Displaying items by tag: Buzzi

Italy: The pilot plant for the Cleanker project was inaugurated at Buzzi Unicem’s Vernasca cement plant in early October 2020. The purpose of the calcium looping technology project is to demonstrate a technology for capturing carbon dioxide (CO₂) in cement plants. Tests will be run for around 10 months with a total actual operating time of one month at most.

Buzzi Unicem beefed up its presence in Brazil this week with the announcement that it is buying CRH’s local cement plants through its Companhia Nacional de Cimento (CNC) joint-venture with Grupo Ricardo Brennand. The deal covers CRH Brazil’s three integrated plants at Cantagalo in Rio de Janeiro, and, Arcos and Matozinhos in Minas Gerais. It also throws in two grinding plants including the Santa Luzia Plant in Minas Gerais for a total of US$218m, although the final figure may change depending on conditions such as the net financial situation at the closing date.

The purchase brings up two trends. Firstly, it’s a continuation of CRH’s refocus on safe havens in Europe and North America. The Ireland-based building materials producer originally picked up these plants in the wake of the formation of LafargeHolcim in 2015 as part of a package deal for Euro6.5bn in its ‘bolt-on’ acquisition expansion phase. Most of the assets in that deal were in Europe and North America, although it did see CRH also build a presence in the Philippines.

Since late 2019 reports have emerged in the press about plans to sell up in Brazil and the Philippines. Whether CRH has made any profit on its sale in Brazil is hard to tell given the scale of its purchases from Lafarge and Holcim in 2015. The focus was likely on those key markets closer to home. Yet cement sales in Brazil peaked in 2014 before the national economy were hit by falling commodity and oil prices that contributed to a recession as well as the Petrobras political crisis. Sales bottomed out in 2018 and have been building steam since. Now is certainly the time to consider departure with a good price given the National Cement Industry Union’s (SNIC) glowing data for September 2020.

For Buzzi Unicem, the proposed acquisition represents the next step on its multinational ambitions, pushing Brazil into its fifth biggest territory in terms of cement production capacity after Italy, the US, Mexico and Germany. Its timing was good in September 2018, when it agreed to buy a 50% stake in the Brazilian company BCPAR from Grupo Ricardo Brennand for Euro150m, because local sales were finally starting to pick up. Once again Buzzi Unicem has also picked up cement production assets for a capacity price just below US$100/t. This time it faces a similar balance of uncertainty with the Brazilian cement industry reporting continuing growth but facing an uncertain future from the economic effects, locally and worldwide, from the coronavirus pandemic.

One point to note here is that as part of its deal with Grupo Ricardo Brennand in 2018, Buzzi Unicem had the right to buy the remaining 50% of BCPAR from Grupo Ricardo Brennand until 1 January 2025. Presumably, though, the option to buy Grupo Ricardo Brennand out of BCPA remains valid. This makes it interesting that Buzzi Unicem chose further expansion over consolidation of its existing business. Four years remain for it to buy the rest of BCPAR if it wants to.

Given the concentration of the Brazilian business in the south-east of the country it seems unlikely that the acquisition would be turned down since the enlarged BCPAR will hold a production base behind larger producers like Votorantim or InterCement. However, Cimento Nacional’s Sete Lagoas plant and CRH Brazil’s Matozinhos plant are both close in Belo Horizonte and this may cause concerns. Now it’s over to the Brazilian regulators to approve or decline the deal and the various parties to finalise.

Brazil: Ireland-based CRH has agreed to sell its Brazilian business to Companhia Nacional de Cimento (CNC), a joint venture between Italy-based Buzzi Unicem and Grupo Ricardo Brennand, for US$218m. The related assets include three integrated cement plants and two grinding plants. The sale is subject to approval by the Brazilian Competition Authority (CADE). CRH Brazil sold approximately 2.5Mt of cement in 2019.

In 2019 CRH sold its 50% stake in India-based My Home Industries for US$354m. Outside of Europe and North America it retains subsidiaries in the Philippines and China.

Ed Sullivan was present to tell Global Cement Live viewers about the Portland Cement Association’s (PCA) autumn forecast last week. The PCA expects US cement consumption to drop by 1.5% year-on-year on 2020. This is a weighted average of its three projections, which cover a gradual recovery from coronavirus-related economic disruption, a less controlled scenario and one where wide-spread vaccination has a positive effect in the second half of 2021. The first scenario is the PCA Market Intelligence’s most likely one but only the fast vaccination scenario predicts a return to growth in 2021. This is wide but understandable deviation from the PCA’s autumn forecast in 2019 that expected moderate growth albeit a slowly weakening economy. Almost nobody seriously expected 2020 to turn out like it has. Follow the link at the bottom of this article to view the presentation in full.

Graph 1: Portland & Blended Cement shipments by US region in 2019 and 2020. Source: United States Geological Survey (USGS).

We’ll now take a general look at the US cement industry so far in 2020 to compliment Sullivan’s economic overview. Up until 2020 cement consumption, production and imports had been growing steadily since the financial crash in 2008. Using August 2020 data the PCA says this is changing. Graph 1 above shows a general reverse of the position in the autumn of 2019 [LINK] with declines in the South and North-East and growth in the West and Midwest. Imports alongside this have continued to build. Overall, national cement shipments increased by 2.2% year-on-year to just under 50Mt in January to July 2020 from 48.9Mt in the same period in 2019. This was driven by growth of 10.8% in the Midwest. Missouri is the standout in the region, behind only Texas and California nationally as the third biggest cement shipping state so far in 2020.
From the corporate side, LafargeHolcim, the US’ biggest cement producer, described North America as having, “…the most resilience of all regions despite Covid-19 restrictions in some areas.” It reported an overall fall in cement volumes of 1.4% year-on-year to 8.9Mt in the first half of 2020. However, it didn’t go into specifics for the US. Cemex’s experience seemed to be doing better with an 8% rise in cement volumes supported by the infrastructure and residential sectors. HeidelbergCement went further and described the impact of coronavirus on the US economy as ‘significant.’ It reported a decrease in cement deliveries at its North American plants of 4.9%, to 7.1Mt. Both Buzzi Unicem and CRH reported cement sales growth of 4 – 5%, with CRH noting that, “strong volume trends in West supported by growth in our downstream businesses drove performance.”

Perusing the industry news reveals a slew of environmental stories. So far in 2020, Holcim US said it was going to run a carbon capture and storage (CCS) study at its Portland cement plant in Colorado, Alamo Cement signed a deal to build a solar farm, Grupo Cementos de Chihuahua’s (GCC) Rapid City plant in South Dakota announced plans for a wind farm, CalPortland launched a sustainable product line with a lower clinker factor, LafargeHolcim launched its ECOPact low-carbon concrete range, LafargeHolcim US also said it was adopting new environmental product declarations and Holcim US opened a solar power plant at its Hagerstown cement plant. There have been a few upgrade stories, like the new line being built at National Cement’s Ragland plant in Alabama or Lhoist’s new lime kiln projects, but Lehigh Hanson said it was suspending work on the upgrade to its Mitchell plant in Indiana in April 2020.

At this point all eyes are on the US Presidential election scheduled to run on 3 November 2020. Donald Trump’s long promised but never delivered infrastructure still hasn’t arrived although blame could be apportioned to both sides of the local political divide for this. The PCA believes that both presidential candidates will probably see it through although the Republicans’ interpretation might well involve more cement! In the interest of balance though, it also expects the Democrats to focus on low-income housing construction. At this stage it seems more likely that the early arrival of a coronavirus vaccine will have more impact on the cement industry in the short to medium term than the results of the election.

View Ed Sullivan’s presentation at Global Cement Live

Ukraine: The Interdepartmental Commission for International Trade (ICIT) has pursued a complaint by multiple domestic cement producers including Buzzi-Unicem subsidiary Dyckerhoff, HeidelbergCement subsidiary Kryvyi Rih Cement and CRH subsidiary Podilsky Cement in opening an investigation into imports of cement from Turkey. The Uriadovy Kurier newspaper has reported that, on its preliminary assessment, the ICIT deemed the complaint to provide “sufficiently substantiated evidence on the basis of which it can be considered that the importation of cement into Ukraine originating in Turkey could be at dumped prices, the margin cannot be considered minimal and the import volumes are not insignificant in accordance with the law.” It added, “The complaint also provides sufficiently substantiated evidence that imports were made to an extent and under conditions such that they may cause material injury to the domestic producer.”

Italy: Buzzi Unicem says that it has implemented a number of measures to enable it to deal with any economic downturn resulting from the financial impacts of the coronavirus outbreak. The Il Sole newspaper has reported that the company’s strategies fall under two headings, namely increasing efficiencies and improving products and services. As such, the company is targeting a medium-term increase of Italian cement plant capacity utilisation of 70 - 75% from 55 - 60%, while also increasing its product range to offer custom concrete blends “to best suit the needs of the customer.”

Russia: The Ministry of Finance of Sverdlovsk Oblast has named Buzzi Unicem subsidiary SLK Cement amongst the winners of Best Taxpayer of the Year 2019, an award that recognises commercial contributions to the regional economy by taxpaying in order to “raise the profile of companies and increase their role in the socio-economic development of the territory.” SLK Cement paid US$23.0m in taxes in 2019, up by 2.4% year-on-year from US$22.5m in 2019.

General director Andrey Immoreev said, “Honesty and compliance with the law are one of the key values of the Buzzi Unicem business code, in accordance with which we work. In our activities, we strictly follow the legal norms in the field of labour protection, industrial, fire, sanitary and epidemiological, environmental safety, taxes and Gosudarstvenii Standart (GOST) and international cement quality standard regulations, as well as retaining a customer focus in the company. In addition, despite the external factors associated with the coronavirus pandemic, we confidently continue to implement investment projects to modernise production equipment and provide assistance to the territories in which we are present.”

There has been good news from the German Cement Works Association (VDZ) this week. Following a strong start to the year, the association expects cement consumption in 2020 to remain similar to the level, 28.7Mt, reported in 2019. VDZ president Christian Knell acknowledged the difficulty in making forecasts, this year of all years, but said that the association remained positive since demand had held up so well. He noted the continued operation of construction sites, despite the local coronavirus-related lockdown from March 2020, and the ‘quick action’ of politicians.

Graph 1: German cement deliveries, 2015 – 2019: Source: German Cement Works Association (VDZ).

The year certainly started well, with a 33% year-on-year increase in domestic cement deliveries to 1.43Mt in January 2020 from 1.07Mt in January 2019. This was due in part to good weather, although it also looks good because 2019 started badly compared to 2018. Yet, the VDZ’s assessment has been supported by the results of the main producers operating in the country. HeidelbergCement reported that Germany bucked the trend of its Western and Southern Europe Group area in the first half of 2020 with a ‘positive market development’ whereas deliveries declined significantly everywhere else. Similarly, LafargeHolcim noted a ‘resilient’ performance in Germany. Buzzi Unicem released a more detailed assessment, with shipments of hydraulic binders down in April and May 2020 but then back up with a recovery in June 2020. Overall its cement plants reported a slight decline in sales for the first half of the year. Concrete production grew however, by 6% year-on-year, possibly aided by the plants that the group purchased in 2019.

Germany’s success appears to be down to two factors. The first, as Knell mentioned above, is that it was able to keep much of its construction industry open through its lockdown. Dieter Babiel, the head of Hauptverband der Deutschen Bauindustrie – the main German construction industry association - reckoned that the industry was operating at about 80% capacity in May 2020 compared to the situation in other large European countries like France, the UK, Spain and Italy where building sites totally closed at the height of local lockdowns before gradual reopening. Bauindustrie has since reported falling monthly order intake as coronavirus-effects on the general economy filter through to construction. The other reason is that the country has managed to control its outbreak better compared to other European countries. It has reported the third most cases in Europe but its fatality rate is only 4% compared to 14% in the UK, Italy and France. This has been attributed to strong public health measures and high levels of testing, particularly with respect to elderly residential care.

It’s not all plain sailing though since the International Monetary Fund (IMF) has projected a 7.8% decline in Germany’s gross domestic product (GDP) in 2020. Likewise, the VDZ is predicting weakening construction markets and cement demand in the fourth quarter of 2020. It cited falling orders and requests for building permits as mounting evidence for this trend. From here a gloomier outlook is foreseen for 2021 as construction budgets for commercial and government projects are cut. At the same time uncertainty in the labour market is expected to drag down the residential market. With this in mind the VDZ is predicting cement demand to drop by 3 – 5% in 2021.

To end on an upbeat note, if the VDZ’s forecasts are accurate, then the German cement sector looks like it might weather the coronavirus-downturn better than other industries. It knows a downturn in construction is coming and it can prepare for it.

Building materials manufacturer Saint-Gobain summed up the situation large companies face due to coronavirus in its second quarter results when it said that it faced, “very different situations from one country and market to the next.” Financial results are in from many of the largest multinational cement producers outside of China and the basic picture is as Saint-Gobain describes.

Sales revenue for LafargeHolcim, HeidelbergCement and Cemex are all down by around 10% year-on-year for the first half of the year. The variation between different geographical regions is large with some reporting sales declines of up to 20% and others noting rising sales, with one above 5%. Generally, recoveries were reported in June 2020 or when governments relaxed their lockdowns. There’s more variation with earnings figures although this may be down partly to the different figures each company likes to use. Around this is plenty of talk about liquidity and cost cutting programmes to sooth investors.

Figure 1: Sales of selected major multinational cement producers in first half of 2020. Source: Company financial reports.

Figure 2: Cement sales volumes of selected major multinational cement producers in first half of 2020. Source: Company financial reports.

Where it starts to become more interesting is when the companies talk about what they think will happen next. As Robert McCaffrey picked up upon in last week’s Global Cement Live there was a divergence between LafargeHolcim’s optimism for the second half of the year and HeidelbergCement’s caution. LafargeHolcim said it expected a, “Fast demand recovery with an encouraging outlook for the second half of 2020.” Instead, HeidelbergCement said, “A further wave of infections may occur at any time, which would have an impact on construction projects already started or announced in the individual countries. Against this backdrop, it is still not possible to estimate the full effect of the corona crisis on the company results for 2020.” Cemex sat on the fence with, “We expect that Covid-19 will continue to challenge our operations in new ways over the next few quarters.” Contrast this with Buzzi Unicem’s prediction, “Visibility for the second half of the year continues to be very limited and our forecasts are based on a scenario of gradual mitigation of the infections and related restrictions on economic activity.”

This difference in outlook may be subjective. Both LafargeHolcim and HeidelbergCement only had one geographical region each that reported growing sales in the first half of 2020 but LafargeHolcim’s ‘positive’ region represented a larger share of the group’s revenue. Alternatively, it may just be that the companies have different characters and this is reflected in their forecasts. Humans can be either be pessimistic or optimistic and so too can companies.

Of the large regional players, most of the Chinese cement producers are yet to release results for the second quarter of 2020 so there is little to say. Data out this week from China’s Ministry of Industry and Information Technology shows that cement output fell by 4.8% year-on-year to 1Bnt in the first half of 2020. UltraTech Cement, India’s largest producer, saw its revenue fall by 22.5% year-on-year to US$2.34bn for the first half of 2020. The worst of this was in the first quarter of the Indian financial year to 30 June 2020 with revenue falling by 33% with consolidated sales volumes down by 22% year-on-year to 14.7Mt. This coincided with the country’s ‘total’ lockdown period from late-March 2020 to 1 May 2020. Dangote Cement, a large African producer, reported growth in both sales and earnings with full or partial lockdown implemented in South Africa, Congo and Ghana in April 2020 before reopening in May 2020.

This is just a snapshot of what’s been happening with mid-year results awaited from the likes of CRH, Votorantim and, as mentioned above, the Chinese producers. Blanket lockdowns clearly damage construction markets, so future government strategies in tackling the ongoing wave of the pandemic or future waves will have consequences for the financial performance of construction material companies. In the meantime, in Europe at least at the moment, targeted regional lockdowns seem to be the public health measure of choice when outbreaks get out of control. How this translates to balance sheets will be revealed later in the year. In the meantime, while the world works out how to cope with coronavirus, expect more uncertainty.

Italy: Good performance in the US has helped Buzzi Unicem hold sales steady in the first half of 2020 despite falling sales volumes of cement, particularly in Italy and Eastern Europe, as the coronavirus pandemic spread. The group’s net sales remained stable at Euro1.52bn. Its cement sales volumes fell by 3.4% year-on-year to 13.4Mt from 13.9Mt in the same period in 2019. Concrete sales volumes decreased by 6.3% to 5.46Mm³ from 5.83Mm³. Its earnings before interest, taxation, depreciation and amortisation (EBITDA) rose by 8.8% to Euro314m from Euro289m. The company said that the decline in sales volumes was counteracted by growing prices and lowered production costs.

In its outlook the group said, “The outlines of the pandemic, which in some countries has not yet reached the phase of controlled circulation, as well as the intensity of global recession and the demand for building materials may be characterized by further sudden developments in the coming months. Visibility for the second half of the year continues to be very limited and our forecasts are based on a scenario of gradual mitigation of the infections and related restrictions on economic activity, in the geographical areas where the group operates.” It added that it expected its recurring EBTIDA to possibly fall by 5 – 10% year-on-year in 2020.