Displaying items by tag: China

In case you’ve missed it there’s been a boom in cement demand in China during the current quarter. Henan province saw a run on cement prices in November 2019 that the local press described as ‘crazy.’ Some companies were issuing price adjustments twice a day, according to the China Cement Association. The article on the CCA’s website also includes a video showing dozens of cement trucks queuing at a mill with the caption ‘all the plants are like this, don’t ask the price any more.’

The CCA’s blamed the situation in Henan on pollution controls on production and a rebound in cement demand. Weather-based pollution controls enacted in late October 2019 shut-down or limited production at 66 of the province’s 72 clinker production lines. Builders were then forced to source cement from neighbouring Shanxi, Hebei and Shaanxi provinces. At the same time demand for cement from real estate and infrastructure sectors picked up in the fourth quarter of 2019. Following advice from the local cement manufacturers’ association, the provincial government relaxed the rules on peak shifting that normally run from November to February in a bid to control the situation. Cement prices in Henan hit a high in mid-to-late November 2019 and have since subsided somewhat.

Nationally, Chinese cement prices hit a high in late November 2019 beating the highest level in 2018 and also setting the highest price since 2011. The key regions driving the increase have been in central and south China, including Guangxi, Guangdong and Henan. One more thing to note here is that peak shifting or seasonal shutdown of production capacity has different dates in different provinces. So, potentially, the situation could repeat itself if unexpected demand continues and provincial governments fail to monitor the situation.

Recently a couple of economic indicators in China have suggested a recovery in infrastructure spending in recent months, supporting increased cement demand. Data from Wind quoted by the Financial Times newspaper suggests that the cement price rose by 15% since September 2019 in large cities. Reinforced steel (rebar) and aggregates prices have increased similarly. At the same time the South China Post newspaper has reported a growth in the Purchasing Managers’ Index (PMI), an indicator of manufacturing activity that could also point to renewed infrastructure spending. Central government is also reported to be taking measures to support provincial infrastructure development.

If true then this may be creating some pretty direct lessons in economic interventionism. The Chinese government appears to be stimulating demand for cement via infrastructure growth while restricting production at the same time. Cement prices have reacted in a ‘crazy’ fashion. The real tension here is between two conflicting desires: protecting the economy and protecting the environment. The state planners may be grappling with this one for a while.

China: KHD has reported NO_x emissions consistently below 50mg/Nm³ at Tianrui’s 2.0Mt/yr Weihui integrated cement plant in Henan province, where its Pyroredox gasifying reactor has been installed between the kiln inlet chamber and preheater calciner. The NO_x reduction after several months of operation was 66%, while reagent usage fell by 78% compared to with the plant’s selective non-catalytic reducer without a Pyroredox fitted. No extra power or fuel was used and production was unaffected. The Pyroredox requires two to four weeks’ downtime for its installation and is now operational at multiple cement plants across China.

Cemex pushed ahead yesterday and announced that it had sold the Kosmos Cement Company to Eagle Materials for around US$665m. It owns a 75% stake in the company, with Italy’s Buzzi Unicem owning the remaining share, giving it roughly US$449m once the deal completes. Proceeds from the sale will go towards debt reduction and general corporate purposes. The sale inventory includes a 1.7Mt/yr integrated cement plant in Louisville, Kentucky as well as seven distribution terminals and raw material reserves.

The decision to sell assets makes sense given Cemex’s financial results so far in 2019. It reported falling sales, cement volumes and earnings in the first nine months of the year although much of this was down to poor market conditions in Mexico. However, the US, along with Europe, was one of its stronger territories with rising sales. Earnings were impaired in the US, possibly due to bad weather in the southeast and competition in Florida, but infrastructure and residential development were reported to be promising.

Graph 1: Portland & Blended Cement shipments in 2018 and 2019. Source: United States Geological Survey (USGS).

Graph 2: Change in imports of hydraulic cement & clinker to the US in 2018 and 2019 from selected countries. Source: USGS.

United States Geological Survey (USGS) data also supports a picture of a growing US market. Shipments of Ordinary Portland Cement and blended cements grew by 2.4% year-on-year to 66.9Mt for the first eight months of 2019 from 65.4Mt in the same period in 2018. By region growth can be seen in the North-East, South and imports. Declines were reported in the West and Midwest. The states of Alabama, Kentucky, Tennessee – the area where the Kosmos plant is located – saw shipments grow by 4% to 4.77Mt from 4.58Mt. It is worth noting that Louisville is in the north of Kentucky near the border with Indiana, where shipments also grew.

The Portland Cement Association’s (PCA) fall forecast may also have helped Cemex’s decision. Ed Sullivan, PCA Senior Vice President and Chief Economist, said that he expected cement consumption in the US to continue growing in 2019 and 2020 but with a slowing trend into 2021 following general gross domestic product (GDP) predictions. The PCA’s view is that pent-up demand following the recession in 2008 was gone and the economy was gradually weakening. Crucially though it didn’t think a recession was impending. In this scenario Cemex might be taking a medium-term view with regards to the Kosmos Cement Company.

Another more general interesting data point from the USGS was the change in import origins to the US. Imports grew by 11.3% to 66.9Mt in January to August 2019. The top five importing countries and their overall share remained the same but there was some movement between them. Turkish and Mexican imports surged at the expensive of Chinese ones as can be seen in Graph 2. The go-to explanation for this would be the on-going US - China trade war. Cemex is a Mexican company with a strong presence in both the US and Mexico. This change in the make-up of the import market in the US may also have informed its decision to sell Kosmos Cement as it looked at the macro scale.

More generally the US market is looking buoyant in the short to medium term. Plants are being sold like Kosmos Cement to Eagle Cement and the Keystone cement plant in Bath, Pennsylvania to HeidelbergCement and a major upgrade project is underway on the new production line at the Mitchell plant in Indiana. In Cemex’s case, as ever with asset sales, the seller sometimes has to make the hard decision of whether to divest a plant in a growing region to help the business in other places that might not be doing so well. The growth of America’s largest locally owned producer, Eagle Cement, may also give cheer to the US’ current ‘America First’ administration.

China: Cemex’s corporate venture capital subsidiary Cemex Ventures is preparing to enter the Chinese market offering innovations for the construction industry. It wants to build relationships with startups in order to do this and it has signed deals with local companies Glodon, a digital platform service provider in construction industry based in Beijing, and Interdream Ventures, a venture capital firm that focuses on the digitalisation of construction and decoration industry.

"This type of alliance between two segments that fit together, is key to finding new successful business models, and operate in the Chinese market. Glodon and Interdream Ventures also have a complete vision of the entire value chain and are good partners to drive the construction revolution,” said Juan Nieto, a representative of Cemex Ventures Asia.

Cemex Ventures is the corporate venture capital wing of Cemex that was launched in 2017. It invests in startups with potential in the construction industry and works with entrepreneurs, universities and other stakeholders.

Taiwan: Taiwan Cement’s profit has risen so far in 2019 due to stable cement prices and falling coal prices. Its net profit increased by 11.1% year-on-year to US$214m in the first nine months of 2019, according to the Taipei Times newspaper. However, its sales revenue fell by 3.5% to US$2.87bn. The cement producer says it has a production capacity of 102Mt/yr following the formation of a joint venture in Turkey and an acquisition in Portugal in 2018.

The company reported higher labour, transportation and raw material costs in China in the third quarter of 2019. Its expenses were also inflated by environmental upgrades. Company president John Li said, that despite falling prices in Guizhou province, demand in regional markets, including Guangdong, Guangxi and Jiangsu provinces was expected to remain beneficial.

Semen Indonesia’s third quarter results this week give us a reason to look at one of the world’s largest cement producing countries, Indonesia. As the local market leader, Semen Indonesia’s financial results have been positive so far in 2019 following its acquisition of Holcim Indonesia at the start of the year. Analysts at Fitch noted that gross margins for Semen Indonesia and its rival Indocement grew in the first half of 2019 as coal prices fell and cement sales prices rose.

Sales volumes, however tell a story of local production overcapacity and a move to exports. Domestic sales volumes fell by 2.05% year-on-year to 48.8Mt in the first nine months of 2019. Cement and clinker exports nearly compensated for this by rising by 15.4% to 4.8Mt. This is brisk growth but slower than the explosion of exports in 2018. Semen Indonesia’s local sales from its company before the acquisition fell faster than the national rate at 4.9% to 18.7Mt. The new sales from Solusi Bangun, the new name for Holcim Indonesia, partially alleviated this. It’s been a similar story for HeidelbergCement’s Indocement. Its sales revenue and income have risen so far in 2019. At the mid-year mark its sales volumes fell by 2.3% year-on-year to 29.4Mt.

Graph 1: Indonesian cement sales, January – September 2019. Source: Semen Indonesia.

Geographically, Indonesia Cement Association (ASI) data shows that over half of the country’s sales volumes (56%) were in Java in the first half of 2018. This was followed by Sumatra (22%), Sulawesi (8%), Kalimantan (also known as Indonesian Borneo, 6%), Bali-Nusa Tenggara (6%) and Maluku-Papua (2%). By cement type the market is dominated by bagged cement sales. It constituted 74% of sales in September 2019. The main producers have been keen to point out growth in bulk sales as its share has increased over the last decade.

Graph 2: Indonesian cement sales by type, 2010 – 2019. Source: Semen Indonesia/Indonesia Cement Association.

Previously the main story from the Indonesian market has been one of overcapacity and this has continued. It had a utilisation rate of 70% in 2018 from production volumes of 75.1Mt and a capacity of 110Mt, according to ASI data. This was likely to have been a major consideration in LafargeHolcim’s decision to leave the country and South-East Asia (see GCW379) with no end in sight to the situation in the short to medium term. At the end of 2018 it felt like consolidation was in progress following this sale and the reported sale of Semen Panasia. So far though this has been all and perhaps the upturn in the second quarter might buy the producers more time.

As mentioned at the start, another aspect of the Indonesian market deserving comment is that it is one of the first countries with a large cement sector where a Chinese company has made a significant entry. Conch Cement Indonesia, a subsidiary of China’s Anhui Conch, became the third largest producer following the acquisition of Holcim Indonesia. Semen Indonesia and Indocement control 70% of local installed capacity across both integrated and grinding plants with 51Mt/yr and 25.5Mt/yr respectively.

Conch Cement Indonesia is the next biggest with 8.7Mt from three integrated plants and a grinding unit. It’s in a tranche of three smaller producers locally, along with Semen Merah Putih and Semen Bosowa. Fitch also picked up on this in a research report on the cement sector published in August 2019. It pointed out that, although Holcim Indonesia and Indocement had gained pricing power through their leading market share, this is being eroded by local producers owned by Chinese companies.

Depending on how you look at it, Indonesia has the ‘fortune’ to be only the second largest producer in South-East Asia, after Vietnam. China, the world’s largest producer, is not too far away either. As can be seen above this can be a mixed blessing for local producers as the market changes. Overcapacity abounds, a major multinational has moved out, a local firm has consolidated the market as a result and Chinese influence grows steadily. Indonesia could well be an example of things to come for other markets.

China: Huang Ting has ceased to be the chief financial officer (CFO) of China Resources Cement. He will remain as the company’s vice president and has been reassigned as chief procurement officer.

Duan Wanli, the general manager of finance department of the company will take on the duties of the CFO role on a temporary basis. She joined the finance department of the China Resources Cement in 2014. She holds a Master’s degree in accounting from the Macquarie University in Australia and is a member of CPA Australia.

Thailand: Siam Cement Group (SCG) has announced its involvement in the establishment of an innovation hub at the National Science and Development Agency in Pathum Thai. The Bangkok Post has reported that the development will cost US$14.3m. SCG’s partner for the project is the Chinese Academy of Sciences, a 100-site, 70,000-member body established under the Chinese Government’s Belt and Road foreign investment Initiative. When operational, it will market new products, initially consisting of petrochemicals, energy storage and batteries and smart cities.

High-value-added products and services made up 39% of SCG’s total sales in 2018 of US$15.7bn (US$6.11). It spent US$0.15bn on research and innovation over the period, around 1.0% of total revenue.

Cameroon: The Chinese-based Afcham China National Consortium Material Company has signed a memorandum with the Kribi Industrial Cement Plant Company (CmIKri) for the construction of an integrated cement plant with a capacity of over 0.5Mt/yr, and the possibility of an extension to 1.5Mt/yr, in the port of Kribi. The installation, spanning 30ha, will include shipping facilities and an 18,000t clinker silo, and cost US$60m.

China: Anhui Conch’s three-month net profit to 30 September grew by 13% year-on-year to US$602m in 2019 from US$533m in 2018. The company attributed this to a leap in total operating income to US$5.53bn over the period compared to US$4.54bn in the third quarter of 2018, representing an increase of 22%.