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To mark the end of the calendar year we’re going to round up some of the major news stories from the cement industry in 2017. Like last year this piece also complements the corresponding article ‘The global cement industry in 2017’ in the December 2017 issue of Global Cement Magazine. Remember, this is just one view of the year's events. If you think we've missed anything important let us know via LinkedIn, Twitter or This email address is being protected from spambots. You need JavaScript enabled to view it..

Recovery in Europe
2017 was the year that the European cement industry finally had something to shout about after a lost decade since the financial crash of 2007. The good news was led by a revival in cement consumption in 2016 that looks set to have continued in 2017. Prospects in Germany and Spain feel similar and a series of mergers and acquisitions have taken place in Italy suggesting that investors believe that the market is about to recover there too. Sure, Brexit is looming but as contacts have told Global Cement staff throughout the year, if the British want to damage their economy, that’s their business.

Renewal and recrimination at LafargeHolcim
Lafarge’s conduct in Syria during the civil war has cost its successor company LafargeHolcim dear, with the loss of its chief executive officer (CEO) Eric Olsen and potential reputational damage if the on-going investigation in Paris finds fault. At the time of writing Olsen, former Lafarge CEO Bruno Lafont and the former deputy managing director for operations Christian Herraul are all being questioned by the inquiry into the affair as it attempts to determine who knew what and when. LafargeHolcim has drawn a line under the debacle by appointing outsider Jan Jenisch as its new CEO in mid-2017. He has made changes to the group’s management structure that were announced this week but has he done enough? If anything truly ‘explosive’ emerges from the investigation, the question for anyone across the world buying LafargeHolcim’s products may be whether or not they want to finance extremism through their purchase.

US doesn’t build wall but does okay anyway
The US Portland Cement Association (PCA) may keep downgrading its forecasts of cement consumption growth but the local industry is doing fairly well anyway. All sorts of cement producers with a presence in the US have benefited from the market, despite extreme weather events like Hurricane Irma. President Donald Trump may not have delivered on his infrastructure development promises or built his fabled wall yet but his recently-approved tax reforms are likely to benefit the profits of cement producers. The decision by Ireland’s CRH to buy Ash Grove Cement in September 2017 may remove the largest domestically-owned producer from US hands but it shows confidence in the market and heralds the continued creeping growth of the building materials company into an international empire.

South America shows promise… just don’t mention Brazil
Countries like Brazil, Colombia and Venezuela may not be performing to expectations but other countries south of the Darian Gap, have been growing their respective cement industries. The leader here is Argentina that is riding a full-scale construction boom with capital investment chasing it from the producers. Bolivia is following a decade of growth although this may be starting to slow somewhat. Chile appears to be realigning itself to take in more exports. And finally, Brazil may also be starting to return to growth too. Although cement sales were continuing to fall year-on-year in the first nine months of 2017 the rate has been slowing. Local producer Votorantim also reported improved market conditions at home.

India stares into the demand gap
UltraTech Cement finally managed to buy six cement plants and five grinding plants from Jaiprakash Associates for US$2.5bn in 2017. The acquisition marked the end of the long-running deal between the companies and what may be a new phase in further integration in the Indian industry. In September 2017 the Cement Manufacturers Association (CMA) complained that the sector had 100Mt/yr of excess production capacity out of a total 425Mt/yr. The government’s demonetisation policy sank cement production growth in late 2016 and production has struggled to improve since then. Some estimates expect growth to return in around 2020 as the demand gap shrivels. Further merger and acquisition activity can only help until then, although the current government flip-flopping over a petcoke ban and import duties may get in the way.

China restructures with an eye on overseas market
As discussed last week the mind-bogglingly massive merger between China National Building Material (CNBM) and China National Materials (Sinoma) is proceeding with the press equivalent of radio silence. If one trusts the company figures then the largest cement producer in the world will get even bigger following completion. Once the big Chinese producers start building lots of overseas plants then the implications of combining a major producer with a major plant builder may become clear outside of China. Alongside this the buzzword on the Chinese cement company balance sheets this year have been a major rollout of co-processing at plants and a policy of ‘peak shifting’ or simply shutting off production at selected plants in the winter months. Somehow despite all of this the official figures suggest that cement production is still growing in China.

The African mega deal that wasn’t
The prospective bidding war for South Africa’s PPC has turned out to be a bust. A low offer was made in September 2017 by a Canadian investment firm with the aim of merging PPC with local rival AfriSam. Vague expressions of interest from the usual suspects followed over the following months before everything fizzled out. What the dickens was going on? A difference of opinion between the board and shareholders? A poor market in South Africa giving everyone the jitters? If any readers know, please get in touch. PPC’s poor showing at home mirrors Dangote Cement’s travails. Both companies have suffered domestically whilst going full tilt elsewhere in Sub-Saharan Africa.

Indonesia about to pick up?
And finally, a report from Fitch Ratings this week suggests that growth in Indonesia is set to pick up once again. The market dragged down HeidelbergCement’s mid-year financial results as cement consumption dropped in the same period. Like India, Indonesia faces a consumption-capacity mismatch. However, with annual consumption poised to grow at over 6%, the time to close that gap will narrow. Some good news to end the year with.

Global Cement Weekly will return on 3 January 2018. In the meantime Merry Christmas and a have Happy New Year!

A member of the Global Cement LinkedIn Group commented this week on the merger between China National Building Material (CNBM) and China National Materials (Sinoma).

“Has the cement world got used to gigantic mergers or have we failed to understand how big this thing is locally, regionally and globally? It is shocking to see how little publicity and media attention is paid to this merger in comparison to the past ones. I find this to be potentially a game changer for the industry. This time, the game will be drawn from a single corner with less integration pains and much more alignment. A big wave coming…”

The comment was posted by Pavel Cech, a managing director of ResourceCo Asia based in Kuala Lumpur. This company is a waste recycling and waste management concern that specialises in alternative fuels for the cement industry. So a focus on the potentially massive drive for co-processing by the Chinese industry is understandable compared to, say, other companies in other continents. However, Cech’s point is valid: why isn’t this merger being talked about more?

CNBM is the largest cement company in the country with a reported total production capacity of around 406Mt/yr. Sinoma is a cement engineering company and the fourth largest cement producer in China with a total production capacity of approximately 112Mt/yr. The companies formally agreed to merge in September 2017 as part of a state-mandated industry consolidation. If these figures are taken at face value then the merger should increase the lead of the self-declared world’s biggest cement producer.

In non-Chinese terms this would be like HeidelbergCement merging with a major equipment manufacturer like ThyssenKrupp or FLSmidth. For these kind of companies, industry commentators and press, such as a Global Cement Magazine, would spend many column inches discussing the twists and turns of the merger as it played out. Just compare the Chinese merger to the debacle that has played out with the proposed acquisition of South Africa’s PPC by Fairfax, where seemingly every development was expounded upon both by PPC and the press.

For Global Cement’s reporting and coverage on China, problems arise from language difficulties, differences with the way Chinese media covers industry, the state-controlled aspect of many of the larger producers, issues obtaining accurate industry data and the sheer size of the sector. All of these impediments make it harder to cover the Chinese market. Add the relative insularity of the sector and it’s often easy to give the Chinese cement industry a special label, separating it out when talking about the global cement industry as a whole.

All this may be about to change as Chinese cement producers start firing up their own kilns outside of the motherland as part of the ‘One Belt, One Road’ initiative, making it easier to see what Chinese companies are doing. Except that Sinoma has already been out there in the rest of world building cement plants in many developing markets and creating competition for the Europe-based equipment manufacturers.

There has been little attention from competition bodies outside of China about the merger. The South Korean Fair Trade Commission approved the deal in November 2017 and that’s been about it. Combining a cement plant builder with a cement producer is a clear example of vertical integration in the cement industry. There is nothing necessarily anti-competitive about this but it could change the market dynamic where non-Chinese multinational and Chinese cement producers compete. If both CNBM and a rival wanted to open build a plant in the same area, then the competitor to CNBM might have less choice when it came to picking their equipment supplier. In addition, news stories such as the alleged pressure by the Chinese embassy in Sri Lanka to try and force a local development agency to choose Sinoma to build a grinding plant doesn’t instil confidence that a merged CNBM-Sinoma would play nice. Although, as today’s fine by the Colombian competition body to Cementos Argos, Cemex and Holcim for price fixing shows, non-Chinese cement producers are just as prone to malpractice.

The merger of CNBM and Sinoma is undeniably big news in the industry. Both within and outside China it is likely to have a pronounced effect. As explained above, for various reasons, the western press can’t cover China in the same way it does other countries. Once the Chinese producers start building more plants outside of China then this is likely to change significantly. Until then we’ll do our best to keep track of this and other Chinese news stories.

China: Xu Weibing has been appointed as the supervisor and chairman of supervisory committee at China National Building Material (CNBM) following shareholder approval. Her term will last until the end of May 2019. She replaces Wu Jiwei.

Xu, aged 58 years, holds over 30 years of experience in financial accounting and capital operation. She has worked as the chief accountant of CNBM since May 2017 and was its deputy general manager prior to that. She graduated from Liaoning Finance and Economics Institute in 1983 with a bachelor’s degree, majoring in finance, and is a senior accountant.

China: China National Building Material’s (CNBM) shareholders have approved a merger agreement between the company and China National Materials (Sinoma) at an extraordinary general meeting. The two companies formerly entered into a merger agreement in September 2017. The South Korean Fair Trade Commission approved the pending merger in early November 2017.

South Korea: The South Korean Fair Trade Commission has approved the pending merger of China National Building Material (CNBM) and China National Materials (Sinoma). CNBM and Sinoma formerly entered into a merger agreement in September 2017.

Uzbekistan: Beijing Triumph International Engineering, a subsidiary of China National Building Material’s (CNBM), has signed a US$160m deal with Eurocement’s subsidiary Akhangarancement to build a new 3Mt/yr cement plant. The contract was signed during Russian Prime Minister Dmitry Medvedev's official visit to the Central Asian country, according to InterFax. The project will be completed by 2020. Eurocement chairman Filaret Galchev and Uzstroymaterialy chief executive officer (CEO) Botir Zaripov signed the agreement on project implementation during Medvedev's visit.

Akhangarancement operates a 2.2Mt/yr cement plant. It holds a 30% share of the Uzbek market. The plant also exports to Kazakhstan, Kyrgyzstan and Turkmenistan. Eurocement purchased a 75.5% stake of Akhangarancement in August 2006 and bought the remaining share in 2013. It originally signed a US$128m contract with China CAMC Engineering, a division of Sinomach, in 2014 for construction of a plant that was supposed to open in 2016. However, construction was subsequently cancelled.

China: China National Building Material (CNBM) and China National Materials Company (Sinoma) have entered into a merger agreement. The exchange ratio has been set at 1 Sinoma share to exchange for 0.85 CNBM share. After the merger is completed Sinoma will be absorbed into CNBM. Merger preparations for the two state-owned companies have been on going since mid-2016 when the Assets Supervision and Administration Commission announced the move.

CNBM is the largest cement company in the country with a reported total production capacity of around 409Mt/yr. Sinoma is a cement engineering company and the fourth largest cement producer in China with a total production capacity of approximately 112Mt/yr. The merger is part of the government’s plans to consolidate production domestically and refocus its industries internationally as part of the ‘One Belt, One Road’ initiative.

Lots of fascinating information has been emerging in recent weeks about changes in the Chinese cement industry as the larger producers have published their annual financial results. One example is the focus on using alternative fuels to fire up kilns. As explained below, the spotlight on co-processing is state-mandated and this is why the producers are now keen to promote their adherence. Even so, as ever with China, the scale of the change is staggering.

For example, Anhui Conch reported that it had completed 15 waste treatment projects and one sludge treatment project in 2016. In addition it had three projects still undergoing construction at the year-end. The group said that it co-processed 600,000t of domestic waste in its cement kilns in 2016. All of this was achieved by a company that says it only started co-processing municipal waste from its first project in 2010. China Resources Cement’s (CRC) progress was slower but it managed to start a co-processing project at its plant in Binyang County, Guangxi in December 2015 and a sludge project in Nanning City, Guangxi in July 2016. New projects at Tianyang County, Guangxi and Midu County, Yunnan are being built at present, with completion expected by the end of 2017.

Long held rumours about production overcapacity in China came to head in 2015 with the National Bureau of Statistics in China (NBSC) reporting that sales dropped in 2015 following a decade of steady growth. Then the results of most of major producers followed this by falling in 2015. CRC presented a good history of what happened next in the Chinese cement industry in its results report [LINK]. In brief, in 2016 the Chinese government implemented supply-side structural reforms focusing on production efficiency, reiterating attempts to stop new production capacity being built and pushing environmental reforms. Throughout the year various government offices released guidelines to encourage market consolidation, cut obsolete production capacity, increase co-processing rates and decrease the energy needed to produce each tonne of clinker.

Graph 1: Cement sales in China, 2012 – 2016. Source: National Bureau of Statistics in China.

Whether or not any of this has helped the Chinese cement industry to overcome the problems it faced in 2015 is unclear. As Graph 1 shows, Chinese cement sales started to rise again slightly to 2.35Bnt in 2016 from 2.31Bnt in 2015. Sales revenue from some of the major cement producers presents a more varied picture as can be seen in Graph 2. Anhui Conch’s revenue rose by 9.7% year-on-year to US$8.12bn in 2016, China National Building Material Company’s (CNBM) revenue rose by 1% to US$14.8bn and CRC’s revenue fell by 4.2% to US$3.3bn. CRC may have suffered here from its relative business concentration in southeast China. Both Anhui Conch’s and CNBM’s results seemed to look patchy in mid-2016 when they released their half-year reports, but both sales and profits seemed to pick up sharply in the second half of the year.

Graph 2: Sales revenue from selected major Chinese cement producers. Source: Company annual reports.

As the current set of structural reforms kick in within the Chinese cement industry it will be interesting to see what happens next. From plans to cut 10% of local clinker production capacity by 2020 to ambitious environmental aims the sector barely has time to catch its breath. The question is whether the major producers balance sheets are being helped more by a recovering local market or by the reforms. Either way the uptake of alternative fuels is encouraging.

Check out this graph of Chinese cement prices from September 2015. An author at Business Insider attributes it to Larry Hu, the Chief China Economist for Macquarie. It pretty much sums up the mood analysts have at the moment regarding the Chinese cement industry.

Figure 1: China cement prices, 2012 – 2015. Source: CEIC, Bloomberg, Macquarie Research September 2015.

The recent announcement by the Assets Supervision and Administration Commission regarding the merger of China National Building Materials Group Corporation (CNBM) and China National Materials Group Corporation (Sinoma) comes hot on the heels of a series of poor half-year financial returns from China’s major cement producers. Attempts to tackle overcapacity in its local cement industry have been underway for a few years now. Actions taken include demolishing outmoded capacity, merging companies and expanding overseas. However as the construction markets have cooled in the country the scope of what the cement industry is facing has become clear, as revenues and profits have tumbled.

Now that the first half cement sales volume data has become available from the National Bureau of Statistics of China (NBSC) the response of the cement industry to its predicament has emerged. As can be seen in Figure 2 there has been a rough trend of sales decline throughout 2014 and 2015. The first half of 2016 has started to buck this trend as sales volumes have risen year-on-year for both quarters.

Figure 2 – Chinese cement production by quarter, 2014 – 2016. Source: National Bureau of Statistics of China.

Sales revenues have dropped for most of the major companies that have publicly released their results for the first half of the year. The exception is Taiwan Cement, which makes a large proportion of its sales revenue outside of China (People’s Republic of China). Its sales revenue in China barely rose year-on-year in the first half of 2016. However, the cement sales volumes for all these companies have started to show what is happening. They have risen for most of the producers examined. Essentially, each of these producers is producing more cement but making less money. As Digital Cement puts it, the industry is in a 'low-profit position.' Increased market competition and endemic industry overcapacity are causing this.

Mergers and acquisitions have been the big story for the European multinational producers following the economic crash in 2007. Returns from low growth markets have been substituted for efficiencies of scale, knowledge sharing and greater international reach. Lafarge and Holcim merged in 2015 and HeidelbergCement is due to complete its acquisition of Italcementi later this year. However, as LafargeHolcim's disappointing financial returns and its continued slew of divestments show so far, the merger has not worked as well as may have been hoped… yet.

Whether China's version of this works with its large state owned enterprises is uncertain. Mergers are meant to cut out inefficiencies through economies of scale. Yet the question remains: can even larger Chinese cement producers do this when they are state controlled and harangued by pressures outside the normal market, particularly when local regions try to preserve their industries. The last such big deal, between Anhui Conch and China Resources Cement, fell apart in July 2016. The plans for CNBM and Sinoma may fare better but if the price of cement keeps falling then the market may have other ideas.

For more information see the China country report in the September 2016 issue of Global Cement Magazine

China: The Assets Supervision and Administration Commission has announced the reorganisation of the China National Building Materials Group Corporation (CNBM) and China National Materials Group Corporation (Sinoma). The commission did not provide further details on the merger.

CNBM is the world's major non-metal materials manufacturer, and cement equipment and engineering service provider, with total assets over US$64.5bn. Sinoma is also an industry leader in the construction materials industry. China has started accelerating the reorganisation of its SOEs to improve their competitiveness.