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Fuel costs in India, August 2022
Written by David Perilli, Global Cement
17 August 2022
Fuels procurement and costs have been weighing on the minds of Indian cement producers since the start of the Russian invasion of Ukraine in February 2022. Two news stories this week show some of this. The first concerns recent imports of petcoke from Venezuela. The second covers the closure of captive power plants due to domestic shortages of coal.
At the same time, as the financial results for cement companies for the first quarter of the Indian 2023 financial year have been released, one constant has been hefty hikes in power and fuel costs. Graph 1 below gives a rough idea of the jump in costs major producers have been contending with. One point to note is that, possibly, the larger cement companies may have been better at slowing down the cost inflation from fuel. However, the prevalence of waste heat recovery installations and alternative fuels usage may also be a factor here. Finally, the company approved to buy Ambuja Cement and ACC, Adani Group, also runs India’s biggest coal trader. It will be interesting to see in the medium term how this might affect the fuel costs for its new cement division.
Graph 1: Comparison of Power & Fuel costs for selected Indian cement producers in first quarter of 2022 and 2023 financial years. Source: Company financial reports.
The Venezuelan story demonstrates the greater lengths that Indian cement producers are now going to secure fuel supplies. Reuters reports that cement companies imported at least 160,000t of petcoke from the South American country between April and June 2022 and that more was on the way. JSW Cement, Ramco Cements and Orient Cement are among them. The Venezuelan oil industry has been under US economic sanctions since 2019 but byproducts such as petcoke are not covered by this. Its petcoke has apparently been discounted by 5 - 10% below the price of US alternatives.
Indian cement producers have been prepared to risk US sanctions further by importing coal from Russia. The Business Standard newspaper, using data from Coalmint, reported that Russia became India’s third largest source of coal imports, at 2.06Mt, in July 2022. Before the war it was the sixth-largest source of coal to the country. Again, Reuters covered how cement companies were doing this in July 2022, when it revealed that UltraTech Cement had used India-based HDFC Bank to purchase coal using Chinese Renminbi, not the US Dollar as is more common for international purchases of commodities. In a conference call for the release of its first quarter results, UltraTech Cement’s chief financial officer Atul Daga confirmed the purchase and described it as “opportunistic.” He added that, “If something more surfaces, we will pick it up.” As the data for July 2022 shows, it may or may not be UltraTech Cement that is buying Russian coal right now but other parties in India certainly are.
Some of the wider economic implications about India buying Russian coal in the face of US and European sanctions include whether any retaliation might be forthcoming and a general sign that the dominance of the US Dollar as the world’s reserve currency is not guaranteed. The former seems doubtful given the size of India’s markets. Yet if the sanctions against Russia drag on then a shift in the global economic status quo becomes more likely, especially if opportunistic purchases become regular ones.
The situation facing captive power plants illustrates one more turn of the screw on energy costs for industrial manufacturers. 30% of captive power plants in India are reportedly closed due to the high cost of coal or an inability to even import it. Although it is worth noting that it is unclear whether, proportionally, more or less of these are serving cement plants. As N Srinivasan, the vice-chairman and managing director of India Cements told the Business Standard newspaper, “Most of our plants have coal based captive power generation. The cost of captive generation is now more than the grid cost. Hence, we shut down all captive power units and resorted to grid power.”
The International Energy Agency (IEA) forecast in July 2022 that Indian coal demand would grow by 3% year-on-year to 1.16Bnt in 2023 due to expanded electrification and economic growth. In its view, global coal demand will be driven principally by China but also by India to a lesser extent. However, unhelpfully, it added that uncertainty was also rising with ongoing developments in the war in Ukraine having a prominent effect. This is unlikely to assist Indian cement producers and their fuel buyers who will be asking themselves: how long will the current situation last and can the prices be passed on to consumers? There is one small silver lining in the current group of economic storm clouds hanging over cement producers at least. The second quarter of the Indian financial year is monsoon season, when economic activity slows down. It won’t slow the trend down but it may reduce the fuel bill a little.
First half 2022 update on multinational cement producers
Written by David Perilli, Global Cement
10 August 2022
Second quarter results have been released for many of the European-based cement producers, so we’ll take a look at how they are doing so far in 2022. The general trend for the companies sampled here is that revenue is up, cement sales volumes are down and earnings are varied. Added to this, ready-mixed concrete (RMC) and aggregate sales volumes have risen for most of these organisations. Each producer did well in the US, less well in Europe and differently elsewhere. Concurrently, input costs for raw materials, energy and logistics have been rising and this has been passed on to consumers fairly consistently as price rises.
Graph 1: Sales revenue for selected European-based multinational cement producers in the first half of 2022. Source: Company financial reports.
Graph 2: Cement sales volumes for selected European-based multinational cement producers in the first half of 2022. Source: Company financial reports.
Graph 3: Ready-mixed concrete sales volumes for selected European-based multinational cement producers in the first half of 2022. Source: Company financial reports.
Holcim is currently in a state of transition with responses from regulators on big divestments in India and Brazil expected in the second half of 2022 alongside its diversification into light building materials. Both North America and Europe did well for the group in the first half of 2022, particularly the former, where cement sales volumes rose, unlike the other regions. Asia Pacific was more problematic with inflation and pricing issues reported. Cement demand was also said to be ‘softer’ in China and the Philippines compared to the first half of 2021. The region’s recurring earnings before interest and taxation (EBIT) also fell.
HeidelbergCement’s half-year results were less upbeat with cement sales volumes down by 2.6% on a like-for-like basis, RMC sales volumes stable and aggregates sales volumes up by 1.7%. One point to note here is that HeidelbergCement divested its business in the western US in late 2021 and the graphs above do not show like-for-like changes. However, one reason for the dour tone was that higher input costs had led to a 11.4% drop in the group’s result from current operations before depreciation and amortisation (RCOBD) to Euro€1.53bn. It blamed this on its inability to raise prices sufficiently to counter ‘significantly’ higher costs of energy and transport.
Cemex benefitted from its strong presence in the Americas but even this wasn’t enough to shield it from the negative effect upon earnings of higher energy costs and supply chain disruptions. So, net sales increased in Mexico and the US but operating earnings before interest, taxation, depreciation and amortisation (EBITDA) fell. In Mexico this was blamed on a higher base for comparison in 2021. In the US a declining EBITDA margin was attributed to higher energy costs and supply chain headwinds from maintenance, imports and logistics. Interestingly though, Cemex managed to raise both sales and earnings in its Europe, Middle East, Africa and Asia despite cement sales volumes slipping. It said it was able to do this due to well executed price rises.
Buzzi Unicem reported growth in sales revenue and earnings despite falling cement sales volumes. It attributed this to a ‘strong’ increase in prices. However, it noted that the mounting energy costs had contributed to a decline in its EBITDA margin. Deliveries for the half-year grew in the US, Central Europe, Poland and the Czech Republic. They fell in Italy and, unsurprisingly, Ukraine. Also, despite the growth in deliveries in Poland and the Czech Republic in the reporting period, Buzzi Unicem said that a slowdown in Europe had become evident in the second quarter of 2022 and was particularly evident in Italy, Poland and the Czech Republic. In Ukraine the group reported that activity had resumed at its Volyn plant in the north-west of the country following the Russian invasion in February 2022. The Nikolayev plant, in the south, though continued to remain idle. Sales volumes halved in the country year-on-year. Given the circumstances it seems amazing that they didn’t fall by more frankly.
Finally, Vicat had a tougher time of it than some of the other companies featured here. Its sales revenue grew significantly, as a result of higher prices, but earnings tumbled. The latter was blamed on a high base for comparison in the first half of 2021 and the energy situation. A few non-recurring capital intensive projects at various plants, including the start-up of the Ragland plant’s new kiln in the US, didn’t help either.
Much of the above leaves an uncertain outlook for the second half of 2022. All of the cement producers here expect to increase their sales revenue and raise their prices. Most of them though are rather more circumspect or downright pessimistic about what the state of their earnings will be. The companies covered here are multinational but with a focus on Europe and the US. We have omitted plenty of regional producers elsewhere around the world in this roundup that have already published their results, such as India-based UltraTech Cement or Nigeria-based Dangote Cement. The other big market that is missing is China, where the producers are mostly yet to publish their half-year results. We will return to cover these topics in future weeks.
Doing business in Russia
Written by David Perilli, Global Cement
03 August 2022
A disturbing story has emerged this week concerning attempts by an unknown party to seize control of Holcim Russia. The situation marks a dangerous new phase for multinational companies operating in Russia. This includes a number of building materials producers and their suppliers.
The public side of events started on 26 July 2022 when Holcim Russia announced on its website that a legal case concerning an unpaid loan against it had been initiated at a court in Chechnya and that someone was also trying to change ownership documents with the Federal Tax Service. This was then followed by an interview by Forbes Russia with the new alleged owner of the construction materials company explaining how he had made the so-called acquisition. Holcim Russia immediately hit back hard with multiple and well researched reasons why this couldn’t be so. These included the supposed private investor’s apparent lack of a business past, a long criminal history, psychiatric records, social media accounts of an individual of seemingly modest means and so on. Kommersant FM has since reported that the court in Chechnya took the side of the asset raider but that both the Federal Security Service (FSB) and the Ministry of Industry and Trade are now investigating the case.
Taking loans from a mystery businessman with no apparent past does not look credible for a multinational like Holcim and its subsidiaries. This particular method was also flagged up by one of the legal sources quoted by Kommersant FM as a recognisable corporate scam in Russia dating back to the 2000s. What is more certain is that Holcim reported that it had a 100% interest in Holcim Russia in its annual report for 2021. It then said it was going to leave the Russian market in late March 2022 following the start of the war in Ukraine a month earlier. By May 2022 it said that it had attracted the interest of 30 possible buyers. Only this week Holcim’s chief executive officer Jan Jenisch confirmed in the company’s second quarter conference call that divestment discussions were 'active' and ongoing with a 'solution' expected in the coming months. The timing of Holcim Russia’s sudden difficulties is therefore noteworthy given that a potential buyer has not yet been publicly announced.
Whoever has tried their luck at taking over Holcim Russia has done so at a time when anti-Western sentiment is high in Russia. For example, the government attempted to pass a new law seizing the assets of Western companies trying to leave the country in July 2022. Any intervention by the authorities is likely to take some of this into account and they may be wary of helping an organisation with perceived European links. Naturally, the nationalist card was played up in the interview with Forbes Russia. For its part, Holcim Russia has commented that the ongoing 'illegal action' might lead to production delays for building materials supporting key housing and infrastructure projects. Whatever is going on it must be a tense time for Holcim Russia and its 1500 employees. We’ll leave the last word to Holcim Russia’s general manager Maxim Goncharov who has described the situation as the “theatre of the absurd.” He is not wrong.
New clinker production lines in the US
Written by David Perilli, Global Cement
27 July 2022
Congratulations are due to the National Cement Company of Alabama and Vicat for the inauguration of the new production line at the Ragland cement plant in Alabama. The event took place on 21 July 2022.
The US$300m project was originally announced in late 2019. It then took two years to build with construction starting in January 2020. Key features include a raw vertical grinding mill, a new roller mill, a five stage preheater tower, an automatic clay storage system, a 78m tall homogenisation silo, an alternative fuels storage area for tyre-derived fuel, sawdust and wood chips, a laboratory and a new control room. The new kiln was previously reported to have a clinker production capacity of 5000t/day and it will add up to 2Mt/yr of cement production capacity to the plant. ThyssenKrupp signed up as the principal equipment supplier in 2019 and H&M was the main contractor. The production line is expected to reduce energy consumption by one third. Further change is scheduled with a switch to production of Portland limestone cement (PLC) from Ordinary Portland cement (OPC) by the start of 2023.
Vicat has repeatedly noted its affection for the plant as it was the first cement plant the group purchased outside of France, back in 1974. Indeed, Vicat’s group chair and chief executive officer Guy Sidos personally managed the Ragland plant in 2001. However, rather more prosaic reasons may also have been behind the decision to expand Ragland. According to United States Geological Survey (USGS) data, Alabama, Kentucky and Tennessee’s cement shipments grew by nearly 5% year-on-year to 7.1Mt in 2019 from 6.8Mt in 2018. Shipments are up by 3% year-on-year to 2.5Mt in the first four months of 2022 and the three states were the fifth largest region in the US for cement shipments in April 2022. A shortage of cement was also reported in Alabama in April 2022.
The other big US-based cement plant expansion is Lehigh Hanson’s US$600m upgrade to its Mitchell plant in Indiana. It also celebrated a milestone this week with a ‘topping out’ ceremony to mark the placement of the final section of steel for the stack. Another recent achievement here was the completion of a 169,000t storage dome supplied by Dome Technologies. The supplier says that the 67m diameter and 48m tall dome is the second largest clinker storage facility in Europe and North America, after one it previous built in Romania in 2008.
The Mitchell K4 project was announced in mid-2018 and then ground breaking began in late 2019. However, the start of the coronavirus pandemic delayed construction in early 2020 before it restarted in September 2020. The revised commissioning date was then moved back about half a year to early 2023. The key part of this project is that it will replace the plant’s three current kilns with just one. The new production line will increase the site’s production capacity, reduce energy usage and decrease CO2 emissions per tonne of cement. It was reported by local press back in 2018 that the project would increase the plant’s cement production capacity to 2.8Mt/yr. The project has been linked to supplier KHD with CCC Group as the contractor.
It’s fascinating to see two major new upgrades to cement plants emerging in a mature market like the US and during an unprecedented event like the emergence of coronavirus. No doubt compelling tales will emerge of how both teams coped with managing nine-figure capital expansion projects as a global public health emergency unfolded. The US market has been on a roll in recent years, despite all the uncertainty in the world, and so far it doesn’t seem to be slowing down. With luck both of the projects feature above have timed their opening right.
Building CO2 infrastructure in Europe
Written by David Perilli, Global Cement
20 July 2022
It’s been a good week for carbon capture projects in Europe with the announcement of who the European Union (EU) has selected for a grant from its Innovation Fund. 17 large-scale projects have been pre-selected for the Euro1.8bn being doled out in the second round of awards. On the cement and lime sector side there are four projects. These include projects at Holcim’s Lägerdorf cement plant in Germany, HeidelbergCement’s Devnya Cement plant in Bulgaria, Holcim’s Kujawy plant in Poland and Lhoist’s Chaux et Dolomites du Boulonnais lime plant in France. Large-scale in this instance means projects with capital costs over Euro7.5m. To give readers some sense of the scale of the projects that the EU has agreed to pay for, if the funding was shared out equally between the current bunch, it would be a little over Euro100m per project. This is serious money.
Devnya Cement’s ANRAV carbon capture, utilisation and storage (CCUS) project in Bulgaria has received little public attention so far so we’ll look a little more closely at this one first. No obvious information is available on what capture technology might be in consideration at the plant. HeidelbergCement’s leading experience in carbon capture technology at cement plants gives it a variety of methods it could use from a solvent scrubbing route to something less common. What the company has said is that, subject to regulatory approval and permitting, the project could start to capture 0.8Mt/yr of CO2 from 2028.
What has also been revealed is that the project is linking up via pipelines to a depleted part of the Galata gas field site in the Black Sea. Oil and gas company Petroceltic Bulgaria is a partner and the aim of the project is to start a CCUS cluster in Eastern Europe. with the potential for other capture sites in Romania and Egypt to join in. This is noteworthy because much of the focus for the burgeoning cement sector CCUS in Europe so far has been on usage on local industrial clusters or storage in the North Sea.
The other new one is the Go4ECOPlanet project at Holcim’s Kujawy plant in Poland. Lafarge Cement is working with Air Liquide on the project. The latter will be providing its Cryocap FG adsorption and cryogenics technology for direct capture of flue gas at the plant. The transportation of the CO2 is also interesting here as it will be by train not pipeline. Liquid CO2 will be despatched to a terminal in Gdańsk, then transferred to ships before being pumped down into a storage field under the North Sea.
Turning to the other two grant recipients, the Carbon2Business project plans to capture over 1Mt/yr of CO2 using a second generation oxyfuel process at Holcim Deutschland’s Lägerdorf cement plant. This project is part of a larger regional hydrogen usage cluster so the captured CO2 will be used to manufacture methanol in combination with the hydrogen. Finally, Lhoist’s project at a lime plant in France is another team-up with Air Liquide, again using the latter’s Cryocap technology. The capture CO2 will be transported by shared pipeline to a hub near Dunkirk and then stored beneath the North Sea as part of the D'Artagnan initiative. Around 0.61Mt/yr of CO2 is expected to be sequestered.
The key point to consider from all of the above is that all of these projects are clear about what is happening to the CO2 after capture. The days of ‘carbon capture and something’ have thankfully been left behind. CO2 transportation infrastructure is either being used or built and these cement plants will be feeding into it. This will inevitably lead to questions about whether all these new CO2 networks can support themselves with or without EU funding but that is an argument for another day.
Finally, in other news, four residents from the Indonesian island of Pulau Pari started legal proceedings against Holcim last week for alleged damages caused by climate change. Industrial CO2 emissions are unquestionably a cause of this along with other sources but what a court might think about this remains to be seen. Yet, it is intriguing that the plantiffs have decided to go after the 47th largest corporate emitter rather than, say, one of the top 10. Regardless of how far the islanders get this is likely not to be last such similar attempt. If the case does make it to court though it seems likely that Holcim will mention its work on CCUS such as the two projects above. Only another 200-odd cement plants in Europe to go.
- European Union
- Grant
- Innovation Fund
- GCW566
- Holcim
- HeidelbergCement
- Lhoist
- Germany
- Poland
- Bulgaria
- France
- carbon capture and utilisation
- carbon capture
- carbon capture and storage
- CO2
- Devnya Cement
- Petroceltic Bulgaria
- Go4ECOPlanet
- Air Liquide
- pipeline
- railway
- oxyfuel
- Carbon2Business
- Legal
- Switzerland
- Indonesia