other and they are the only integrated plants in the state. A Federal Trade Commission arranged divestment in this location seems likely.
Ash Grove Cement’s chairman Charlie Sunderland, described CRH as his company’s biggest customer when the acquisition was announced. Buying Ash Grove Cement fills in one more piece in CRH’s construction materials puzzle in North America. Its American divisions have generated more than half of its revenue since at least 2014 dominating asphalt, aggregate and ready mix concrete markets. Yet it has lacked a cement market presence to match this. This changes when the deal with Ash Grove Cement completes.
Cementir Holding leaves the Italian cement industry
Written by David Perilli, Global Cement
20 September 2017
We said to expect more consolidation in Italy. Well, today it happened. Last time Global Cement Weekly covered the country, in June 2017, it reported upon the Buzzi Unicem deal to buy Cementizillo. Today, HeidelbergCement announced that it is going to buy Cementir Italia from Cementir Holding for Euro315m.
Our first reaction is that the deal seems cheap. The agreement covers five integrated cement plants and two cement grinding plants with a total capacity of 5.5Mt/yr, as well as the network of terminals and concrete plants. HeidelbergCement is buying all of this for Euro57/t. This suggests a downward trend given that Buzzi Unicem paid Euro80/t for the Cementizillo units in mid-2017. Although, Cementir only paid Euro38/t when it purchased Sacci in mid-2016.
Cementir’s acquisition of Compagnie des Ciments Belges (CCB) boosted its sales revenue, volume and operating profit in 2016 and in the first half of 2017. However these figures suffered on a like-for-like basis due to falling revenue in Turkey and Malaysia. Overall revenue rose in Italy for the company in 2016 due to a growing ready mix concrete business. However, with this removed, its sales revenue would have fallen by 14% year-on-year due to a 13.5% decrease in the sales volumes of cement.
Cementir Holding chief executive officer (CEO) Francesco Caltagirone has framed the sale of Cementir Italia in terms of improved financial leverage. He’s placed it at close to 0.5x by the end of 2018. This, he says, will allow the group to “…take the opportunities arising in the future, as it has happened during the last twelve months.” By this he likely means the purchase of CCB. Given the low cost for what Cementir picked up the bankrupt Sacci, it makes one wonder whether their plan all along was to leave Italy and they just happened to pick up a bargain along the way.
Meanwhile, HeidelbergCement has framed its acquisition in terms of preparing its presence in the Italian market for the future when the recovery kicks in. The usual talk about synergies is also there and Italian workers for both Italcementi and Cementir Italia will be wondering what this means for their jobs. Given that the group’s overall sales have struggled to grow so far in 2017, the company may be telling the truth when it says it’s banking on the medium to long term in Italy. After all, in its half-year report for 2017, it described the Italian economy as subdued and reported cement sales volumes as ‘stable.’
Once the deal completes, Cementir Holding will be an Italian-based cement company without any production facilities in Italy. Unless the group is planning to re-enter its home market at a later date, it does suggest a certain lack of confidence at home. Let’s see if HeidelbergCement has the nerve to stick it out.