Analysis

There was a great quote on BBC News from Nigerian cement mogul Aliko Dangote to start 2014 with: "Can you imagine, can you believe, that [Nigeria] has been growing at 7%/yr with no power, with zero power? It's a joke."

In the article Dangote is describing economic growth in Nigeria and the BBC points out that 170 million people in Nigeria use the same amount of power as 1.5 million people do in the UK. The author then goes on to predict that Nigeria could grow at a rate of 10 – 12%, by just solving power infrastructure in the country.

For the start of 2014 the British state broadcaster has been running a radio series on the so-called MINT economies. The term refers to the growing economies of Mexico, Indonesia, Nigeria and Turkey and is being used as a new buzzword in the same fashion as BRIC (Brazil, Russia, India and China) to describe broadly similar growing economies outside the traditional western bloc dominated by the G7.

Comparing the cement industries in the MINT countries raises some discrepancies between the desires of Western economists and the local cement industries. Mexico has a population of 118m, a Gross Domestic Product (GDP) of US$1.85tr and a cement production capacity of 50Mt/yr. Indonesia has a population of 238m, a GDP of US$1.29tr and a cement production capacity of 47Mt/yr. Nigeria has a population of 175m, a GDP of US$479bn and a cement production capacity of 28Mt/yr. Turkey has a population of 74m, a GDP of US$1.17tr and a cement production capacity of 82Mt/yr.

Mexico and Turkey have the lower populations in the MINT group, the highest (and most similar) Gross Domestic Product (GDP) per capita at US$15,000 and are the more developed cement industries in the group with the higher cement production capacities per capita. All of the MINT countries have infrastructural issues that will require large amounts of cement in the coming years.

Highlighting Dangote's concerns we cover a cement industry news story this week from Nepal, where Dangote is considering potential locations for a cement plant. Part of the publicly reported meeting between Dangote and the Nepalese government concerned power requirements for the project. Dangote intends to generate 30MW itself and has asked Nepal to provide 30MW. From the CEO downwards the cement producer clearly understands the problems of underdeveloped infrastructure. This is not surprising given his comments above!

That MINT economies are growing powers will not surprise the cement industry. In this week's Global Cement Weekly, in addition to the Dangote story, we feature two news stories focusing on direct industry capital investment in Indonesia. Looking more widely nearly half the stories are from BRIC or MINT countries.

With this in mind Global Cement has developed its own buzzword for the cement industry in 2014: the VISA group. This group includes Vietnam, Italy, Spain and Australia, countries that have all had problems with their cement industries in 2013 such as a production overcapacity or financial losses. If readers have any nicknames of their own for groups of cement producing nations let us know at This email address is being protected from spambots. You need JavaScript enabled to view it..

As this is the last issue of Global Cement Weekly before the Christmas 2013 break, once again we will look at some of the major news stories of the year. This is a subjective summary of the year so if readers feel we have missed anything major let us know via LinkedIn, Twitter or This email address is being protected from spambots. You need JavaScript enabled to view it..

China tackles pollution and overcapacity
2013 has been the year that China's central planners took action against cement production overcapacity and pollution. Consolidation plans for the industry followed falling profits for cement producers in 2012. However, record air pollution levels in Beijing in early 2013 shut the city down, raised public awareness and gave the government a strong lever to encourage further industry consolidation through environmental controls. By the middle of year profits of major producers were up but production was also up. Finally in December 2013, China started to launch its emissions trading schemes (ETS), led by Guangdong province, to create what will be the second largest carbon market in the world after the EU ETS.

India faces a sticky wicket
Meanwhile, the world's second largest cement producing country has faced poor profits and growth for cement producers blamed on paltry demand, piddling prices and proliferating production costs. Compounding that, the Indian Rupee fell to a historic low relative to the US Dollar in mid-2013, further putting pressure on input costs. Holcim reacted to all of this by releasing plans to simplify its presence in the country between Holcim India, Ambuja and ACC.

Sub-Saharan Africa draws up the battle lines
Competition in sub-Saharan Africa is set to intensify when Nigeria's Dangote Cement opens its first cement plant in South Africa in early 2014. It is the first time Africa's two largest cement producers, Dangote and South Africa's PPC, will produce cement in the same country. Future clashes will follow across the region as each producer increasingly advances toward the other.

The Kingdom needs cement... and workers
Saudi Arabian infrastructure demands have created all sorts of reverberations across the Middle Eastern cement industry and beyond as the nation pushes on to build its six 'economic' cities amongst other projects. Back in April 2013 King Abdullah bin Abdulaziz Al Saud of Saudi Arabia issued an edict ordering the import of 10Mt of cement. Then some producers started to report production line shutdowns in the autumn of 2013 as they buckled under the pressure, although they consoled themselves with solid profit rises. Now, cement sales have fallen following a government crackdown on migrant workers that has hit the construction sector.

Competition concerns in Europe
Europe may be slowly emerging from the economic gloom but anti-trust regulators have remained vigilant. An asset swap between Cemex and Holcim over units in the Czech Republic, Germany and Spain has received attention from the European Commission. In the UK the Competition Commission has decreed that further action is required for the cement sector following the creation of new player Hope Construction Materials in 2012. Lafarge Tarmac may now have to sell another one of its UK cement plants to increase more competition into the market. Elsewhere in Europe, Belgium regulators took action in September 2013 and this week we report on Polish action against cartel-like activity.

Don't forget South-East Asia, Brazil or Russia!
Growth continues to dominate these regions and major sporting tournaments are on the way in Brazil and Russia, further adding to local cement demand. Votorantim may have cancelled its US$4.8bn initial public offering in August 2013 but it is still has the highest cement production capacity in Brazil. Finally, Indonesia may not have had any 'marquee' style story to sum up 2013 but it continues to regularly announce cement plant builds. In July 2013 the Indonesian Cement Association announced that cement sales growth had fallen to 'just' 7.5% for the first half of 2013.

Global Cement Weekly will return on 8 January 2013

Water conservation is on the agenda this week with two water-related news stories from the multinational cement producers.

First came a story that Lafarge Canada is preparing to run a trial using waste water from hydraulic fracking at its Brookfield cement plant in Nova Scotia. Currently the plant uses 35ML/yr of fresh water from a nearby lake to control temperatures of its rotary cement kiln. Potentially some of this water could be replaced with water produced during the fracking process. This water would then evaporate and be emitted from the stack.

The background to this pilot project is that the Nova Scotia regional government introduced a two-year moratorium on fracking in 2012 while it reviews the situation. Given the high level of public debate on fracking, any process using waste products from it is going to receive a high level of attention. One of the major arguments against fracking concerns the toxicity of the fluids used. Hence Lafarge stressed in their statement how safe the waste water would be before it would even be used in the plant. Safe enough to drink apparently.

Focusing on the industrial aspects of the pilot for cement production, it will be fascinating to see what effects the fracking waste water might have even just as a coolant on plant equipment. Among other contaminants, fracking waste water often contains high levels of salt. Managing a transition from a fresh water coolant source to a saltier more corrosive one may pose the first of many challenges.

Later in the week Cemex announced the latest stage in its work on water conservation with the implementation of a corporate water policy. The policy aims to focus on resource availability, resource quality, and ecosystem integrity. It continues Cemex's Water Project, developed in partnership with the International Union for Conservation of Nature.

Notably Cemex's water policy aims to maximise efficiency by managing water consumption with increased captured recycled or captured water usage given as an example. How Cemex might use recycled water from a contentious industrial process such as hydraulic fracking is not specified. However, the policy does aim to actively reduce pollution and limit the effects of discharge upon water ecosystems from its operations.

Water policies such as a Cemex's are great for an industry that often has an image problem in the eyes of environmentalists. Linking cement production to fracking runoff will not improve this image. Yet placing science before lobbying is the way to go. Bring on the results of the pilot.

In late November 2013 Guangdong province in China announced that it will be launching its carbon emissions trading scheme (ETS) in December 2013. Together with six other pilot projects in China the scheme will be the second largest carbon market in the world after the European Union (EU) when fully operational. Yet with the EU ETS floundering from excess carbon permits, with a resulting low price of permits and large cement producers such as a Lafarge reported as stockpiling permits, what are the Chinese schemes planning to do differently to avoid these pitfalls?

Overall, China has announced that it intends to cut its carbon dioxide emissions per unit of GDP by up to 45% by 2020 compared to 2005. In Guangdong, emissions from 202 companies will be capped at 350Mt for 2013, according to the local Development and Reform Commission. As shown in an article in the December 2013 issue of Global Cement Magazine, Guangdong province has a cement production capacity of 132.7Mt/yr, the second highest in the country after Anhui province.

From the perspective of the cement industry, Chunfang Wang from Huaxin Cement spoke about the importance of monitoring, reporting and verification (MRV) at an International Emissions Trading Association (IETA) workshop that took place in Guangzhou, Guangdong in early 2013. From Wang's perspective, emission assessment standards were at a 'developmental' stage in China and 'smooth' carbon trading would depend on consistent standards being adopted everywhere. Although at the time the particulars of the Guangdong scheme were unknown, participants at the IETA event advised cooperation with scheme planners to ensure emission producers and purchasers remained part of the decision process. Sliding carbon prices in the EU ETS may have been beneficial for permit buyers but once the government planners become involved to revive the market they might lose out.

As the Economist pointed out the summer of 2013, an ETS is a cap-and-trade scheme. Since China appears to have no definite cap to carbon emissions, how can the trading work? The Chinese schemes cap carbon per unit of Gross Domestic Product (GDP). Yet since GDP is dependent on production, any ETS run in this way would have to include adjustments at the end of trading. This would give central planners of the scheme plenty of wiggle room to rig the scheme. Worse yet, analysts Thomson Reuters Point Carbon have pointed out that the Chinese schemes face over-allocation of permits, the same issue that sank EU carbon prices. Additionally, one of the criticisms of the Guangdong Emissions Trading Scheme (GETS) pilot scheme was that the carbon prices may have been higher than expected due to market collusion.

The Chinese ETS projects face issues over their openness. If traders don't know accurately how much carbon dioxide is being produced by industry, such as cement production, then the scheme may be undermined. Similarly, over-allocating carbon permits may make it easier for producers to meet targets but it will cause problems in the trading price of carbon. However, given that a carbon emissions cap is an artificial mechanism to encourage markets to cut emissions, should any of these concerns really matter? The main question for Chinese citizens is whether or not China can cut its overall emissions and clear the air in its smog filled mega-cities.

Specifically for cement producers, it seems likely that large producers will be able to cope with the scheme best, from having more carbon permits to sell, to rolling out unified emissions assessment protocols, to liaising better with scheme planners. In Europe smaller cement producers, like Ecocem, have criticised the EU ETS for slowing a transition to a low carbon economy by subsidising the larger producers' emissions through over-allocation. In China, with its self-declared intention to consolidate an over-producing cement industry, whatever else happens it seems likely that smaller cement producers may become lost in the haze.

Both Dangote Cement and PPC have reminded the world about their development plans for sub-Saharan Africa. In the wake of PPC's yearly results on 19 November 2013 came a spotlight on the South Africa-based cement producer's international ambitions. Not to be outdone, Nigeria's Dangote Cement then put out a press release detailing all of its big development projects.

Dangote and PPC are set to go into direct competition when the Dangote subsidiary, Sephakhu Cement, opens its 3Mt/yr integrated cement plant at Aganang, North West province in early 2014. It will be the first time the Nigerian cement giant will be producing cement in the same country as its competitor in sub-Saharan Africa, PPC. The encounter will set the tone for the producers' next clash when they both open cement plants in Ethiopia in 2015.

Both the African cement producers are targeting a swathe of south to east sub-Saharan Africa from South African to Ethiopia. PPC, based in South Africa, has a presence in neighbouring Botswana, Zimbabwe and Mozambique. It has bought stakes in cement producers in Rwanda, Ethiopia and the Democratic Republic of the Congo and has new cement plants on the way in Ethiopia, Rwanda, Zimbabwe and the Democratic Republic of the Congo. In contrast to PPC's more 'organic' growth strategy from an established base, Dangote, with its existing presence in west Africa is about to enter this region. It has new projects planned in Kenya, Tanzania and Zambia, as well as in Ethiopia and South Africa.

To compare the financing behind each company's expansion, Dangote reported that it had committed US$884m for acquisitions in 2012. PPC intends to spend US$276m on capital expenditure in its 2014 financial year. If these figures from financial reports are correct, Dangote is spending three times as much as PPC on expansion. Dangote may have more money for expansion but PPC has long-standing presences in the region or has recently acquired them.

Dangote reported an 18% rise year-on-year in turnover to US$1.8bn in 2012. The same year its sales volumes increased to 10.4Mt from 8.66Mt in 2012. The company's installed cement production capacity was reported as 19.25Mt from three plants in Nigeria. In comparison, PPC reported a 13% rise in revenue to US$820m for its financial year to the end of September 2013. No exact cement productions figures were released but PPC said that cement sales increased by 7% in the period.

How Dangote and PPC spar in South Africa remains to be seen but one area where they may agree will be on imports. In its final results for 2013, PPC again highlighted the continuing threat of imports from Pakistan, mainly via Durban. Imports comprised 7.6% of national demand as of June 2013. In Nigeria in 2012 Dangote led successfully a campaign to cut foreign imports. Irrespective of increasing demand for cement, adding Dangote to the anti-cement import lobby in South Africa might well make space for a new producer.