Displaying items by tag: China

Nepal: A consortium of Nepal’s five commercial banks has approved credit worth US$140.5m to Hongshi Shivam Cement Private Limited, a Nepal-China joint venture company, in one of the largest ever finance pledges by Nepali commercial banks to any industry or infrastructure project. Company officials said that they would use the loan pledged by the commercial banks to start commercial production of cement at Hongshi Shivam’s 6000t/day plant.

The consortium led by Nepal’s NMB Bank, co-led by Nepal Investment Bank and participated in by Prabhu Bank, Everest Bank and Nepal SBI Bank, pledged the loan to the cement company, which has been conducting trial production of cement since May 2018.

The joint venture said that the loan was sought from Nepali banks to conclude financial closure of the cement plant. It has already received approval to inject Foreign Direct Investment (FDI) worth US$86m from Investment Board of Nepal and the central bank. The Chinese joint-venture partner has pledged to inject total FDI of US$360m, making it the largest FDI ever in the country’s cement industry.

The world’s largest cement producer China National Building Material (CNBM) released its half-year results this week and the figures were generally good. Despite falling production, the state-owned company has managed to raise its prices year-on-year to generate significant sales revenue and earnings increases. As usual the level of detail was fairly light, although not much lighter than some non-Chinese producers on the international market. The key point was that cement production fell by 5% year-on-year to 143Mt. This was due to poor demand, mounting environmental regulations and rising input costs.

The half-year report was significant because it is the first financial report from the company since its merger with China National Materials (Sinoma) completed in early May 2018. Just like the reports of LafargeHolcim and HeidelbergCement following mergers or acquisitions, CNBM has seen a boost to its performance. Further gains from scale and synergy are expected. The union has indisputably created the world’s biggest cement producer, putting aside any European or American cries of over-calculation of production capacity on the part of their Chinese rivals. However, size comes with particular problems.

Placed in a wider context CNBM and its owners, the Chinese government, are attempting to manage a wind-down from the biggest construction boom in human history. National Bureau of Statistics data show that sales of cement fell by 10% to 984Mt in the first half of 2018 from 1.1Bnt in the same period in 2017. So, falling cement production volumes are not a surprise. What is curious, though, is how cement prices have appeared to rise in a country with massive production overcapacity. Each of CNBM’s cement producing subsidiaries reported that its average selling price of cement grew year-on-year.

Graph 1: Sales of cement in China, 2014 – 2018. Source: National Bureau of Statistics of China.

Regional variation could explain some of this in a country as large as China and similar trends can be observed in India with its own diverse internal markets. The local focus on environmental regulations offers another explanation. In June 2018 the government’s State Council issued regulations to reduce the production capacity of construction materials, set up emission limits for pollution, implement peak shifting of production and to establish a ‘strict’ accountability mechanism for all of this. CNBM has followed these directives with its ‘Price – Cost – Profit’ (PCP) strategy and all of its subsidiaries have conformed to this. What is not covered in the report is whether there is a negative financial effect of peak shifting and other environmental regulations and how bad this is.

It’s easy to dismiss the performance of a state-controlled company but the enlarged CNBM is facing a unique set of challenges. It appears to be off to a great start but both its scale and its challenges are unprecedented. In its outlook for the second half of 2018 it said that the, “contradiction of overcapacity in the industry has not been changed fundamentally.” This suggests that, although cement prices and profits have held up so far, there is no guarantee that this situation will continue.

China: China National Building Material’s (CNBM) cement production volume fell by 5% year-on-year to 143Mt in the first half of 2018 from 150Mt in the same period in 2017. It has attributed this decrease to ‘flat’ demand, increased pressure on environmental protection and rising costs of fuel and raw materials. As part of its ‘Price – Cost – Profit’ (PCP) initiative the group has focused on reducing production capacity and output, implementing peak shifting production and eliminating old production facilities.

Despite the headwinds, the group’s sales revenue from its cement division rose by 22% to US$7.41bn from US$6.06bn. Its adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) increased by 38% to US$2.08bn from US$1.51bn. Average cement prices also rose year-on-year. External sales from its engineering companies increased by 13% to US$2.18bn from US$1.92bn. Overall, group sales revenue rose by 22% to US$14bn from US$11.5bn.

CNBM completed its merger with China National Materials Company (Sinoma) on 2 May 2018. Its cement producing subsidiaries include China Untied, South Cement, North Cement, Southwest Cement, Sinoma Cement, Tianshan Cement, Ningxia Building Materials and Qilianshan. Its engineering subsidiaries include Sinoma International, China Triumph and Sinoma Milling.

China: Huaxin Cement’s sales rose by 27% year-on-year to US$1.75bn in the first half of 2018 from US$1.38bn in the same period in 2017. Its net profit nearly tripled to US$304m from US$107m. Its cement and clinker sales volumes grew by 1.13% to 32.2Mt.

The cement producer said that it had been challenged by raw materials and fuel price rises and kiln suspensions due to government-mandated peak shifting production during the reporting period. However, measures such as higher alternative fuels co-processing rates and efficiency gains helped to bolster its financial performance. Its kiln waste processing volumes increased by 18.4% to 0.68Mt.

The company added that its Tibet Shannan 3rd Phase 3000t/day clinker production line was ‘proceeding smoothly’ and was scheduled to start operation by the end of August 2018. Its 4000t/day Yunnan Luquan clinker line and 2.85Mt/yr Huangshi clinker replacement line projects have started construction. In Nepal a 2800t/day clinker line is scheduled to start construction by the end of the year. It is also working on municipal solid waste (MSW) projects in Wuhan Changshankou and Lijiang.

China: Dongwu Cement turnover has been boosted by rising cement prices in the first half of 2018. Its sales revenue rose by 60% year-on-year to US$31.9m in the first half of 2018 from US$19.9m in the same period in 2017. Its profit more than doubled to US$4.18m from US$1.47m. Its sales volumes of cement grew by 11% to 0.67Mt from 0.6Mt.

China: Sinoma International Engineering’s sales revenue rose by 14% year-on-year to US$1.47bn in the first half of 2018 from US$1.29bn in the same period in 2017. Its net profit increased by 45% to US$94.6m from US$65.1m. The subsidiary of China National Building Material (CNBM) said that signed new contracts in the cement sector with a value of US$1.26bn in the reporting period, including seven cement production lines and two grinding units.

China: Tianrui Cement’s sales revenue rose in the first half of 2018 due to an average price rise year-on-year of 22%. Its revenue grew by 13.8% to US$629m from US$553m in the same period in 2017. Profit increased by 17% to US$82.6m from US$71.6m.

Cement sales volumes fell by 4.7% to 13.3Mt from 12.6Mt due to government imposed production limits in Henan province and a decrease in infrastructure and property investment. In Henan and Anhui the company’s cement sales fell by 7.1% to 10.3Mt but it Liaoning and Tianjin it rose by 4.5% to 3Mt. the cement producer also reported that its cost of sales rose by 12.3% to US$721m due to rising coal prices and other input costs.

UK: Refractory producer RHI Magnesita says that its cement and lime segment was ‘flat’ in the first half of 2018. It blamed this on on-going low capacity utilisation in China and Brazil and ‘some’ market share losses due to its prices. The adjusted sales revenue of its Industrial Division, including cement and lime, rose by 14.3% year-on-year to Euro413m in the first half of 2018 from Euro362m in the same period of 2017. Overall, the company reported a 24.6% increase in revenue to Euro1.51bn from Euro1.21bn.

In a separate release RHI Magnesita subsidiary Magnesita said that the company’s revenue rose by 81.6% to US$133m. This was attributed to sales to the cement business in North America and higher deliveries in Europe in 2018. However, Magnesita’s services business suffered from a poor cement market in Brazil.

There have been quite a few new cement plant project announcements in the past week, with expansions announced in Mexico, Nigeria, Bangladesh, Indonesia, India and Uzbekistan. 11.8Mt/yr of new capacity has been announced in just a week, mostly from a whopping 9.0Mt/yr project in Central Sulawesi, Indonesia, the first in that Province. Notable in this project, as well as two of the others, is the involvement, once again, of large Chinese-based cement plant manufacturers and / or finance and associated influence from Chinese parties.

Of course, this trend is nothing new. The rise of Chinese cement plant manufacturers, particularly into Africa and other developing cement markets, has been covered in previous Global Cement Weekly columns. However, it does appear to be stepping up a notch in 2018 compared to previous years. So far this year we have reported on 21 confirmed Chinese cement plants being built in 15 countries other than China, from the planning stage to ‘up-and-running.’ A total of 37.2Mt/yr, more than the capacity of Germany, is being built across Algeria, Cambodia, Cameroon, Indonesia, Kyrgyzstan, Namibia, Nepal, Nigeria, Pakistan, Russia, Tajikistan, Turkey, Ukraine, Uzbekistan and Zambia. That’s not including a similarly large number of news stories where the supplier is not explicitly stated. This is seen a lot in Indian projects, as well as in Vietnam, where the cement sector appears to still be expanding, despite the government’s pronouncements. In many of these cases, and elsewhere, these unidentified suppliers are likely to be Chinese.

The driver for this increase in Chinese-led cement sector investment is, of course, the severe overcapacity in China’s domestic cement sector. The government is currently undertaking its most drastic capacity reduction measures so far. The ongoing integration of Sinoma and CNBM is one example of the lengths it will go to to reduce the current inefficiencies in the sector. This week the Chinese government reiterated its strict prohibition on new greenfield cement plants. It also warned that any producer that wants to upgrade its plant with a new line must only install the same capacity as the line that will be replaced, amid concerns that some were flouting this rule. This comes as the profits of major producers have been rising. Presumably the government would like them to climb further still.

So where does this leave the more established (read ‘European’) cement plant manufacturers such as Fives, FLSmidth, KHD and thyssenkrupp Industrial Solutions, some of which are fully or partly-owned by Chinese companies? Well, with fewer full-line projects available in developing regions due to the rise of the Chinese, they have become increasingly specialised in specific areas. Those that want European equipment will increasingly specify a pyro-line from Supplier A, a mill or two from Supplier B, conveyors and storage from supplier C, and so on. Arranging this, as it turns out, is something that Chinese plant manufacturers are quite keen to do. Take, for example, FLSmidth working for Sinoma (China) alongside Atlas Copco (Sweden) and Kawasaki Heavy Industries (Japan) on a cement plant in Indonesia. Indeed, FLSmidth signed a framework with CNBM on future collaborations in July 2018. FLSmidth and CNBM already have an extensive ‘back catalogue’ of joint projects. FLSmidth has valuable expertise that Chinese firms need to complete these kinds of projects.

Of course, another European supplier, Germany’s KHD, is mostly owned by China’s AVIC. In a forthcoming interview in the September 2018 issue of Global Cement Magazine, KHD’s CEO Gerold Keune states that the Engineering, Procurement and Construction (EPC) scene is now ‘completely dominated’ by Chinese suppliers. KHD fits in by providing a wide range of equipment but, crucially, great expertise in pyroprocessing and crushing solutions. It itself relies on smaller firms to provide their knowledge to specific parts of a larger project, be it conveyors, feeding systems or silos. Everyone is getting better and better, but in a smaller and smaller area.

Also in the September 2018 issue of Global Cement Magazine will be a report from the VDMA’s Large Industrial Plant Manufacturer’s group (AGAB) in Germany, which highlights another advantage for the Europeans: Digitisation. According to a VDMA survey, the industry anticipates a positive influence from digitisation activities on sales and earnings and expects to see margins improve by up to 10% as a result of the efficiencies it offers over the next three years. In this regard they are ahead of the Chinese mega-suppliers.

The conclusion from this wide-ranging column? The integration of Chinese weight and European know-how is stepping up a notch and will only accelerate from here. Can everyone be ‘winners?’ The next few years may reveal some of the answers.

China: Asia Cement (China) said that its profit attributable to owners for the six months that ended on 30 June 2018 surged by a factor of 10.7 to reach US$139.3m compared to the same period of 2017. Revenue amounted to US$718.8m, an increase of 47% from a year earlier.

Meanwhile, China Resources Cement (CRC) announced that its net profit for the first six months of 2018 was US$2.0bn, a rise of 145.5% year-on-year. CRC’s turnover amounted to US$2.36bn, an increase of 40.4% from a year earlier.

The Chinese government has once again reiterated that it will continue to strictly prohibit cement companies from adding new capacity, despite improving profits. Years of efforts to cut excess capacity in the sector have helped to improve the industry's profits, but signs are emerging that some factories are increasing new capacity, according to Ministry of Industry and Information Technology, which released a joint statement with the state economic planning agency. It said that expansion projects to produce more cement, won't be approved. In addition, factories' plans to replace out-dated capacity with new capacity must comply with government rules.