Displaying items by tag: CNBM

2020 has been a year like no other and this clearly shows in the financial results of the major cement producers so far.

The first jolt is that several major Chinese cement producers have seen their sales fall. Following a tough first quarter due to coronavirus, the Chinese industry then overcame floods in the summer, to eventually report a decrease in cement output of 1.1% year-on-year to 1.68Bnt in the first nine months of 2020. The world’s largest cement producer, CNBM, reported a slightly smaller drop in sales year-on-year in the first nine months of 2020. This relatively small fall, just below 1%, may be due to CNBM’s size and diversity of business interests. Other large Chinese producers have noted bigger losses, such as Huaxin Cement’s 9% sales decline to US$3.04bn and Jidong Cement’s 5% sales fall to US$3.8bn. However, Anhui Conch actually saw a 12% rise in sales to US$18.7bn.

Graph 1: Sales revenue from selected cement producers, Q1 - 3 2020. Source: Company reports.

Graph 2: Cement sales volumes from selected cement producers, Q1 - 3 2020. Source: Company reports.

LafargeHolcim’s sales look worse in Graph 1 than they really are because the group was busy divesting assets in 2019. Its net sales fell by 7.9% on a like-for-like basis to US$18.7bn in the first nine months of 2020, a rate of change similar to HeidelbergCement’s. Being a properly multinational building materials producer brings mixed benefits given that these companies have suffered from coronavirus-related lockdowns in different times in different places but they have also been able to hedge themselves from this effect through their many locations. In the third quarter of 2020, for example, LafargeHolcim was reporting recovering cement sales in its Asia-Pacific, Latin America and western/central parts of its Europe regions but problems in North America. Again, HeidelbergCement noted a similar picture with cement deliveries up in its Africa-Eastern Mediterranean Basin Group area, stable in Northern and Eastern Europe-Central Asia and down elsewhere. How the latest round of public health-related lockdowns in Europe round off a bad year remains to be seen.

The other more regional producers are noteworthy particularly due to their different geographical distribution. Cemex has seen a lower fall in sales revenue and cement sales volumes so far in 2020, possibly due to its greater presence in North America. What happens in the fourth quarter is uncertain at best, with US coronavirus cases rising and the Portland Cement Association (PCA) expecting a small decline in cement consumption overall in 2020. Along similar lines, Buzzi Unicem appears to have benefitted from its strong presence in Germany and the US, leading it to report a below 1% drop in sales revenue so far in 2020, the lowest of the decreases reported here for the western multinational cement companies.

Looking more widely, UltraTech Cement, India’s largest producer, had to contend with a near complete government-mandated plant shutdown in late March 2021. The figures presented here are calculated for comparison with other companies around the world due to the difference between the standard calendar financial year (January to December) and the Indian financial year (April to March). However, they suggest that Ultratech Cement suffered a 14% fall in sales to US$3.9bn and an 8% decline in sales volumes to 56Mt, among the worst decline of all the companies featured here. This is unsurprising given that UltraTech mostly operates in one country. Sure enough it bounced back in its second quarter (June – September 2020) with jumps in revenue, earnings and volumes.

Finally, for a view of a region that hasn’t had to face coronavirus-related economic disruption of anything like the same scale, Dangote Cement has reported solid growth so far in 2020, with rises in sales and volumes both above 5%. Economic problems at home in Nigeria have seen relatively higher growth elsewhere in Africa in recent years but now the pendulum has swung back home again. The big news has been that the company has pushed ahead with plans to turn Nigeria into a cement export hub, with a maiden shipment of clinker from Nigeria to Senegal in June 2020. The vision behind this has expanded from making Nigeria self-sufficient in cement from a few years ago into making the entirety of West and Central Africa cement and clinker ‘independent.’

The big news internationally this week was of the reported effectiveness of a Covid-19 vaccine in early trials by Pfizer and BioNTech. It might not yet make it into people’s arms at scale but it shows that the vaccine appears to work and that others in development and testing may do too. Building material manufacturer share prices didn’t rally as much as airlines or cinema chains on the news, construction has carried on after all, but this is a positive sign that normality for both health and wealth is on the way back at some point in 2021. One point to consider, given the wide regional variation with the economic effects of coronavirus, is what effect a disjointed global rollout of a vaccine or vaccines might have. A building material manufacturer dependent on a region that stamps out the virus later than other places might face an economic penalty. Recovery seems likely in 2021 but it isn’t guaranteed and the implications of the coronavirus crisis seem set to persist for a while yet. Here’s hoping for a different outlook at this point in 2021.

Eurocement changed owners this week when Sberbank took control of the company’s parent organisation. Due to a ‘difficult financial situation’ the state-owned bank said it had consolidated 100% of the shares of Eurocement’s parent company GFI Investment Limited. It’s uncertain quite how difficult this situation is but in 2016 the cement producer owed the bank Euro700m. Local media agency RosBiznesConsulting (RBC) reported in September 2020 that the ‘problem borrower’ that had caused a record increase in overdue debt at Sberbank in July 2020 was none other than Eurocement. Whilst Sberbank has said so far that it does not have operational control of the group, it is seeking a strategic investor for the asset.

This is a major story given that Eurocement is Russia’s largest cement producer and it operates 19 cement plants Russia, Ukraine and Uzbekistan. It said it produced 16.5Mt of cement domestically in 2019 but this compares to a production capacity of around 50Mt/yr suggesting a considerably low utilisation rate of just one third! The producer has embarked on a modernisation programme in recent years but many of its plants are old and use wet-process production lines.

2019 finally saw the Russian cement market turn around following decline since 2015. Unfortunately, CM Pro reports that cement production in Russia as a whole fell by 5% year-on-year to 25.1Mt in the first half of 2020. Cement shipments fell by a similar rate. This trend appears to have carried on through July and August 2020. Cement consumption has fallen fairly uniformly in most regions with the exception of the Northwestern Federal District, which has seen a modest increase. In the middle of the year, Soyuzcement - the Union of Russian Cement Producers, was expecting wildly different scenarios ranging from falls of up to 10% in a negative situation to rebound of up to 3% in a positive one. It was pinning its hopes on government support for the construction industry in various ways. With the trend to August 2020, record breaking numbers of new coronavirus cases in early November 2020 and the onset of winter, it seems unlikely that Soyuzcement’s positive thinking will come to pass.

With this in mind who might want to buy into Eurocement? No doubt various private equity firms and local producers are watching the oil price carefully while they plan their next move. Internationally, LafargeHolcim seems the obvious western multinational contender with a presence in the country. Yet it seems unlikely it would want to take the risk, following its departure from certain regions like South-East Asia in recent years and persistent rumours about other divestment targets. HeidelbergCement’s balance sheet, credit lines and appetite for risk might not yet withstand a major investment in Russia. Buzzi Unicem has actually been expanding recently with an acquisition in Brazil but whether it’s prepared to bet on another market disrupted by coronavirus is unknown. China National Building Materials Group Corporation (CNBM) was reportedly planning on becoming a shareholder of Eurocement Group in 2016 but this may have just been bluster surrounding geopolitical links between Russia and China, and general cooperation between the companies on upgrading Eurocement’s old production lines. However, Russia is the next location in China’s Belt and Road initiative so it’s not ridiculous. Whoever steps up can expect the Russian government to take a keen interest, depending on how much control Sberbank wants to offer up of Eurocement. The story continues.

China: China National Building Materials (CNBM) recorded operating sales of US$27.2bn in the first nine months of 2020, down by 1% year-on-year from US$27.4bn in the first nine months of 2019. Net profit rose to US$2.82bn, up by 22% from US$2.31bn.

The group said, “On 17 April 2020, the Company became the first batch of first-tier mature enterprises of the National Association of Financial Market Institutional Investors, and carried out unified registration of debt financing instruments (TDFI) (including but not limited to super short-term commercial paper, short-term commercial paper, medium-term debentures, perpetual debentures, asset-backed notes, green debt financing instruments) in the China inter-bank bond market, which were issuable in different types and separate tranches, with a registration term of two years.”

China: China National Building Materials has submitted a letter of intent of cooperation to its subsidiary Sinoma International Engineering, in which it proposes the sale of several engineering businesses to the latter. ET Net News has reported that the assets in question are under negotiation, but may include Beijing Triumph Building Materials, Nanjing Triumph International Engineering and Sinoma Mining Construction.

China: Gansu Qilianshan Cement has announced that it expects to record a profit of US$208m in the first nine months of 2020, up by 41% year-on-year from US$147m in the corresponding period of 2019, according to Reuters. It said the results would be in line with its growth trajectory thanks to a significant increase in demand towards the end of the first half of 2020.

Zimbabwe: LafargeHolcim subsidiary Lafarge Zimbabwe and China National Building Materials (CNBM) subsidiary CBMI have announced the signing of a contract for the establishment of a 0.7Mt/yr-capacity grinding plant at the 0.5Mt/yr Manresa cement plant in Harare. CBMI executive director and general manager Tong Laigou said that, when completed, the plant “will significantly increase the market occupation rate, competition and influence power of Lafarge Zimbabwe, and will also ease the cement supply tension in the country.”

Vietnam: China-based Sinoma International Engineering has announced its receipt of a provisional acceptance certificate (PAC) from the owner of the 1.8Mt/yr Tonglin cement plant, signifying the handover of the finished plant. The parties originally signed the engineering, procurement and construction (EPC) contract for the plant in August 2009.

Consolidation of the Chinese cement industry looks set to take a major step forward this week. China National Building Material Company (CNBM) announced that it is restructuring its cement production assets and companies under one subsidiary, Tianshan Cement. The move is significant since CNBM is the world’s largest cement producer, with a production capacity of over 500Mt/yr. That’s more than the total output of any single country except China. It’s also between a quarter and a third of national capacity domestically.

Little information has been revealed except that it concerns most of CNBM’s cement producing subsidiaries. Namely: China United Cement, South Cement, North Cement, Southwest Cement and Sinoma Cement. Note that this leaves out Ningxia Building Materials and Qilianshan Holdings, although some commentators have suggested that they may be merged in later on. It was announced to stock markets as a proposal with a ‘letter of intent of cooperation’ exchanged between CNBM and Tianshan Cement. CNBM will remain the controlling shareholder of Tianshan Cement after the restructuring. However, the assets concerned - the cement companies are still being discussed and considered. The aim of the reorganisation is to ‘facilitate resolving industry competition’ among the subsidiaries of CNBM.

The move is expected to significantly increase operational efficiency at the cement companies as they start to act in a more coordinated manner. It also fits the government-requested drive for the industry as a whole to consolidate and follow supply-side reform initiatives by, hopefully, eliminating old production assets and other measures. Indeed as CNBM’s president Peng Shou said in the company’s report for 2019, “Production overcapacity of the industry has not been fundamentally resolved. The task of cutting production overcapacity was arduous, and the supply-side structural reform remains the major task.” The company says it is committed to building a three-pillar development platform of cement, new materials and engineering services.

How much more operational efficiency the world’s largest cement producer will need to do this is a key question. In 2019 the sales revenue from its cement business rose by 12% year-on-year to US$18.7bn and its earnings before interest, taxation, depreciation and amortisation (EBITDA) increased by 19% to US$5bn. Growth at this level is novel to western-based multinational cement producers! So the implication might be that CNBM is hoping to turbo-charge its financial performance before (or if) the serious government-forced supply side cuts occur or a general economic slowdown happens so that it can return to ‘normal’ Chinese performance afterwards.

The Chinese Cement Association presented a good overview of the history of CNBM that you can read here. The quick version is that it’s the embodiment of the Chinese government’s desire to build and merge its cement industry since 2005. The latest restructuring with Tianshan Cement is the latest chapter in this 15 year story. What the reorganisation means internationally is ‘probably not much’ in the short term. Better coordination between CNBM’s cement companies could have implications in the longer term if they acted together on an international strategy, such as a strategy on exports for example, or if group-wide suppliers were agreed upon.

That’s all on China but finally if readers were not able to join us for Global Cement Live last week on 23 July 2020, we recommend watching the playback of Arif Bashir, Director (Technical/Operations) of DG Khan Cement Nishat Group Pakistan. He gave a great overview of Pakistan’s cement industry and the challenges it is facing and overcoming. Be sure to tune in for this week’s guest speaker, Regina Krammer from Loesche who will be discussing how the coronavirus crisis will change communications in the sector.

To register for Global Cement Live visit: www.globalcement.com/live

China: Song Shoushun has resigned as the chairman of China National Materials International Engineering (CNBM Engineering). He has left the position for personal reasons. The company is part of CNBM Group and it provides engineering services and equipment to the international cement, housing, industrial equipment and light industry sectors.

China: China National Building Materials (CNBM) has shared plans for a restructuring. Under the new arrangement, its subsidiary Tianshan Cement will take control of China United Cement, North Cement, Sinoma Cement, South Cement, Southwest Cement and CNBM Investment. The reorganisation awaits internal negotiations and finalisation and regulatory approval.