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Everything (almost) must go in the LafargeHolcim clearance sale
Written by Global Cement staff
09 July 2014
This week saw Lafarge and Holcim announce a list of proposed asset divestments following months of research by a Divestment Committee. The mass divestment is planned so that competition authorities around the world can approve the proposed Euro40bn merger of equals to produce LafargeHolcim. When the merger was initially proposed on 7 April 2014, Lafarge and Holcim estimated that some Euro5bn of asset disposals would be necessary and they are already well on their way.
Europe is facing the brunt of asset divestments, as this is where the companies have the largest market overlap. Holcim plans to sell all of its assets in Hungary and Serbia, while Lafarge will sell all of its assets in Germany, Romania and the UK (with one possible cement plant exception). In Austria, Lafarge has opted to divest its Mannersdorf cement plant, while in France it would sell its Reunion Island assets (excluding its shareholding in Ciments de Bourbon). Holcim plans to sell all of its assets in France except for its Altkirch cement plant and aggregates and ready-mix sites in the Alsace Region.
Elsewhere in the world, Holcim plans to sell all of its assets in Canada and Mauritius. In the Philippines the companies plan to combine the operations of Lafarge Republic Inc and Holcim Philippines Inc and to divest Lafarge's Bulacan, Norzagaray and Iligan plants. In Brazil, where Lafarge and Holcim both have a significant presence, the companies plan to announce their intentions after collaboration with CADE, the country's competition authority. There is little market overlap in most of Asia and the Middle East: Lafarge's assets in Malaysia and Syria complement Holcim's strong presence in India and Indonesia.
So far, Lafarge has consolidated its African operations by establishing Lafarge Africa and selling its assets in Ecuador. Holcim has been granted approval from the European Competition Commission to purchase Cemex West in Germany and, most recently, Lafarge has announced that it intends to buy out its joint venture partner, Anglo American, from Lafarge Tarmac in order to sell the entire business.
While the asset divestment list shows good will to global competition authorities, there remains no guarantee that Lafarge and Holcim will not need to divest even more assets. However, by nominating such a large number of divestments in the first instance, the companies have shown willing to cooperate with anti-monopoly measures, potentially easing the path of the LafargeHolcim mega-merger.
Central Asia cement roundup
Written by Global Cement staff
02 July 2014
A group of news stories from Central Asia and Azerbaijan this week present a good opportunity to look at the cement industry in this part of the world.
Uzbekistan
Eurocement has announced that it plans to build a 2.4Mt/yr cement plant near to Tashkent. Chinese contractors have been signed for the work in line with the Russia-based cement producer's other plant builds in 2014. Eurocement also operate a subsidiary in the country, the 1.6Mt/yr Akhangarancement cement plant, that reported a criminal investigation and financial audit following various misdemeanours in April 2014.
Also in April 2014 the Almalyk Mining-Metallurgical Combine (AMMC) proposed building a 1.5Mt/yr cement plant in the south of the country and then commissioning of a white cement plant in the central Jizzakh Province. Both the Eurocement and AMMC projects show that organisations are investing in the local market of the region's most populous country at around 30m.
Turkmenistan
In neighbouring Turkmenistan the TurkmenCement Production Association has issued a tender this week for the construction of a 1Mt/yr clinker plant in the central-south of the country in the Baharly District of the Akhal Region. If realised, the new plant will raise Turkemistan's cement production capacity to 4Mt/yr. Currently the country has three state-operated plants. The most recent, the 1.4Mt/yr Garlyk plant, was commissioned in February 2013.
Kazakhstan
An investor has stepped forward to finance the completion of the delayed Khantau cement plant in Zhambyl region in southern Kazakhstan. The 0.5Mt/yr plant was originally started in 2007 before being mothballed part-way through construction.
The reignition of this project follows a couple of stories from Kazakhstan including a report on testing at the HeidelbergCement Caspi cement plant in Mangistau region and the start of operation on Line 5 of Steppe Cement's Karaganda Cement. Kazakhstan has more western international cement producers, unlike the generally state-run companies in Uzbekistan and Turkmenistan. HeidelbergCement will join plants run by Italcementi and Vicat.
Azerbaijan
Finally, on the other side of the Caspian Sea, Azerbaijani local media has reported that cement production for the first half of 2014 has risen by 40% year-on-year to 1.1Mt. Following the opening of the Gazakh cement plant in mid-2013 the country has three cement plants with a combined cement production capacity of nearly 5Mt/yr.
Australian and New Zealand cement industry shrinks
Written by Global Cement staff
25 June 2014
Bad news for both cement workers and local clinker production in Australia and New Zealand this week with the announcement of job cuts and planned closures of clinker plants. Holcim New Zealand has confirmed that around 120 jobs will go when its Westport cement plant closes in 2016 along with the rationalisation of a few management jobs when the company integrates its Australian and New Zealand businesses. Meanwhile, Boral announced that it will cut 28 jobs from its Maldon Cement plant in Australia when it ceases clinker production at the end of 2014.
With these planned closures cement production capacity in the antipodes will shrink by just over 1.5Mt/yr to around 7.5Mt/yr, a reduction of over 15% Alongside the drop in native cement production players are re-focusing on an import market.
The trend is highlighted by the fact that Boral's Maldon site will retain its grinding mill. Earlier in June 2014 it was reported that Vue Australia is planning to convert a brownfield site on Kooragang Island, New South Wales into a cement storage and transfer plant. In February 2014 Cockburn Cement cut 44 jobs at its Munster cement plant as it started to restructure its operation for grinding using imported clinker. Also in February 2014 Cement Australia, the joint-owned company between Holcim and HeidelbergCement, had a US$17m expansion of its cement loading and storage facility for processing at Osborne approved by local authorities.
Following its restructuring in 2013, which has seen clinker production cease at Waurn Ponds and soon to cease at Maldon, Boral reported that its cement revenues grew in its 2012 – 2013 financial year. This is likely to continue when the 2013 – 2014 year is reported in August 2014. Likewise, Adelaide Brighton reported growing revenues in 2013. Cement Australia reported growing cement sales year-on-year in the first quarter of 2014 following reduced sales in 2013.
All in all the local cement industry in Australia and New Zealand has taken quite a knock in recent years. Reasons for this have included a poor recovery for the local building materials market, high-energy costs, the Carbon Tax in Australia, competition concerns and the spectre of cheap clinker imports from East Asia undercutting everything. However the return to revenue and then profit suggest that the worst of the job cuts and clinker production shrinkage is over.
In this business environment, revelations such as a China Resources spending upwards of US$300,000 on golf are unlikely to garner sympathy for any measures that appear to reduce international competiveness for Australian industry. The current Australian government led by Tony Abbott is set to make good on its promise to repeal the Carbon Tax from July 2014. The environmental effects will be unclear given that the tax may have cut emissions from participating companies by 7%, falling from 342Mt in 2011 – 2012 to 321Mt in 2012 – 2013, according to the Investor Group on Climate Change. As is usual with localised carbon taxation or legislation, whether global emissions fell during this period or whether emissions grew in looser jurisdictions to compensate is hard to calculate. The trend towards clinker imports suggests that there may be a significant contribution from the latter.
Taxing arguments for European cement producers
Written by Global Cement staff
18 June 2014
Industrial energy consumers in Romania have succeeded in extracting concessions from the government's green certificates scheme this week. Cement producers, including Lafarge, Holcim and local HeidelbergCement subsidiary CarpatCement Holding, will benefit now from a 10-year facility to acquire the certificates and they will be allowed to buy up to 85% fewer certificates than at present.
The Romanian government reckons the change will save industry Euro750m. It will be good news for the cement producers and aluminium producer Alro Slatina, one of the chief lobbyists for the change which paid Euro39m for the certificates in 2013, reported losses of Euro17m and threatened production closures.
The debacle strikes a chord with other government-led attempts to nudge society towards lower-carbon emitting energy sources. First a national or international scheme offers economic incentives toward some sort of carbon reduction. Then major industrial users either complain that the system 'unfairly' penalises them or they find a way to play the system. The latest example of the adjustments in Romania is an example of the former, as is the current Australian government's intention to remove its carbon tax. Multinational companies surrendering carbon offsets into the European Union's (EU) emissions trading scheme (ETS) is an example of the latter.
In defence of government-industry negotiation, the EU ETS is now in its third phase of trying to make the scheme work as the EU tries to reach its target of a 20% cut in emissions compared to 1990 levels by 2020. In late 2013 environmental group Sandbag accused the target of containing a loophole that allows for a much smaller cut in emissions due to a slack in carbon budgets, of potentially 2% of 1990 levels. However, the EU confirmed in early June 2014 that it is on track to beat its target and cut down total emissions by 24.5% by 2020.
Alongside all of this arguing, overall energy costs have steadily risen over the last decade, as have the rates of co-processing at European cement plants. As a secondary major fuels consumer, behind energy generation and transportation, the cement industry is particularly susceptible to energy prices being jolted around behind various market trends, such as increases in natural gas supply in the US market. In effect the cement industry hops between different 'next best' options, after the leading energy consumers have taken the premium fuels. The interplay between legislators and heavy industry over carbon taxes prompts the following question: what encourages cement producers more to move to reduce their carbon emissions – legislation or fuel prices?
In other news this week, the chief executive of African producer Bamburi Cement, Hussein Mansi, has announced his plans to move on to Lafarge Egypt. In his memo to staff he mentioned, '...five very interesting years leading the Kenya – Uganda business.' Telling words perhaps given the Kenyan government's attention on Bamburi Cement and the East Africa Portland Cement Company, a producer minority-owned by Lafarge. Of course Mansi may discover that 'interesting' is relative in Egypt, a country on the other side of the energy subsidy spectrum to Europe and its carbon taxes.
Lafarge-Holcim merger consequences in developing markets
Written by Global Cement staff
11 June 2014
The creation of Lafarge Africa, the clearance of the Cemex West acquisition by Holcim in Germany and the sale of Lafarge's assets in Ecuador all hint at the scale of business that LafargeHolcim will command when it comes into existence. Despite the media saturation of coverage on the merger the implications in developing markets are still worthwhile exploring, especially in Latin American and Africa.
In sub-Saharan Africa, Lafarge is merging its cement companies in Nigeria and South Africa to create Lafarge Africa. Analysts Exotix have described the move as, 'the birth of a leading player on a continental scale'. Indeed, if Lafarge wanted to grow Lafarge Africa to encompass its many other African cement producing subsidiaries it could hold at least 17 integrated cement plants (including plants in north Africa) with a cement production capacity of at least 40Mt/yr in 10 countries and infrastructure in others. That puts it head-to-head with Dangote's plans to meet 40Mt/yr by the end of 2014 through its many expansion projects. Following these two market leaders would come South African-based cement producer PPC with its expansion plans around the continent.
Meanwhile across the Atlantic in Latin America the Lafarge-Holcim merger threatens Cemex. Unlike in Africa where Lafarge has a ubiquitous but disparate presence, Lafarge and Holcim's cement assets are more evenly scattered around the Caribbean, Central and South America. In terms of cement production capacity Cemex and Lafarge-Holcim will both have around 30Mt/yr, with Cemex just in front. The next biggest cement producers in Latin America will be Votorantim (present mainly in Brazil) with just over 20Mt/yr and Cementos Argos (Columbia) with about the same. This includes some new acquisitions in the United States for the growing Columbian producer. In Ecuador Lafarge and Holcim held over 50% of the market share, hence the sale by Lafarge of its assets to Union Andina de Cementos for US$553m.
Depending on how well the merger integrates the two companies, corals the various subsidiaries and implements strategic thinking the merger could just create business as usual with little disruption to the existing order. Yet in both continents the merger has the opportunity to shake up and reinvigorate the cement markets as existing players suddenly discover serious new competition and react accordingly.
Africa has a population of 1.1bn and it had a Gross Domestic Product (GDP) of US$2320/capita in 2013. South America had a population of 359m in 2010 and a GDP of US$8929/capita. This compares to US$27,250/capita in Europe and US$54,152/capita in the US. The economic development potential for each continent is humongous. Post-merger, LafargeHolcim will be first or second in line for some of this potential in Latin America and Africa.