Analysis

One news story to note recently has been Cemex’s decision to recommission a kiln in Mexico to address cement shortages in the southwest US. In early February 2021 the Mexico-based producer said it was spending US$15m to restart a 1Mt/yr kiln at its CPN cement plant in Hermosillo, Sonora. The unit is over 250km from the US border but Cemex said it was making the investment to cope with cement shortages and project delays in California, Arizona and Nevada. At present it supplies over 3Mt/yr to California, Arizona, and Nevada from its integrated plant in Victorville, California and via sea-borne imports. Efficiency improvements at Victorville and other unspecified supply chain changes are also planned.

Cemex isn’t the only company with an eye on the south-west US. Around the same time Japan-based Taiheiyo Cement concluded its deal with Semen Indonesia to buy a 15% stake in its subsidiary Solusi Bangun Indonesia (SBI) for around US$220m. It’s a long way from Arizona but the related statement mentioned plans to make SBI’s integrated Tuban plant in East Java more export focused, with the construction of a new jetty and silos. It intends to export 0.5Mt/yr of cement to Taiheiyo Cement’s business in the US. Its local subsidiary, CalPortland, runs two integrated plants in California and one in Arizona.

Chart 1: Annual change in US cement consumption by state, December 2019 – November 2020. Source: PCA & USGS.

In its recent winter forecasts the Portland Cement Association (PCA) reported that the Mountain region of the US recorded the highest growth in cement consumption in 2020, at 10%, due to underlying economic fundamentals and favourable demographic trends. Data from the United States Geological Survey (USGS) supports Cemex’s view too. Ordinary Portland Cement and blended cement shipments rose by 21% year-on-year to 2.74Mt in Arizona and New Mexico in the first 11 months of 2020 from 2.28Mt in the same period in 2019. This doesn’t quite tally in California where shipments fell slightly, by 0.8%, to 9.42Mt. However, it reported 12% growth to 2.38Mt in the first quarter of 2020, suggesting that the market could return sharply once the coronavirus epidemic is better under control. Overall, shipments in the US grew by 1.03% to 82.3Mt in the first 11 months of 2020, driven by growth in central regions. The PCA expects national cement consumption to grow by about 1% in 2021 with a ‘robust’ recovery driven by residential housing but slowed by uncertain coronavirus vaccination supplies and general market volatility.

In a world with too much clinker production capacity, it stands out to see two established producers so visibly chasing market share in a mature market. Rather than building new plants, both Cemex and Taiheiyo Cement are using or reviving existing production lines in other countries, and building import strategies as well as optimising their existing facilities in the regions. With the western building material multinationals now often looking to focus on ‘safe’ markets in Europe or North America the fight to grow market share in these regions is likely to become more intense. It also complicates decisions about when or if an existing plant should be mothballed or shut. After all, Cemex’s old production line in Hermosillo is about to become very useful indeed.

The European Union (EU) Emissions Trading Scheme (ETS) looked like it might be about to hit Euro40/t this week. It still might. You can blame it on the current cold front bringing snow to much of Northern Europe and the bedding into of the fourth phase of the ETS that started in January 2021. In early 2020 analysts were generally predicting an average price of around Euro30/t by 2030 bolstered by volatility in the price due to the start of the coronavirus pandemic. Yet the price recovered and so did the European Commission’s resolve to push through its European Green Deal. By mid-December 2020 the price had shot past Euro30/t and analysts were forecasting average prices of well over Euro50/t by 2030. Depending on one’s disposition this is the rate at which either serious decarbonisation attempts will begin to be viable for commercial companies, or the point at which more plants simply close.

Figure 1: European Union Emissions Trading System carbon market price in Euros (European Union Allowance), February 2020 – February 2021. Source: Sandbag.

One group which is well aware of the EU ETS and its consequences upon the cement industry is Cembureau, the European cement association. Some of its current lobbying efforts have been directed at trying to shape how the Carbon Border Adjustment Mechanisms (CBAM) will appear in legislation proposals in June 2021. Its argument boils down to protecting its members from carbon leakage both in and out of the EU’s borders and maintaining free allocation until 2030 to ease the transition to a lower carbon economy. The former should find common ground. However, calls for a CO₂ charge exemption for EU exporters may perplex environmentalists, who might wonder how this could possibly encourage third party countries to introduce their own carbon pricing schemes. The latter is clearly pragmatism for an industry saying that it is facing change at a pace that may be too rapid for it to cope with. Concrete products do carry sustainability advantages over other building materials. Wiping out swathes of the region’s production base, simply because one knows exactly how much CO₂ they emit compared to rival building materials that one doesn’t, may not help the EU reach its climate commitments by 2050. As if to underline this fear, another European clinker line was earmarked for closure this week when Lafarge France announced the planned conversion of the Contes cement plant into a terminal.

Figure 2: Estimate of global cement production in 2018 by region. Source: Cembureau.

Figure 2 above puts the situation into a global perspective, showing that Cembureau’s members were responsible for below 7% of cement production in 2018. China produced an estimated 55% of global cement production in the same year. In terms of overall CO₂ emissions across all sources, the International Energy Agency (IEA) estimated that China produced 30% of CO₂ emissions in 2018.

It seems odd then that the introduction of an interim ETS in China at the start of February 2021 didn’t receive more global news coverage. The new scheme covers 2225 power companies across the country. It follows pilot regional schemes that have run since 2011, covering seven provinces and cities including Beijing, Shanghai and Guangdong. Previously, the country’s largest local carbon market, the China Emissions Exchange (Guangzhou), was based in Guangdong province and it included power generation, cement, steel, and petrochemical sectors. State news agency Xinhua reports that this scheme reduced carbon emissions from these industries by 12% from 2013 to 2019. The new national ETS is expected to include cement and other industries at a later stage.

Commentators in the European press have pointed out that the Chinese national ETS is actually planning to make an effort on transparency and to force companies to publish their pollution data publicly. Yet, they’ve also said that the data may be inaccurate anyway, echoing the usual Western fears about Chinese figures. Other concerns include the method of giving out pollution permits rather than allocating them by auction as in other cap and trade systems, which could reduce the incentive to reduce emissions. It’s also worth pointing out that carbon was priced at US$6/t under the Chinese system compared to around US$35/t in the EU and US$17/t in California, US at the end of 2020. At this price it seems unlikely that the Chinese national ETS will encourage much change without other measures.

The EU and Chinese ETS are at different stages but the differences in scale are stark. When or if the Chinese one goes national across those eight core industries it will likely leapfrog over the EU ETS and become the world’s largest with an estimated 13,235MtCO₂e under its purview. By contrast, the EU ETS manages 1816MtC0₂e according to World Bank data. The kind of dilemmas Cembureau and others are tackling with the EU ETS such as carbon leakage and how fast to tighten the system against heavy emitters are illustrative to other schemes in China and elsewhere.

Andrew Minson from the Global Cement and Concrete Association (GCCA) kicked off this week’s Virtual Global Concrete Conference with an overview of concrete’s role in the association’s 2050 climate ambition. The association announced in September 2020 that it was starting work on this roadmap for publication in the second half of 2021, just in time for the 2021 United Nations Climate Change Conference, currently schedule to take place in Glasgow, Scotland in November 2021. Minson ran through the topic, providing an overview of concrete’s intrinsic sustainable features and the policy levers the association is considering for its forthcoming roadmap.

One point from circular economy aspects of the plan included design for dis-assembly (DfD) and long life, loose fit modes of thinking around how a building using concrete should be conceived, designed, built, used and - crucially – reused. Long life, loose fit, low energy (to use its original name) was promoted by the Welsh architect Alex Gordon from the early 1970s. It covered themes of sustainability, flexibility and energy efficiency for building design ahead of both the 1970s oil crisis and the current climate one. DfD emerged in the 1990s as a way of thinking about a building’s demolition at the start and working from there. Deconstruction or demolition is prepared for through planning and design. It allows components and materials to be removed more easily, facilitating their subsequent reuse. So, components and materials can be removed more easily allowing their subsequent reuse and elements such as columns, walls, beams, and slabs can be disassembled to facilitate this. Last year Global Cement Weekly explored a similar path with the ideas of Dutch architect and commentator Thomas Rau (GCW348) and his concept of building materials as a service, following on from the Building Information Modelling (BIM) system, and the suggestion that companies simply rent (!) building materials from their manufacturers to encourage whole life thinking.

Chart 1: Uses of concrete by European Ready Mixed Concrete Organisation (ERMCO) members in 2018. Source: ERMCO.

Just how much concrete the world uses each year is a question beyond the scope of this article, given its range of applications and diversity of users. For example, the Cement Sustainability Initiative (CSI) estimated 25Bnt in 2009. Later, the International Organization for Standardization (ISO) technical committee for concrete, reinforced concrete and pre-stressed concrete placed the figure at around 33Bnt in 2016. It is worth considering how and where concrete is actually used. The chart above from the European Ready Mixed Concrete Organisation (ERMCO) shows how its members used concrete in 2018. Note that use in buildings comprised the biggest share, nearly two thirds, but that the rest included infrastructure, pavements, roads and more. Lifecycle thinking and its various offshoots can apply to all of these applications. Yet it’s easier to imagine a concrete building shell being reused within its lifespan than, say, a bridge or a road. Concrete used in infrastructure seems more suitable for re-use further down the waste hierarchy, such as recycling as an aggregate.

A few final thoughts to consider are that both Cemex and gypsum wallboard manufacturer Etex have invested in modular and/or offsite construction companies in January 2021. Both targets were relatively small companies suggesting growing interest in these sectors by larger players. Offsite building construction suits lifecycle thinking well because the modular components start off being built elsewhere before installation. Factoring in what happens afterwards should be relatively easy and expandable at scale. Finally, LafargeHolcim announced this week that it is acquiring two ready-mix concrete and aggregate suppliers in France and Italy that will give it 35 concrete plants in the region.

Sustainability places lifecycle thinking into mainstream building practice and some methods and tools will inevitably make it into any policy framework the GCCA will recommend. Whether some or all of the ideas above hang around remains to be seen but lifecycle thinking in some form or another is here already and not going anywhere.

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There have been two developments from ThyssenKrupp’s ongoing restructuring worth noting by the cement sector in recent weeks. The first is that the Germany-based engineering and steel producer has stopped trying to sell its cement plant division. The second is that Denmark-based FLSmidth is holding serious talks about buying its mining division.

ThyssenKrupp first announced plans for a major restructuring in mid-2019 with an anticipated reduction of 6000 jobs across the business. The sale of its elevator business for Euro17.2bn to private equity was announced in February 2020. Later in May 2020 it then revealed plans to divide its previous business areas into core, dual and multi track segments. Core - including Materials Services, Industrial Components (Forged Technologies and Bearings) and Automotive Technology – would be kept as before. Dual-track – including Steel and Marine – would either be kept as before or considered for consolidation. Multi-track - including cement plant engineering, mining and more – would be sold, added to a partnership or closed. By size, core reported sales of Euro16.1bn (53%) in the company’s 2019 - 2020 financial year, dual-track reported Euro8.8bn (29%) and multi-track reported Euro5.5bn (18%).

Volkmar Dinstuhl, formerly in charge of mergers and acquisitions, was put in charge of Multi-track. By October 2020 he was publicly admitting that the division was planning to “find a solution for all our businesses within the next two years” including cement plant engineering. In the same interview he described the Multi-track division as an internal private equity fund. However, the elevator business sale has been seen by several commentators as giving ThyssenKrupp more freedom around how to conduct its restructuring. Three months later and Handelsblatt, a German business newspaper, reported this week that ThyssenKrupp’s cement plant division may have avoided its multi-track fate. It cited internal communication to employees about what’s been happening with the sale. Principally, orders have picked up in the company’s new financial year, since October 2020, and although a sale has not been ruled out, it won’t be pursued until late 2021 at the earliest. This is potentially good news for the sector as a sign that the market may be improving and definitely good news for those employees working for the division.

As a competitor, FLSmidth would have been expected to be potentially interested in buying either ThyssenKrupp’s mining or cement plant division, or both. So, the only question was, when it made a point of saying publicly that it was in non-binding negotiations to buy mining, what about cement?

Looking at the numbers shows that FLSmidth’s mining division did better than its cement one in the first nine months of 2020 with order take up year-on-year and the mining industry described as being relatively resilient during the coronavirus crisis, with the majority of mines operational across regions. By contrast it pointed out that the cement market was still ‘severely’ impacted by the coronavirus pandemic and that future cement demand was dependent on general economic growth. Acquisition activity in mining certainly seems like the safer bet at the moment. Yet the temptation to neutralise a competitor may have been a strong one. With the mining deal still in progress and the cement sale possibly ended for now, we’ll just have to wait and see. Other buyers for both divisions are no doubt waiting in the wings should circumstances allow.

One final fun fact to consider is that the man put in charge of selling both of ThyssenKrupp’s mining and cement plant divisions, Volkmar Dinstuhl, just happens to be a World Chess Federation (FIDE) recognised International Master. Being good at chess doesn’t automatically confer skill at anything else. Just look at former world champion Gary Kasparov’s political ambitions in Russia for example. Yet, ThyssenKrupp’s elevator division sale has been seen as one of the largest leveraged European buyouts in recent years and has appeared to have bought it some time to mull its options over its cement plant division. With this in mind, any potential buyers for the rest of Multi-track may be wondering just how many moves ahead this seller is thinking.

Cement imports were one of the themes in this week’s news, with stories on the topic from South Africa and Ukraine. The former concerned the latest chapter in that industry’s saga on slowing down imports. The International Trade Administration Commission (ITAC) has started a review on tariffs imposed on cement from Pakistan that were introduced in 2015.

Local producers in South Africa have experienced mixed fortunes since 2015, such as PPC and AfriSam’s failed merger attempt or the introduction of a local carbon tax, and were starting to complain again about imports even before the effects of coronavirus in 2020. This led the Concrete Institute to lobby ITAC in 2019 about rising imports from other nations, principally Vietnam and China.

Back in 2013 cement imports from Pakistan to South Africa were 1.1Mt. This represented the vast majority of all imports to the country. Tariffs of 14 – 77% were imposed on Pakistan-based exporters in mid-2015, initially for six months, but this was then extended. Roughly a year later in mid-to-late 2016, Sephaku Holdings said that imports of cement had ‘significantly’ declined on a year-on-year basis, particularly from Pakistan. By the end of June 2016 approximately 0.16Mt had been imported compared to 0.5Mt in the previous period. However, it noted that 75% of the volume was from China. Since then imports started to creep up. Cement imports reportedly rose by 84% year-on-year in 2018 and then by 11% in 2019. Data from construction industry data company Industry Insight suggests that Vietnam accounted for 70% or 0.47Mt of the 0.68Mt of cement imported into South Africa in the first nine months of 2020. The remaining 30% or 0.20Mt came from Pakistan. In this kind of environment it seems unlikely that ITAC will do anything other than extend tariffs.

Meanwhile in the northern hemisphere, in Ukraine this week a court in Kiev dismissed a challenge by the Belarusian Cement Company to remove cement import tariffs from Russia, Belarus and Moldova that were introduced in mid-2019 for five years. Notably, a law firm representing Dyckerhoff Cement Ukraine, HeidelbergCement Ukraine, Ivano-Frankivsk Ukraine and CRH subsidiary Podilsky Cement commented favourably upon the court’s decision to uphold tariffs. These producers form UKRCEMENT, the association of cement producers of Ukraine. However, the association doesn’t include Russia-based Eurocement, which operates Ukraine’s largest cement plant at Balakleya. Relations have been poor between Russia and Ukraine since a war between the countries that started in 2014. So any trade tariffs implemented upon Russia and/or Commonwealth of Independent States (CIS) members will inevitably carry the whiff of geopolitics. Yet, in Ukraine’s defence, it also started an anti-dumping investigation into cement imports from Turkey in September 2020. Nationalism may be relevant but let’s not discount hard-nosed economics just yet.

Turkey’s involvement in Ukraine leads to last week’s presentation at Global Cement Live by Sylvie Doutres, DSG Consultants on cement and clinker trade in and out of the Mediterranean region. Readers can watch the presentation here but the headline story here was the trend of reducing exports away from southern European countries such as Spain, Italy and Greece, to greater exports from North African countries and Turkey over the last decade. Turkey particularly has pushed its share of exports even more in 2020 despite (or perhaps because of) a tough domestic market. The general trend here away from southern Europe has been blamed on European Union-based (EU) producers becoming less competitive often against newer plants in nearby countries.

Battles between producers and government tariff policies are a perennial feature of any market in commodities such as cement. The ebb and flow of import and export markets cover many factors including production costs, distribution networks, tariff structures and more. Distinctive features of cement trading, for example, are the high cost of transporting heavy building materials over land and the world’s chronic cement production overcapacity. In the EU’s case one reason that often gets blamed is the emissions trading system (EU ETS) and the mounting cost it is imposing upon cement production. For example, today’s story that Holcim España wants to convert its integrated Jerez plant into a grinding unit has been blamed on falling exports and a reduction in ETS credits. It is noteworthy then that the EU ETS rate breached the Euro30/t level in December 2020. This may be good news for the sustainability lobby but the exodus of exports away from Southern Europe tells its own story. What form the EU ETS carbon border adjustment mechanism takes as part of the EU Green Deal will be watched closely by producers both inside and outside the EU.

Global Cement Live continues on 21 January 2021 with Kevin Rudd, Independent Cement Consultants, presenting 'Independent or third party factory acceptance testing of major cement plant equipment and critical spare parts and the challenges of Covid’