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Ethiopia – Failing to launch?
Written by Global Cement staff
14 August 2013
In the January 2013 issue of Global Cement Magazine, we featured a review of the Ethiopian cement industry. At the time we were hopeful with respect to the country's future cement demand, buoyed along by Ethiopia's own bold targets for development of the sector. It seemed only a matter of time before international and regional producers went to Ethiopia and cashed in on a cement plant-building bonanza.
Ethiopia's government is keen to further develop Ethiopia's cities and infrastructure and wants to increase its per-capita cement consumption from 35kg/yr at present to ~300kg/yr in the period to 2017. To do this, it is encouraging the cement sector to swell from its current capacity (7.4Mt/yr integrated capacity with additional grinding capability) to over 27Mt/yr by the same year. At the same time, the country has banned cement imports, a bold statement of intent designed to protect its own growing industry.
This week, we have learned that the country is hitting its bold production targets, largely without assistance from outside players. However, it seems that Ethiopia is incapable of consuming the volumes of cement that have been produced. As of 12 August 2013, the Ministry of Industry announced that Ethiopia made 12Mt of cement in the year to 7 July 2013, more than double the 5.4Mt/yr that it demanded over the same period. This revelation casts the government's future predictions for rapid cement demand growth in serious doubt.
While it takes effort to picture Ethiopia producing 27Mt/yr of cement by 2017, such rapid development is happening in west Africa, where Nigeria's Dangote Cement is achieving 'regional-giant' status.
However, it would take a very great leap of imagination to believe that Ethiopia could consume 27Mt/yr in 2017, five times what it does today, even with the development of major projects like the Millennium Renaissance Dam (a US$4.2bn hydroelectric project), major city and road-building projects and a rapidly growing population. Its cement capacity would have to grow by 4.9Mt/yr, representing average year-on-year cement demand growth of 52.5%/yr. Even with a cement industry the size of Ethiopia's, this represents almost impossible growth. To support this increase in demand, GDP/capita, which is often closely correlated to cement demand, would probably also have to raise fivefold, from US$374 to US$1870. This difference would take it from the bottom 20% of African nations well into the top third by this measure.
If this over-production trend continues, it does not bode well for Ethiopia's domestic cement industry. While exports may appear attractive, options are limited. Kenya to the south has a larger and more well-established cement industry, Somalia has major economic and security drawbacks and Ethiopia's relationships with Eritrea and Djibouti, both of which declared independence from Ethiopia, are tense. With no coast of its own, maritime exports will be difficult, especially with low-cost cement flowing from India, Pakistan and Iran. South Sudan, with its lack of cement production facilities, plentiful oil and major trade/border dispute with Sudan, could offer a small market for Ethiopian exports, but not enough to satisfy a ~20Mt/yr overcapacity.
Read Global Cement's January 2013 review of the Ethiopian cement industry here.
Weston uncertainty ends in New Zealand
Written by Global Cement staff
07 August 2013
Weston is off. The 'will-they, won't they' of the New Zealand cement industry took a more decisive turn this week with the announcement that Holcim New Zealand intends to import cement instead.
Once Holcim's existing cement plant at Westport winds down there will be no more indigenous cement production on New Zealand's South Island. Golden Bay Cement on North Island will be left as the nation's sole cement producer. Instead Holcim now plans to build US$80m on an import terminal and related infrastructure.
Given a previous price tag of US$400m for the Weston project, switching to an import strategy makes sense for Holcim which has had a hard time of late with a poor first quarter following a tough year in 2012. Despite the benefits that the construction sector in New Zealand has seen with the rebuilding following the 2011 Christchurch earthquake, Holcim is thinking of its wider strategy. Although, as one of the largest multinational cement producers, Holcim has a wide supply chain for clinker, Australia reported poor sales in 2012 and it would be an obvious hub to keep New Zealand topped up with sufficient product.
Last week's doubts about the Indian cement market – when Holcim announced major business restructuring in India – may also have an effect as Vicat too has reported problems in the country this week. The question to ask when Holcim releases its half-year results in mid-August 2013 is how much excess capacity does the company have?
Coincidentally, importing cement is one issue that has come up in the UK Competition Commission's on-going investigation into the UK cement industry. An Irish cement importer has alleged that unnamed European cement producers have blocked his attempts to import cement to Ireland. The UK Competition Commission will continue its investigation until late 2013. Whilst we are not suggesting that the New Zealand cement industry has any problems of this kind, as the market adjusts to a higher level of imports it will encounter new challenges.
Half-time progress report 2013
Written by Global Cement staff
31 July 2013
Half-year results from some of the major global cement producers are starting to present a detour from the usual European doom-and-gloom and optimism for the BRIC economies (Brazil, Russia, India, China and South Africa) of recent years.
Yes, Europe is dragging balance sheets down (particularly certain countries), but some indicators are starting to stabilise following a good second quarter. Very possibly the cost cutting programmes of the multinational cement producers are starting to kick in. Alternatively, perhaps these cement markets have finally bottomed out.
Lafarge has suffered a bad six months with cement sales down by 6%. However, its sales decline in Western Europe has slowed down with the worst news now coming from Central & Eastern Europe. Cemex has reported a better second quarter in 2013 with overall sales up by 4%. It too can show softened declines in its European territories. Italcementi and its subsidiary Ciments Français both saw revenues falling in the half year but either at a reduced rate or with a slowdown in the rate that earnings before interest, taxes, depreciation and amortisation (EBITDA) are declining.
Only HeidelbergCement's results have resisted any direct signs of an improvement in Europe. Overall revenue has remained stable for the half year with its profit up year-on-year. In Europe its revenue reduction has worsened to 4.7% for the half year. However it did observe a 'significant' improvement in cement sales in the UK.
Meanwhile, one of the cement industry's more reliable markets in recent years – India – is showing signs for concern.
As our news roundup this week reports, the country's largest standalone cement producer, UltraTech, had its profits drop year-on-year by 13.5% to US$111m for the most recent quarter and its net sales actually dropped slightly. Holcim has also been active in India with the announcement that it is simplifying its corporate structure to cut costs. In addition Lafarge reported that its market growth in India was 'subdued', considerably down from the 24% growth in cement sales seen in that country in the first half of 2012.
The news from UltraTech and Lafarge suggest that the rate of growth of the Indian cement industry is slowing. The unanswered question from Holcim's activity in India is whether they are doing it to counteract European losses or to counteract a loss of profitability in India.
Holcim's half-year results will make interesting reading when they are released in mid-August 2013 and may help to decide whether the worst is over in Europe.
Sri Lanka – destination or stopover?
Written by Global Cement staff
24 July 2013
Sri Lankan cement demand fell in the first half of 2013. Yet this doesn't seem to be stopping the cement industry's slow recovery following the civil war that ended in 2009.
As reported by Sri Lankan media around the launch of Holcim Lanka's 2012 Sustainability Report, the local cement industry has seen volumes fall by 7% but this is expected to improve in the second half. Tokyo Cement, a grinding plant operator, confirmed a similar drop in the first quarter of 2013.
Despite the talk of downturn so far in 2013, Tokyo Cement has announced plans for a 1Mt/yr cement plant costing US$50m complete with its own captive biomass power plant. In addition, plans have emerged of a joint venture involving Pakistan's D.G. Khan Cement to build a grinding plant at Hambantota in the south of the island. Costing US$15m, the plant is intended to process exports to South Africa and Kenya.
The explicit intention to produce clinker in Pakistan and then grind it in Sri Lanka before export to a third destination makes an interesting notion. The Pakistan cement producer may benefit from being able to export cement from Sri Lanka with the added security of knowing that the grinding plant is located in a growing market itself. A helpful strategy given Pakistan's cement production overcapacity.
The Hambantota project is also noteworthy because another Pakistan-based company, Thatta Cement, announced in April 2013 that it had signed an agreement with the Sri Lanka Ports Authority to a build a grinding and bagging plant at Hambantota. Also in 2013 the Nepali entrepreneur Binod Chaudhary submitted a US$75m plan for a cement plant in the north of the island.
Of course all of this appears miniscule in comparison to the level of investment Semen Indonesia has chalked up to spend between now and 2016: up to a whopping US$2bn.
Elsewhere in the news this week the price of extending a US Environmental Protection Agency (EPA) deadline has revealed itself to be US$1.5m. Lafarge North America has succeeded in pushing back pollution controls at its Ravena plant by over a year in exchange for interim limits and an investment in air pollution projects in the local community. It's not a fine but the announcement follows other pollution-related payments at cement plants run by Holcim and Ash Grove. Let's hope that any new plants in Sri Lanka avoid these kind of payments.
Decoupling carbon emissions from cement production
Written by Global Cement staff
17 July 2013
New Cement Sustainability Initiative (CSI) data for 2011 shows that the global cement industry has reduced its specific net CO2 emissions per tonne of cementitious product by 17% since 1990. This represents a serious amount of carbon prevented from entering the atmosphere. Using United States Geological Survey (USGS) world production data, if cement producers in 2011 were still emitting C02 at 1990 levels 456Bt of additional CO2 would have been released between 1990 and 2011.
Unfortunately there are a couple of problems.
Firstly, submitting data for the project is voluntary. As the CSI points out in its press release the data set comprises 55% of cement production outside of China. A rough calculation based on global cement production capacity suggests that this could only account for about one third of cement made. So how much carbon does the other two-thirds of cement made emit?
Secondly, although CO2 emissions per tonne of cement have gone down by a sixth since 1990, global cement production more than tripled (!) in the same time period. USGS data placed world production at 1.40Bt in 1990. It estimated 3.59Bt in 2011. In terms of net CO2 released into the atmosphere, in 1990 this was 1058Bt. In 2011 it was 2260Bt.
The big cement producers compare as follows to the CSI data, which reports emissions of 629kg/t. Lafarge reported 592kg/t cementitious in 2011 and 585kg/t in 2012. Holcim reported 584kg/t in 2011 and 579kg/t in 2012. HeidelbergCement reported 621kg/t in 2011. Cemex reported 612kg/t in 2011 and 2012. No data on specific net CO2 emissions were available for the major Chinese cement producers.
The CSI data shows that the cement industry has made an effort to reduce CO2 emissions since 1990. Yet this has been counteracted by a rise in cement production. To compensate for the rise in production between 1990 and 2011 the specific net CO2 emissions per tonne of cementitious product would have had to have fallen to below 300kg/t, a drop of 60%.
Environmentally sensitive readers shouldn't despair yet though as the CSI has demonstrated that emissions and production are gradually separating in the cement industry. From 2010 to 2011 specific net CO2 emissions per tonne of cementitious product fell from 638kg/t to 629kg/t. If this trend continues - and if it is representative for the cement producers the CSI doesn't cover – then the industry may be getting a handle on its emissions. We may be about to hit peak emissions for the cement industry sooner rather than later.