Analysis
Search Cement News
Croatian competition
Written by David Perilli, Global Cement
12 October 2016
The European Commission’s decision to investigate Duna-Dráva Cement’s (DDC) purchase of Cemex Croatia sticks out in a busy news week. There have been a few noteworthy news stories this week from the Indonesian government making preparations to fight overcapacity, LafargeHolcim retreating from Chile, Cemex restructuring its management in Colombia after investigations into a land deal and the announcement of merger plans between two of the larger refractory manufacturers. Yet the commission’s probe is a response to what may be in effect a ‘land grab’ by DDC. How on earth did HeidelbergCement and Schwenk, the joint-owners of DDC, think they were going to pass this one past the relevant competition bodies?!
As the commissions describes it, the “proposed transaction would combine Cemex Croatia, the largest producer in the area, and DDC, the largest importer.” So far, so bad. Then add the observation that Cemex Croatia and LafargeHolcim control all the cement terminals in ports along the Croatian coast. Cemex has three cement plants in the south of the country with no nearby competition. Giving the owners of DDC those assets ties up the market southern Croatia nicely. Understandably, the European Commission has concerns.
Croatia has five cement plants. LafargeHolcim runs a 0.45Mt/yr plant at Koromačno and Nasicecement run a 0.6Mt/yr plant at Nasice. Cemex’s three plants are all in the south near Split within about 10km of each other. When Global Cement visited in late 2014 Cemex Croatia told us that the plants were so close together that the company considered them as one plant. The sites also share one quarry for their raw materials. Only one of three plants, Sv Juraj the largest, has a bagging unit and Sv 10 Kolovoz was mothballed due to poor market demand. Together the plants have a cement production capacity of 1.92Mt/yr. This gives Cemex 65% of the market by production capacity.
Describing the three plants as one certainly makes sense for a company that might have been considering selling them. However, it is a fair comment given the close proximity of the plants to each other and the joint-capacity below that of some of the larger single site multi-kiln plants around the world. In this sense, the real questions for the European Commission will be how much of a dent to competition will it make to hand over the area’s main importer to the area’s main producer?
Graph 1: Cement consumption in Croatia, 2011 - 2015 (Mt). Source: Croatian Bureau of Statistics.
Looking at the national cement market since 2011 in Graph 1 using data from the Croatian Bureau of Statistics, sales volumes fell to a low in 2013 and have picked up since then, although not to the same levels. Prior to this cement sales halved from 2008 to 2013. Under these kinds of conditions Nexe Grupa, the owner of Nasicecement, filed with pre-bankruptcy settlements in 2013. HeidelbergCement expressed interest in the cement assets around this time, although nothing eventually happened. Imports of cement grew by 11% year-on-year to 312,000t in 2015 from 280,000t in 2014. This compares to a 1% increase to 2.36Mt in domestic cement sales in 2015.
As the commission suggests, combining the region’s biggest producer and its biggest importer seems like a recipe for reduced competition and inflated prices. This could be mitigated, in theory, if DDC decided to flood the region with imports from HeidelbergCement’s new assets from Italcementi once it completes its purchase of that company. Although a dominant player in a region undercutting its own prices seems far fetched. Theoreticals aside, it seems very unlikely that the European Commission will let the purchase go ahead without taking some sort of action.
Competition in the Democratic Republic of the Congo
Written by David Perilli, Global Cement
05 October 2016
News from the Democratic Republic of the Congo (DRC) this week: Lucky Cement has nearly finished its new 1.2Mt/yr cement plant. The US$270m project is due to start commercial operation in October 2016, according to a report by Bloomberg. The news is fascinating because it marks the opening up of central sub-Saharan Africa to the cement industry and it puts the boots of Pakistan’s Lucky Cement on the African continent in a big way.
The Nyumba Ya Akiba plant is a 50:50 joint venture between Lucky Cement and a local conglomerate Groupe Rawji, with financing supplied from a group of international development agencies. Originally proposed in 2013 the plant is located in Kongo Central province in the far west of the country between Kinshasa and the port of Matadi near to the connecting main road and railway line. The kit for the plant was ordered from FLSmidth in 2014 for Euro68m, including crushers, pyro processing equipment and vertical mills for raw meal, coal and cement grinding. An overview from the International Finance Corporation also added that the plant intended to cut a deal to import South African coal via the railway from the coast. Limestone and clay will come from a captive quarry. Incidentally, FLSmidth reckoned in 2015 that the project was the first new cement plant in the country in 40 years.
From Lucky Cement’s perspective the project makes sense given the bad reaction it has had trying to import its cement into western and southern Africa. Local producers recoiled from cheap imports along the coast and then lobbied their governments to block them. So, putting down manufacturing roots in a target country with a local partner makes it that much harder to block additional imports. It may or may not be importing its own clinker from somewhere else to supplement local demand but it is definitely providing local jobs and supporting local development. Lucky Cement’s previous international adventure of this kind was the opening of a cement grinding plant in Iraq in 2014.
Naturally, like buses, one waits ages for a cement plant to be built and then two turn up at the same time. South Africa’s PPC is also building an integrated cement plant in the DRC at Kimpese, in the same province as Lucky Cement’s plant. PPC’s half year report to March 2016, released in September 2016, mentioned that its 1Mt/yr plant was 83% complete with all civic and structural work complete. Commissioning was intended for the end of 2016 with cement ready for sale in early 2017. It is being built by Sinoma. The cement producer already has a sales depot in Kinshasa and it exports 32.5N and 42.5N cement from South Africa to the territory. Given PPC’s falling revenues from cement in South Africa and growing revenue elsewhere in Africa the opening of this plant will be keenly awaited.
The local demographics may answer whether the DRC can support two new cement plants. The country’s cement consumption was just 24kg/capita with a gross domestic product (GDP) per capita of US$490 in 2015. These are some of the smallest figures in the world. A feasibility study ahead of the Nyumba Ya Akiba plant estimated that the country would have a demand of 1.8Mt/yr by 2015 compared to a local production capacity of under 1Mt/yr. Nature, and markets, abhor a vacuum. Lucky Cement and PPC are about to fill it.
Ecocem step forward
Written by David Perilli, Global Cement
28 September 2016
Once again Ecocem has shone the torch this week for a rare thing within Europe these days: a growing cement company. Its latest project is an import terminal in Sweden, as part of a deal with Bolidan, which launched on 22 September 2016. This supports an arrangement to supply cement for the Boliden Garpenberg mine. The agreement also includes supply for the Boliden Tara Mines in Ireland.
This follows the announcement to build a new slag grinding plant in Dunkirk, France in early September 2016 and the opening of a new terminal in Runcorn, UK earlier in the year. The 1.4Mt/yr Dunkirk plant is a joint-venture with the steelmaker ArcelorMittal, intended to target markets in north of France and in the UK. Once complete it will join Ecocem’s growing collection of grinding units in Ireland, France and the Netherlands. The slag-cement producer operates a 0.35Mt/yr plant at Dublin, a 0.7Mt/yr plant at Fos in the south of France and a 0.35Mt/yr plant at Moerdijk under its subsidiary Orcem Netherlands.
The focus on the UK makes sense given that Ecocem said that it had made commitments to sell more product in the UK in its first year than its total domestic sales in 2016. This followed the situation where, prior to entering the British market, Ecocem had to stop taking orders in the short term due to demand. If this is actually the case then it is unsurprising to note that Ecocem is also building a second UK terminal at Sheerness at the mouth of the River Thames near to London. As an aside, Francis Flower bought the Scunthorpe ground granulated blast furnace slag (GGBS) plant from Hanson Cement in mid-2015 after the local market regulator requested the sale.
As Charlie Zeynel, ZAG International, says in an interview to be published in the October 2016 issues of Global Cement Magazine, that supplementary cementitous materials, including slags, in cement blends has grown worldwide, particularly in Europe and Japan, where GGBS cement represents around 25% and 30% of cement sales respectively. Zeynel goes on to say that GGBS usage is set to rise in other parts of the world, particularly the US, but this helps to explain the market Ecocem is operating in within northern Europe.
Ecocem seems well aware of the potential for slag cements in the US because it is attempting to build a Euro45m grinding plant Vallejo, California under its Orcem Americas subsidiary. The process has so far been dogged by planning problems at the proposed site as well as organised local opposition, which does not want a new industrial plant in the neighbourhood and issues such as the increased traffic it would bring. The irony here is that Ecocem bills itself as an environmentally friendly cement producer. Yet even environmentally-friendly cement needs to be manufactured and taken to site.
To misquote Kermit the Frog: it’s not easy selling green cement. However, Ecocem’s progress in Europe is encouraging both in the UK and the wider area. Roll on the opening of the Sheerness terminal.
Find out more about Ecocem's operations here: www.ecocem.fr/en/
The Kiln of Theseus
Written by David Perilli, Global Cement
21 September 2016
Congratulations are in order for CalPortland. It celebrates its 125th anniversary or quasquicentennial today. According to the company blurb on the website, a cement plant was established in 1891 in Colton, California. This was the first plant west of the Rockies and it went on to supply building materials towards the development of Los Angeles. However, the website doesn’t exactly shout about its purchase in 1990 by one of the Japanese companies that eventually became Taiheiyo Cement. Its earliest constituent company, the Cement Manufacturing Company, was established 10 years earlier than CalPortland in 1881. So perhaps CalPortland could celebrate the 135th anniversary of its Japanese owners at some point this year too.
Company | Country | Year | Age |
LafargeHolcim | Switzerland | 1833 | 183 |
AnhuiConch | China | 1997 | 19 |
CNBM (Sinoma) | China | 1984 | 32 |
HeidelbergCement | Germany | 1873 | 143 |
Cemex | Mexico | 1906 | 110 |
Italcementi | Italy | 1864 | 152 |
China Resources | China | 2003 | 13 |
Taiwan Cement | Taiwan | 1946 | 70 |
Eurocement | Russia | 2002 | 14 |
Votorantim | Brazil | 1918 | 98 |
Table 1: Age of leading cement companies by production capacity: Source: The Top 100 Report 2016, Global Cement Directory 2016, company websites, Wikipedia
As can be seen from Table 1, a list of major cement producers by production capacity in 2016, most of the European or non-Chinese multinationals are old. They have roots in various predecessor companies going back at least a century. By contrast most of the Chinese producers on this list are far younger having been established since the 1980s.
Company | Country | Year |
Lafarge (LafargeHolcim) | France | 1833 |
Vicat | France | 1853 |
Dyckerhoff (Buzzi Unicem) | Germany | 1864 |
Italcementi (HeidelbergCement) | Italy | 1864 |
Essroc (Italcementi) | US | 1866 |
HeidelbergCement | Germany | 1873 |
Taiheiyo Cement | Japan | 1881 |
CalPortland (Taiheiyo Cement) | US | 1891 |
PPC | South Africa | 1892 |
Table 2: Age of selected older cement companies still in business: Source: Company websites.
Table 2 adds an international perspective from the cement industry to CalPortland’s achievement. It’s an arbitrary list chosen from larger, mostly multinational cement producers that still operate today. As such it may well be missing some key names. However, they all follow the first industrial revolution innovators in cement such as John Smeaton, Joseph Aspdin or Louis Vicat. A generation later the first cement companies that have endured to the present in some form or another such as Lafarge, Vicat or Dyckerhoff started to appear. As impressive as the longevity of these companies are though, they pale in comparison to Saint-Gobain, the French construction materials company that was first established in 1665.
A BBC News article on company lifespans found that the average lifespan of a company listed in the S&P 500 index of leading US companies had decreased from 67 years in the 1920s to 15 years in 2012, according to research by Professor Richard Foster of Yale University [LINK]. By this measure most of the cement companies examined here are doing well. Yet, most of the older ones have endured such a tangle of mergers, acquisitions and changes that it is debatable whether any of them could be considered the same company as their originator. Joseph-Auguste Pavin de Lafarge may have started his operations at Teil in the Ardèche region of France in 1833 but LafargeHolcim, its modern day successor, is only one year old following its creation from Lafarge and Holcim in 2015.
This leads to the Ship of Theseus' paradox or the thought experiment regarding whether an object that has all of its parts replaced is still the same object. Just as humans gradually have most of their constituent parts (or cells) replaced over time so too do long-lasting companies. One superficial response is to point out that memory or heritage can have a lasting effect for individual, national and corporate entities. Just compare, for example, the different outlook of western European national states with millennia of continuation to much newer nations in the Americas. European countries, like the UK, are often seen as being old and stuffy compared to new world dynamism despite all the citizens in both regions being younger than their countries.
To end on a cementitious note, perhaps this dilemma should be renamed the Kiln of Theseus paradox for the cement industry. If a cement plant’s engineers replace all the parts of a cement kiln is it still the same kiln? The suspicion is that the staff at CalPortland would definitely think it is!
If any readers have a suggested name for a 135th anniversary This email address is being protected from spambots. You need JavaScript enabled to view it.
Update on Kenya
Written by David Perilli, Global Cement
14 September 2016
Tensions have boiled over regarding imports of cement to Kenya in recent weeks as different importers have received opprobrium in the local press. Last week Dangote Cement was attacked for importing cheap cement into the country from Ethiopia, allegedly off the back of a cheap electricity deal. This week, Chinese imports have been in the firing line, following data reportedly seen by the Business Daily newspaper that showed that the value of Chinese cement imports rose tenfold year-on-year in the first half of 2016.
At the heart of these rows lies a strong demand for cement: Kenya had a cement production utilisation rate of 90% in 2015 according to Kenya National Bureau of Statistics (KNBS) data. It produced 6.35Mt in that year and used 5.71Mt for consumption and stocks. Its utilisation rate has been rising steadily since 2012. It was 93% for the first six months of 2016.
Unfortunately for the local producers this kind of demand attracts competition from within and without. Nigeria’s Dangote Cement is planning to build a 3Mt/yr plant at Kitui and Cemtech Kenya, a subsidiary of India’s Sanghi Group, is planning to build a 1.2Mt/yr plant at Pakot.
Local producer ARM Cement reported both falling turnover and a loss for the first half of 2016. It blamed this on increased competition in Tanzania. However, in 2015 it increased its turnover in Kenya by importing clinker over the border from its new Tanga plant in Tanzania. It also noted a ‘competitive landscape’ in Kenya and lamented the effects of currency devaluation on its financies as a whole. East African Portland Cement had a tougher time of it for its half-year that ended on 31 December 2015, issuing a profit warning of a loss and expected reduced profits despite a rise of 12% in sales revenue. By contrast, Bamburi Cement, LafargeHolcim’s subsidiary, reported both increases in revenue and operating profit in 2015. Although it too noted problems with interest rates and currency depreciation in the country during this period.
The focus on Chinese imports follows Chinese contractors winning some of the biggest infrastructure projects in the country. The China Rail & Bridge Corporation (CRBC), for example, is building a railway between Mombasa and Nairobi. The Business Daily newspaper has found data showing that Chinese cement imports worth US$19.8m to Kenya in the first half of 2016 compared to US$1.99m in the same period of 2015. The background to this is that China has more than doubled the value of all of its imports to Kenya since 2011 according to the KNBS. Total import volumes of clinker from all foreign countries increased by 51% in 2015 from 1.31Mt in 2014, the largest increase in at least five years.
If local cement producers are being locked out of supplying these kind of deals no wonder they are getting angry. However, another angle on what’s happening here might be that local producers who are suffering from increased competition, falling prices and a precarious national financial situation are lashing out at the easiest target. The local press doesn’t appear to have criticised ARM Cement for moving its Tanzanian clinker north of the border for example. Likewise, a Bamburi Cement spokesperson previously said that the producer had supplied 300,000t of cement to the rail project since September 2014, earning it nearly US$10m. Kenya needs cement as it builds its infrastructure. Fortunes will be made and tempers will be lost as it does so.