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Argentine cement sales set to grow in 2015 despite setbacks
Written by David Perilli, Global Cement
16 September 2015
Cement shortages have been reported again in western Argentina this week. The story has been simmering over the summer in Mendoza and San Juan Provinces with local construction firms becoming irate with delays to their projects.
The cause is reported by local media to be a broken raw mill at Holcim Argentina's Capdeville cement plant north of the city of Mendoza. Production has been reduced by 2400t/month of cement from the 0.66Mt/yr capacity plant. Unfortunately, cement plants in neighbouring states have lowered their deliveries. Subsequently prices are estimated to have risen by 8 – 10% in July and August 2015 alone..
To put some perspective on the cement shortage, the Cuyo region of Argentina (comprising Mendoza, San Juan and San Luis Provinces) consumed just over 1Mt of cement in 2014 compared to 11Mt for the entire country. However all three provinces in the region are above the national mean cement consumption of 271kg/capita.
Despite the bottleneck in the provinces, the Asociacion de Fabricantes de Cemento (AFCP) recently revised its cement sales forecast for 2015 upwards to over 12Mt, the highest level on record. It attributed the rise demand to public infrastructure projects, house building and the Argentina Credit Programme (ProCreAr). Total despatches to the end of August 2015 were 7.99Mt, a rise of 8.73% or 641,664t from 7.35Mt in August 2014.
This followed a poor year in 2014 when national cement consumption fell by 3.5% year-on-year according to local press. The AFCP reported a fall in production by 4.1% to 11.4Mt.
Notably for the current news story, San Juan Province saw one of the biggest sales drops in 2014 at 10.5%. As InterCement (through its subsidiary Loma Negra) commented in its annual report, the country suffered both a gross domestic product (GDP) contraction of 1% in 2014 and instability in its financial markets that adversely affected consumption. Both the other major cement producers, Cementos Avellaneda (a subsidiary of Cementos Molins) and Holcim Argentina, also reported poor sales in 2014. Under these conditions it is unsurprising that consumers have angered due to localised cement shortages. There should be lots of cement available!
Into 2015, Holcim reported increased cement volumes in the first half of 2015 due to high demand in the Cordoba Province that neighbours Mendoza Province. By contrast, InterCement forecast in its 2014 annual report that it expected sales to remain lower than the high set in 2013. However it also expected continued demand for cement to reflect a response to the economic situation in Argentina with private investors moving to real estate for security.
InterCement and the rest will be monitoring Argentina's economy very closely for the remainder of 2015. Presidential elections are due in October that may change the current scenario. For the moment though the country remains in recession but it has managed to bring in foreign investment. Regardless of this though, the quicker Holcim Argentina and the others address the shortage in Mendoza the better. Demand may not last forever.
From brownfield to leftfield: what happens to closed cement plants?
Written by David Perilli, Global Cement
09 September 2015
Plans for the former Shoreham cement plant on the south coast of England took an exciting turn towards the end of 2014. Zero carbon design firm Zedfactory announced its plans to regenerate the brownfield site into an eco-resort featuring holiday homes, performance space, affordable homes, a hotel and conference centre, a watersports venue, wildlife preserves and more. Or, ' hobbit homes' as the Daily Mail put it when it covered the story six months later.
This raises the question of what happens to cement plants when they close?
In the UK, where a housing shortage in certain areas collide with NIMBY (not in my back yard) attitudes and strict planning regulations, former industrial or brownfield sites are prime sites for new housing developments. Subsequently, old cement plants are attractive to builders to build houses. Two examples of current sites heading this way include the former Cemex plant in Barrington, Cambridgeshire and the former Lafarge Eastgate plant in County Durham. Both sites have gained planning permission and were still in the pre-building stage according to local press reports in mid-2015. Dylan Moore's website 'Cement Plants and Kilns in Britain and Ireland' provides a good resource on former plants in the UK and Ireland.
One of the jokes about classic UK science-fiction television series Dr Who was that during the 1970s it was either filmed on cheap studio sets or in quarries. Endless encounters with alien beings took place in cement plant quarries including Lafarge Northfleet (alien in spacesuits), Lafarge Aberthaw (tentacle faced aliens), Hanson Ketton (Arthurian knights who may in fact be aliens...) and many more. Indeed, one of the conditions of the proposed Lafarge Eastgate sale in March 2015 was that a television production company could continue to use the quarry to film an adaptation of Beowulf for five years!
On the more imaginative side of what to do with old plants, La Fabrica near Barcelona is a spectacular example. Architect Ricardo Bofill converted a 19th century plant into his firm's head office, La Fabrica, and his own personal residence. As Ricardo Bofill Taller de Arquitectura's website puts it, "Eight silos remained, which became offices, a models laboratory, archives, a library, a projections room and a gigantic space known as 'The Cathedral', used for exhibitions, concerts and a whole range of cultural functions linked to the professional activities of the architect." Architecturally the project refers to Catalan Civic Gothic style with surrealist elements.
This sense of entertainment from industrial architecture was continued by sculptor Bob Cassilly in St Louis, USA who decided to build Cementland. Cassilly purchased the former plant and slowly assembled his clinker-themed version of Disneyland. Unfortunately he died in 2001 following an accident with a bulldozer at the site before he finished.
More and more former cement plants will be seeking new purposes as Europe rationalises its cement industries and excess capacity is eliminated. China too faces similar issues as it consolidates its industry. Most will probably lie fallow before eventually being knocked down and then turned into something following the cheapest economic path forward. With luck though, some will follow the dreams of Zedfactory and people like Ricardo Bofill and Bob Cassilly.
Tell Global Cement what has happened to old cement plants that you know about via our LinkedIn Group.
Iran snookers Pakistan’s cement exporters
Written by David Perilli, Global Cement
02 September 2015
South African cement producers may be cheered this week with the news that Iranian cement is causing grief in Pakistan once more. Imported cement from Iran is allegedly undercutting local product in Pakistan through massive 'under-invoicing.' Sources quoted in Pakistan – itself a cement exporter (!) – described the situation as 'incomprehensible.'
The issue here is that Iran is doing to South Africa what Pakistan is doing to South Africa: selling cement cheaper than locally produced product. It's especially ironic this week because one Pakistani cement producer, Lucky Cement, is taking the fight against South African anti-dumping duties to the courts.
A report from July 2015 reckoned that Pakistan's cement exports might drop by 10 – 15% at the start of 2016 as economic sanctions on Iran are lifted. The report had a bit more sense than the usual scaremongering. It predicted that removing sanctions in Iran would not affect competition in Afghanistan as Iranian producers generally targeted Kandahar.
Despite this, cement exports to Afghanistan from Pakistan hit a high of 4.73Mt in the 2010 – 2011 financial year, according to All Pakistan Cement Manufacturers Association (APCMA) data. Since then they dwindled slightly for the next couple of years before decreasing more sharply from mid-2013. Overall exports fell by 11.57% to 7.2Mt in the 2014 – 2015 period. Pakistan's exports to Afghanistan may have been hit by the departure of North Atlantic Treaty Organisation (NATO) forces and a new cement plant in neighbouring Tajikistan.
In part the battle seems to be about tax. In June 2015 the APCMA lobbied the Pakistan government to cut duties. At the time these included a 5% federal excise duty and a 17% general sales tax on the retail price of cement. One APCMA spokesman reckoned that these taxes added US$1.56 per bag of cement. More recently the APCMA rallied against a tax on cement exports and an increase in import duties on coal. In this climate, repeated news stories on Iranian exports to Pakistan dodging taxes don't sound so good.
Meanwhile, back in South Africa, Lucky Cement has started to take legal action against anti-dumping duties imposed upon its cement exports by the International Trade Administration Commission of South Africa (ITAC). The ITAC imposed provisional anti-dumping duties of 14.3 – 77.2% on Portland Cement originating in or imported from Pakistan from 15 May 2015 for six months. The duty was imposed on bagged cement. Pakistan-based cement producers may defend themselves by saying that they are following the laws of the countries they are exporting to. In theory Iranian exports to Pakistan that pay the correct taxes should be the same price as Pakistani products.
What this debacle shows is that things could get a whole lot worse for coastal cement markets within easy reach of Iran once the sanctions fall. National bodies like the ITAC across the Middle East, South Asia and East Africa should start tightening up their import policies now.
China – the new not-so normal
Written by David Perilli, Global Cement
26 August 2015
The Chinese stock market volatility this week has not been a surprise for the cement industry. The question for both the local cement industry and the wider economy is how the current economic jitters are being managed. Are we witnessing the long expected hard landing of the Chinese economy or will the state planners been able to dodge it?
Growth in the housing market and infrastructure spending has been falling. The country's cement producers have reduced their production growth as the industry consolidates. First half profits in 2015 have fallen for many Chinese cement producers including China Resources Cement and Asia Cement. Anhui Conch, one of the top three cement producers in the world, reported that its first quarter profits in 2015 fell by 31%.
Chinese cement production figures have always seemed incompatible with other data suggesting incomplete information. For example, the Global Cement Directory 2015 reported China's cement production capacity at 1.48Bnt/yr. At full capacity utilisation this would suggest a national cement consumption of 1057kg/capita, a figure that bears no resemblance to any other country on earth with the exception of petrochemical giants like Saudi Arabia and Qatar. Although, to be fair to China, it's recent economic growth has been unprecedented. Poor reporting, the country's unique state regulated capitalism, language difficulties and other factors may all have contributed to confusion among western analysts.
In mid-August 2015 China devalued the Yuan in its biggest drop in 20 years. It is likely it was a strategy to boost exports to rally markets against a sliding stock market since mid June. At the time of writing the Chinese authorities have now tried cutting interest rates with a similar aim and the markets have rallied.
The effect of a devalued Yuan is relevant due to China's overcapacity in several heavy industries such as a steel and cement. Already European and North American steel bodies have cried out against the threat of fresh Chinese exports undercutting their business. Clinker exports are likely to pose less of a risk given its relative low value and high transport costs. Even so, China exported less than 15Mt in 2013, a tiny portion of its production capacity. Altering the exchange rate might well help that export figure creep up. This would be bad news for local cement producers in coastal areas of East Africa for example. Here, Chinese imports might be harder to resist than, say, southern Asian ones, due to Chinese investment in the region. Recent spats over Chinese cement imports in Kenya and Zimbabwe underline this issue.
More worrying for the wider cement industry will be the risk of Chinese cement plant manufacturers and suppliers further undercutting western firms. Eurocement signed a deal with Sinoma in November 2014 for the Chinese equipment producer to supply three 3Mt/yr production lines for US$93.3m each or just over US$30m per 1Mt of production capacity. Compare this to FLSmidth's charge to a Qatari firm of US$190m in October 2014 to build a 2.24Mt/yr production line or just over US$80m per 1Mt of production capacity. This is not a completely fair comparison due to the plants being in completely different regions, but it gives some idea of the price pressures non-Chinese equipment manufacturers face. In their defence the usual argument is that their equipment is better made. However, cement producers being able to buy even cheaper Chinese kit will not help their plight. Today we report on Dangote Cement signing yet more contracts with Sinoma to build new cement plants in Africa.
The actions of the Chinese financial authorities show that they are trying careful tweaks one-by-one to fix the situation. The real problem though is that, as China transitions from a developing nation into a developed one, broader structural changes to the general economy may be required instead of tweaks. A massively over-producing cement industry is a symptom of this and how the country copes with it is instructive to how it will succeed overall. Bold attempts to consolidate the industry have shown willingness in recent years. Unfortunately the current crisis may artificially prop up an industry that should be reducing in size.
Mergers and acquisitions aplenty… but what about Cemex?
Written by Peter Edwards, Global Cement Magazine
19 August 2015
In early 2014 the top of the global cement producer charts looked very different to how it does today. The big four multinationals, Lafarge, Holcim, HeidelbergCement and Cemex, were clearly out in front and ahead of the rest of the global top 10. While there was discrepancy in their sizes, the largest, Lafarge (224Mt/yr) had just over twice the cement capacity of fourth-placed Cemex (95Mt/yr), with Holcim (218Mt/yr) and HeidelbergCement (122Mt/yr) between these extremes.1 With an impressive 659Mt/yr of capacity between them, these four accounted for just shy of half of global cement capacity outside of China.
However, as those with even a passing interest in the cement sector will know, this is no longer the case. The merger between Lafarge and Holcim and the subsequent acquisition of Italcementi by HeidelbergCement has stretched out the range of the top producers significantly. Today LafargeHolcim has around 340Mt/yr of installed capacity and HeidelbergCement 200Mt/yr. Meanwhile Cemex is still 'stuck in the 90s,' with a capacity of around 92Mt/yr following the sale of its Croatian cement assets last week. The Mexican 'giant' is now almost a quarter of the size of LafargeHolcim. What does this mean for the world's number three (excluding Chinese producers) and what might the future hold?
Well... the old adage goes that you have to move forward to stand still. However, Cemex has not moved forward over the past two years, meaning that is hasn't kept up the pace with its immediate rivals. It hasn't been able to, hemmed in by the debt that it took on from its poorly-timed acquisition of Rinker in 2007. Indeed, Cemex is looking to contract further, with aims to shed a further Euro600 - 1100m of non-core assets in 2015.2 Against improved positions at LafargeHolcim and HeidelbergCement, Cemex increasingly looks like an 'Americas specialist' rather than a full-blown multinational. A stake in Cemex LatAm Holdings is up for sale, but the sale of more cement plants may also be on the way. This is all being done to improve Cemex's investment grade rating from B-plus, four grades below investment grade.
If Cemex does have to shed further physical assets on the ground, it is very unlikely that it would chose to do so in the Americas, where it is a very major player. It is number one in Mexico, third in the US and well-postitioned in numerous growth markets in Central America. If push comes to shove, it is far more likely that it would sell assets that are further from home. These are in Europe, the Middle East and the Far East.
Cemex has 43% of its production capacity outside the Americas. Certain assets, such as those in Thailand, Bangladesh and the Philippines, may be appealing to CRH, which is already set to acquire LafargeHolcim divestments there and is known to be considering other purchases in the region.3 Cemex also owns several cement plants in better-performing EU economies like Germany and the UK. In Germany, the company has already completed a small downsizing exercise by selling its Kollenbach plant to Holcim (LafargeHolcim). Meanwhile, Cemex UK is a major player in the UK, where the Competition Commission has recently been very keen to increase the number of producers. Elsewhere, Cemex's share in Assuit Cement in Egypt could provide much needed revenue, as could its small stake in the Emirati markets.
Thinking more radically, and in keeping with the current trend of mega-mergers and large-scale acquisitions, could Cemex find itself the target of the next global cement mega-merger / acquisition? Certainly, its strength in Central and South America completely complements HeidelbergCement's lack of coverage here, making a future 'HeidelbergCemex' a potential winner.
The other option, if/when Cemex regains its investment rating, would be for Cemex to acquire or merge with a company further down the list of global cement produers. Africa is an obvious target, with rapid growth and a lack of Cemex assets at present. A foreigner buying up Dangote is probably out of the question, but PPC would be an interesting target, as would increasingly isolated Brazilian producers that could help shore up Cemex's South American position.
If the past 18 months in the global cement industry have shown anything, it is that we should expect the unexpected. It will be very interesting to see how all players, both large and small, will react to the recent goings on in the rest of 2015 and beyond.
1. 1. Saunders A.; 'Top 75 Cement Producers,' in Global Cement Magazine – December 2013. Epsom, UK, December 2013.
1. 2. Reuters website, 'Mexico's Cemex could sell part of business to pay down debt: CEO,' 10 February 2015. http://www.reuters.com/article/2015/02/11/us-mexico-cemex-idUSKBN0LF05320150211.
1. 3. Global Cement website, 'CRH investment spend set to pass Euro7bn with South Korea cement deal,' 12 June 2015, http://www.globalcement.com/news/item/3721-crh-investment-spend-set-to-pass-euro7bn-with-south-korea-cement-deal.