Analysis

It's official: the big boys are heading to India this week.

First Lafarge head Bruno Lafont announced broad expansion plans in the subcontinent. Then a Holcim presentation emerged from earlier in 2012 projecting that the company expects India's overall construction market to take the global third position after China and the US by 2020.

With the Indian construction share set to rise from US$360bn in 2010 to US$840bn in 2020 that's one massive market share up for grabs. Throw in some interpretation from India's 2011 census and the signs are that its population could overtake China's by 2030. Sounds like an absolutely perfect opportunity for your average embattled European cement corporation!

Except that there's no such thing as a sure bet. As we covered previously, Indian cement consumption fell for the first time in 20 years in August 2011. The cause was put down to political problems holding up infrastructure in key states. In March 2012 we've had two stories that have impacted upon the local industry. First the Railway Board of India hiked the freight rates by 24%. Then the Union Budget for 2012-13 increased the excise and service tax. Clearly everybody wants a piece of the 'inevitable' bonanza. If anything impedes India's growth in the next decade there may be bargains going for cement on the export market.

Elsewhere this week we have stories on the potential cost of a proposed air pollution ruling upon two plants in the US state of Montana, more information on a revival in the Gulf Cooperation Council region and more capacity growth in Indonesia.

Reporting the annual results for Turkish cement producer Adana Çimento opened up an issue familiar from many of the international big players' annual reports last year: currency fluctuations.

The conversion rate between the US dollar and the Turkish lira rose from US$1 to Turkish lire 1.55 at the end of 2010 to US$1 to Turkish lira 1.89 at the end of 2011. This created the alarming situation where the company's annual sales rose by 3% from 2010 to 2011 if you measured it in Turkish lira, but fell by 15% if you measured it in US dollars!

Great news for currency speculators playing with so-called 'hot money' but not so great for manufacturers seeking stable trading conditions. As for the company's shareholders, if they are paid their dividend in Turkish lira then it's the value of the lira that is important. If the shareholders have to change Turkish lira into their own 'foreign' currency in order to spend it (or keep it in the bank), into dollars for example, then that's when they could lose out.

This is particularly bad news for a country like Turkey with its strong export market. Although looking at the nation's top export destinations in 2010 reveals a roll call of instability, including Iraq, Syria, Libya and Egypt. Regardless of the price, these countries are going to need cement when the dust settles from ongoing political turmoil, something we also cover in another story this week with reports of striking at Egyptian plants. Cement isn't likely to be coming from Saudi Arabia though, which we see is enjoying demand driven by government-funded construction projects.

Elsewhere this week we have stories on the impact of the Indian Budget on the cement industry, yet more Dangote projects in Cameroon and Liberia and promising signs from Taiheiyo in Japan.

Last week Lafarge received a US$20m slap-in-the-face for cartel-like activity in South Africa. The case, which has been running since 2008, has investigated dealings at Lafarge, Pretoria Portland Cement, AfriSam and Natal Portland Cement-Cimpor. Yet the question remains: are cartels ever a good thing for the industry?

Back in December 2011 we covered the Common Price Agreement (CPA) in an article on cement price trends in the UK in Global Cement Magazine. This legally-approved cartel, operated by the UK Cement Makers' Federation, ran from 1934 until 1987. It was dissolved to allow UK producers to compete with cheaper foreign imports. Its supporters argued that it kept prices down in remote areas and stabilised the industry, a situation that cement buyers faced with escalating prices in Tanzania and Saudi Arabia might sympathise with this week. Despite this, prices in the UK fell after the CPA ended in 1987.

An uncited 'fact' on Wikipedia – itself a virtual monopoly on online knowledge – suggests that the median price increase achieved by cartels over the last 200 years could be 25%. Lafarge's fine represented 6% of its 2010 annual turnover in the region. Depending on how Lafarge's sales relate to its turnover this raises the possibility that even with its hefty fine Lafarge may still be in profit over the venture.

Cartels dog the cement industry given the prevalence of small groups of sellers in many markets. Throw in the current economic pressures in regions with over-capacity and the temptation must be irresistible. When one makes a link from this week's story from Pakistan about over-capacity to January's headline of 'inexplicably high' prices, the feeling occurs that Lafarge's chastening in South Africa is just the tip of the iceberg.

What do you think? Join our discussion on cartels in the Global Cement LinkedIn Group

Lafarge UK has scored a notable success recently at its Cookstown Works reaching 10 years without a lost-time injury (LTI). It has emerged that this is the longest a Lafarge Group plant anywhere in the world has gone without a LTI. Cookstown also set the record the previous year in 2011, showing how far ahead it is of the rest of the group.

LTIs are generally defined as any work related injury or illness which prevents a worker from doing any work the day after the accident. Another similar measure is Lost Time Injury Frequency Rate (LTIFR), which takes into account hours worked by staff.

For example, in April 2011 Global Cement Magazine interviewed the safety manager at the Ste. Genevieve plant in Missouri, USA. He revealed a rate of zero lost-time incidents rate over the last 1.2 million-man hours and no LTIs over the last 700 days. Through construction the plant employed 2300 personnel and then 200 operational employees when it went live. By comparison Cookstown employs only 80 workers. Its LTIFR will be much lower.

The Mineral Products Association recorded a 81% reduction in LTIs between 2004 and 2009 for the UK cement industry. It has since set itself the further target to halve the LTIFR between 2009 and 2014. As of 2009 the UK LTIFR for direct employees was 3.59 per million hours worked. The MPAs target LTIFR for 2014 is 1.79 or lower.

Regardless of how you present the figures the Cookstown Plant LTI achievement is impressive. The challenge, as ever, lies in bettering it.

A US environmental pressure group is reportedly claiming that Ash Grove has started the process to close two of its wet kilns in Midlothian, Texas. Ash Grove has retorted that the decision is not final yet.

The move fits with a new emissions timetable imposed by the Environmental Protection Agency (EPA) due to come into effect in 2013. Yet Ash Grove's response also suggests that it is keeping an eye on the impending Cement Sector Relief Act. Approved by the US House of Representatives in October 2011 with strong Republican support, if this bill makes it to law then the EPA will be forced to recind some of its existing rules concerning emissions from cement plants. This situation could help Ash Grove to manage its kiln investment. Either way, it's no wonder that Ash Grove hasn't committed yet.

All this democratic uncertainty contrasts rather nicely with the last missive from the Chinese Ministry of Information and Technology announcing more cement industry targets as part of the latest Five-year Plan. China's cement industry will source 65% of its electrical needs from waste materials by 2015. Simple! China is currently dealing with wet kilns in a similar fashion. They are being 'eliminated.'

Before we become too fixated on supposed Western decline, our third kiln-related story this week follows a test run at the Lafarge-Strabag plant in Hungary. Billed as one of the most environmentally friendly plants in Europe, the 1Mt/yr facility is due to be finished by 2015. Just in time for China's next Five-Year Plan.