September 2024
Cement signals – import row in Kenya 08 July 2015
Kenyan cement producers kicked off this week about Chinese cement imports for the Standard Gauge Railway Project in Kenya. Local producers, including ARM Cement and Lafarge, have asked the Kenya Railways Corporation to explain why the Chinese-backed project is importing cement. Project builders the China Rail & Bridge Corporation (CRBC) has imported 7000t of cement so far in 2015 according to Kenya Ports Authority data.
Project completion is planned for 2017 with a requirement of 1Mt of cement. If CRBC carried on this rate then, roughly, the project might only use 42,000t of imported cement if the import rate holds. This is less than 5% of the estimated requirement. However, cement imports increases into Kenya have stayed steady since 2012. Imports rose by 2000t from 2013 to 2014. CRBC's imports will stick out significantly in 2015.
Kenya National Bureau of Statistics (KNBS) data places Kenyan cement production at 5.8Mt in 2014, an increase of 16.3% from 5.1Mt in 2013. Production growth has been steadily building since the late 1990s with, more recently, a dip in the rate of growth in 2011 that has been 'corrected' as the growth has returned. Consumption has risen by 21.8% year-on-year to 5.2Mt in 2014 with imports also rising and exports dropping.
Imports for the railway project are duty free as ARM Cement Chief Executive Officer Pradeep Paunrana helpfully explained to Bloomberg. Producers have also recently upgraded their plants to specifically supply 52.5 grade cement to the project. Given this, it is unsurprising that local Kenyan producers, including ARM Cement and Lafarge, are complaining about this situation, especially given the increasingly pugnacious African response to foreign imports led by Dangote and companies in South Africa. Both ARM and Lafarge hold integrated plants and grinding plants in Nairobi and Mombasa. This is the route of the new railway line.
The backdrop to this is that the Chinese cement industry is struggling at home as it adjusts to lower construction rates and reduced cement production growth. Profits made by the Chinese cement industry fell by 67.6% year-on-year to US$521m for the first quarter of 2015, according to National Development and Reform Commission (NDRC) statistics. At the same time the Shanghai Composite, China's principal stock market, has seen the value of its shares fall by 30% since June.
Although it is unclear where the cement imports in this particular row are coming from, informal or formal business links between large state controlled corporations such as a China's major cement producers will always be questioned by competitors outside of China for both genuine issues of competitiveness and simple attempts to claw more profit. If the Chinese cement producers are sufficiently spooked or they really start to lose money then what is to stop it asking a sister company building a large infrastructure project abroad to offer it some help? Or it might consider asking the Chinese bank providing 90% of the financing towards the US$3.8bn infrastructure project to force the Kenyan government to offer more concessions to foreign firms. Meanwhile one counter argument goes that Kenya has a growing construction market with a giant infrastructure project that may unlock the region's long-simmering low cement consumption per capita boom. The Kenyan government may face some difficult decisions ahead.
Kazakhstan: International Cement Kazakhstan (ICK), an indirect wholly-owned subsidiary of Compact Metal Industries, has entered into a joint-venture agreement with Nurzhan Shakirov to establish a joint-venture for the construction of a cement plant in Almaty, Kazakhstan and thereafter, for the production and sales of cement.
India: In an update to news on 16 June 2015, which stated that US$49.8m or 27,420t of Nestlé's Maggi noodles has been recalled in India and are now being used as an alternative fuel at five Indian cement plants, local media has reported that Nestlé has paid Ambuja Cements US$3.14m for the service.
World: Avantha Group's Compton Greaves (CG) has signed a global supply agreement with Lafarge for electrical motors. This agreement positions CG as one of the select few preferred global suppliers for Lafarge.
CG is one of the few global motor manufacturers to own the complete chain of design and manufacturing, from rotor, stator design and stamping to finished motor. There are over 40,000 CG-made motors operating in cement plants around the world. It has developed unique slip-ring, twin drive slip-ring and double squirrel cage motors, as well as low maintenance-energy efficient motors specially designed for the cement industry, which deliver high starting torque, low noise and vibration.
"We are extremely pleased to have entered into this agreement and have CG as a preferred partner for large motors. CG's ability to provide flexible designs, high quality and cost effective solutions were key factors that Lafarge considered while making this decision," said Michel Edmont, senior vice president of international sourcing at Lafarge Cement.
"Our sincere thanks to Lafarge for reposing their trust in CG's expertise in this sector, as one of the leading players in industrial motors. Our strategic investments such as the global design centre in Bhopal, India, exhibits our commitment towards developing energy-efficient and technologically-advanced products for the ever-evolving market needs of the industrial sector. This global supply agreement is a perfect fit for both the companies to leverage the growing demand in infrastructure the world over," said CG's CEO and managing director Laurent Demortier.
Nigeria: According to All Africa, Ashaka Cement has filed a suit against the Federal Inland Revenue Service (FIRS) before the Tax Appeal Tribunal, North West Zone over a US$6.94m tax dispute.
In its statement of claim, Ashaka Cement faulted the tax assessment made by the FIRS and urged the tribunal to review the decision. It alleged that, in December 2014, the FIRS commenced a tax audit exercise on Ashaka Cement with respect to the year 2013.
"Subsequent to the exercise, the respondent issued an invitation / demand notice dated 2 December 2014 on the appellant (Ashaka Cement), assessing unpaid tax liabilities, which the appellant representatives attended on 15 December 2014. The invitation / demand notice contained the breakdown of the assessment made by the Respondent (FIRS). The Appellant received the said letter on the 4 December 2014. The Appellant responded to the said notice by an objection letter dated 22 December 2014 and served on the Respondent on 29 December 2014," said Ashaka Cement.
According to Ashaka Cement, the service of the objection letter was preceded by a reconciliation meeting held between its representatives and the FIRS' representatives on 15 December 2014. It said that vital issues contained in the FIRS' notice were discussed and 'ironed out.' Ashaka Cement argued that the grounds of objection raised in its notice was a reflection of issues raised, canvassed and agreed upon at the reconciliation meeting. It noted that it had assessed its tax liability on technical fees based on estimate only and all supporting documents were attached in form of Appendixes 1-12.
Armenia: As reported by ARMINFO News (Armenia), Armenia cut its cement exports 2.5-fold to 73,000t in 2014, down from 185,200t in 2013. It also increased its imports 2.2-fold, according to the Customs Service of Armenia.
The customs cost of the exported cement fell from US$11.8m in 2013 to US$4.6m in 2014, a factor of 2.6. In 2013, cement exports grew by 36% year-on-year and imports doubled. The Ministry of Economy said that cement exports fell dramatically in 2014 as a new cement plant started up in Rustavi, Georgia. There are now three HeidelbergCement cement plants in Georgia. The country was the key consumer of Armenian cement exports.
In 2014, Armenia imported 7500t of cement for US$1.2m compared to 3400t for US$615,200 in 2013. Some 98% of the country's cement imports come from Iran.
According to the Statistical Service of Armenia, cement production fell by 0.9% in 2014 and by 1.5% in 2013, compared to 3.6% growth in 2012. In 2014, the construction sector shrank by 4.3% to US$913m. In the first quarter of 2015, the construction sector grew by a marginal 0.4%.
Brazil: According to Valor Economico, estimates from the cement industry association Sindicato Nacional da Indústria do Cimento (SNIC) point to a retraction in domestic cement demand in 2015, the first market dip in the last 10 years.
Some estimates point to a 10 - 12% decrease, eventually 15% if there is no pick up in demand. There was a 1% increase in cement demand in 2014, as the sector was pushed by construction activities and abundant credit offers at favourable rates. Cement sales in 2014 grew by 1.4% to 70.9Mt and imports fell by 20.4% to 817,000t. Apparent cement consumption in 2014 grew by 1% to 71.7Mt.
The SNIC has said that consumption could fall to around 60Mt in 2016. Installed capacity is 90Mt/yr and 10Mt/yr of extra cement production capacity is expected in 2015.
Europe: The Autorité des marchés financiers (AMF) has published the interim results of the public exchange offer initiated by Holcim Ltd for the shares of Lafarge SA.
As of 7 July 2015, a total of 252,230,673 shares, representing 87.46% of the share capital and at least 81.47% of the voting rights of Lafarge SA, have been tendered. The success of the offer was subject to the condition that a minimum acceptance threshold of 66.6% of Lafarge's share capital or voting rights be reached by Holcim. The final results will be published by the AMF on 9 July 2015. According to the press release, the result reflects the confidence of shareholders in the future company.
The settlement-delivery of the new shares to shareholders having tendered their Lafarge SA shares is scheduled for 13 July 2015.
Russia: According to SKRIN Newswire, on 30 June 2015, Verkhnebakanskiy Cement Works appointed FBK OOO as its auditor for 2015 and decided not to pay common dividends for 2014. A new board was elected, which included Igor Veremiy, Anatoliy Ziskel, Oleg Ivashchenko, Lev Kvetnoy and Yefim Starikov. Popova Galina was elected as the controller. On 1 July 2015, the board elected Lev Kvetnoy as its chairman.
Kenya: According to Reuters, Kenyan cement producers have said that they are being left out of a US$3.8bn railway project that China Rail & Bridge Corporation (CRBC) is building, after the company gave an assurance it would source all of the raw materials domestically.
Companies including Lafarge South Africa's Kenyan unit and ARM Cement have asked Kenya Railways Corporation, the implementing agency, to provide clarity on CRBC's local procurement plans, five months after work on the project started, according to ARM Cement CEO Pradeep Paunrana. Kenya Ports Authority data show that CRBC has imported at least 7000t of cement so far in 2015.
"There was an assurance that all of the cement would be supplied by local producers," said Paunrana, who is also chairman of the Kenya Association of Manufacturers. "There has not been transparency on how much we will supply and we don't understand why they are importing cement when we can clearly supply cement to their specifications."
The 'Standard Gauge Railway Project' (SGR) is Kenya's biggest investment in infrastructure since it gained independence from Britain in 1963. The Export-Import Bank of China is funding 90% of the railroad, which will connect Nairobi to Mombasa, East Africa's biggest port. It is scheduled to be completed by 2017. Kenya's Treasury is pinning its 7% growth target for 2015 partly on activities generated during construction of the 609km link. In June 2015, treasury secretary Henry Rotich allocated US$1.46bn to the project for the 2015 - 2016 financial year.
The SGR project requires 1Mt of cement, all to be sourced in Kenya, according to a master list of supplies that the manufacturers' association was given by CRBC. Kenya is a higher cost producer of cement than China and imports for the project are duty-free, according to Paunrana. Kenya Railways spokeswoman Mary Oyuke has said that the company isn't importing cement because the material is available locally and ARM and Bamburi are already supplying the project.
ARM and other producers, including Lafarge's unit Bamburi Cement, have upgraded their plants to produce the 52.5 grade cement required by the contractors. The enhancements cost 'several million dollars' and were commissioned on the understanding that CRBC would buy the cement from domestic manufacturers. "We undertook significant investments in an endeavour to seamlessly supply cement to the project, including long-term agreements with transport companies to make deliveries," said Bamburi CEO Bruno Pescheux. "It is our hope that the project will continue to purchase cement locally rather than import, in light of the above investments." Bamburi supplied 20,000t of cement in April 2015.