Displaying items by tag: Europe

There was lots to mull over in the latest Committee for European Construction Equipment (CECE) Annual Economic Report. The headlines were that the construction industry market peaked in 2017 and that the mining industry was still recovering, but maybe slowing, in 2018.

For the construction industry the CECE reported that a growth period from 2008 to 2018 reached a high level of growth of 4.1% in 2017. This fell to 2.8% growth in 2018 and is forecast to drop to 2% growth in 2019. It put this in terms of the sector having a cyclical nature, normally of around eight years. This means it believes a downturn is overdue. Slowing gross domestic product (GDP) growth and tighter financial and monetary conditions are expected to drag on the residential sector. The non-residential side is growing by more than 1.5% in Europe but it has started to following the residential sector. It also noted the ‘very poor’ performance of the infrastructure sector due to government under-investment.

Graph 1: GDP vs Construction Output, year-on-year change (%). Source: Euroconstruct & CECE.

The construction equipment sector saw sales rise by 11% in 2018, bringing it to only 10% below the high recorded in 2007. The CECE reported that the rate of growth for concrete equipment was becoming ‘less dynamic’ after four years of growth. Sales in Europe grew by 17% in 2018 but there was a wide difference between northern and southern countries. France and Germany had 9% and 14% growth respectively but Italy and Spain had 23% and 60% growth respectively. Looking at product groups, truck mixer sales and batching plant sales were particularly strong, with growth rates over 10%. Overall, most countries experienced growth, with the exception of Turkey.

Graph 2: Growth rates in construction equipment sales by product groups in Europe, year-on-year change (%). Source: CECE.

Looking globally, the CECE said that Europe ‘slightly underperformed’ in 2018 as worldwide equipment sales grew by a fifth. It attributed this to the return of emerging markets, led by China and India. Sales in Latin America recovered with a rise of 15% but Brazil, notably, was not part of this trend. North America and Oceania had growth rates of around 20% but the Middle East and Africa saw declining sales. The CECE forecasts global equipment sales growth of 5 – 10% in 2019 subject to there being no trade wars.

Tying into this, the German Mechanical Engineering Industry Association (VDMA) said today that Sebastian Popp, its Deputy Managing Director, described cement plant equipment manufacturers as a ‘drag’ on the rest of the building materials plant sector. His words were from an event that took place earlier in March 2019. Overall incoming order and turnover fell in 2018. He blamed this on a cement market characterised by overcapacity. However, if cement plant engineering was removed from the calculations then the incoming orders of German building material plant manufacturers would have risen by 17% year-on-year and turnover by 16%.

None of this is encouraging for the European cement equipment manufacturers. However, as we said in February 2019 (GCW 390), the market is changing and so too are the suppliers. A period of transition is to be expected. Recent good news from Denmark’s FLSmidth include an order for a new plant in Paraguay and sales figures for its vertical roller mills in 2018. Russia’s Eurocement ordered three mills from Germany’s Gebr. Pfeiffer just last week.

Belgium: The European Commission has approved the acquisition of sole control over Cimpor Portugal by Turkey’s Oyak. The commission ruled that there are no competition concerns between the cement producers given that they operate in different geographic markets. The deal was announced in late October 2018.

Europe: US-based company GCP Applied Technologies has received a European patent for increasing the efficiency of cement grinding by using sustainable raw materials. The grinding aids and quality improvers allow the use of bio-derived glycerol and reduce the use and the impact of oil-derived chemicals. The new Opteva and Tavero brand cement additives enable cement producers to reduce the energy consumption and the CO₂ emissions associated with cement production, with a reduced use, or no use at all, of oil-derived chemicals.

European Patent No. EP 1 728 771 B1 has been granted and registered into 17 European countries. The patent addresses methods for increasing the efficiency of cement and mineral grinding by using sustainable raw materials.

The patent relates to methods for improving the efficiency of grinding materials such as clinker and limestone, using glycerol derived from biofuel production, in combination with various grinding additives. GCP products can help to reduce the carbon footprint of cement and concrete. Grinding aids and quality improvers make cement manufacturing more efficient, while concrete admixtures can reduce the amount of cement needed to achieve a given strength specification.

Algeria: Groupe des Ciments d’Algérie’s (GICA) has made its first export to Europe. The Ministry of Industry and Mines said that 45,000t of cement was exported to Europe via GICA’s building materials distribution subsidiary, according to the L’Expression newspaper. The consignment was the last part of a contract to export 0.2Mt of cement to Europe.

This week’s Plastics Strategy from the European Commission (EC) presents the cement industry with a narrowing target. If the Plastics Strategy is successful it will prevent plastics waste altogether. This will then eliminate the key calorific content of refuse-derived fuels (RDF) and disrupt co-processing supply chains at cement plants across the continent. If it is too lax then dumping plastics in landfill could become more economically viable, also changing the market dynamic. Neither extreme looks likely at this stage but the European cement industry needs to make its views known.

Cembureau, the European cement association, has done just that today with the publication of a position paper on the subject. It conveniently ignores the top two tiers of the waste hierarchy – prevention and re-use – but it does recognise that ‘high quality recycling’ is the preferred option. This is followed by the target of its lobbying: protecting co-processing. Make no mistake, this is supporting industrial behaviour change with solid environmental benefits. Its areas for policymakers to focus on include protecting co-processing: a ban on landfill; linking energy recovery to recycling; concentrating on the legislation; thinking about material lifespan sustainability benefits; and helping minimise the investment costs for processing facilities.

Providing cool heads prevail, the importance of co-processing plastics as part of any realistic plastics strategy seems unlikely to change any time soon. What’s more likely to be the real target for Cembureau is standardising measures on collection, sorting and material recovery across the European Union (EU). For example, as this column has reported twice in 2017 (GCW288 and GCW324), the issues with waste disposal legislation in Italy have led to various problems in the sector. Waste collectors found it easier to export RDF to Morocco from Italy rather than use it locally in 2016. The slag industry has also reported similar issues with reuse in Italy. The consolidation of the local cement industry following the takeover of Italcementi and Cementir by HeidelbergCement and of Cementizillo by Buzzi Unicem should present a more unified industry approach towards alternative fuels. Backup from the EC could solve the other half of the alternative fuels puzzle in Italy and help to deliver serious change. Ecofys data from 2014 showed the EU co-processing average rate as being 41%, with six countries – Ireland, Portugal, Spain, Bulgaria, Italy and Greece – having rates below 30%.

Vagner Maringolo of Cembureau outlined the market opportunities for waste uptake at cement plants at the 11th Global CemFuels Conference that took place in Barcelona in February 2017. He started by revealing that plastics represented over 40% of the total share of alternative fuels used in the EU in 2014. A ban on landfilling municipal waste was expected to boost the supply of RDF and a Cembureau/Ecofys study on the market potential of alternative fuels concluded that around 10Mt of waste was co-processed in cement kilns in the EU28 in 2015. This represented around 2% of total combustible waste each year but it represented 10% of all of the energy recovery from waste in the EU. In other words co-processing plastics waste offers a very attractive means for the EU to meet its sustainability targets.

However, before Cembureau and the cement industry starts popping the (reusable) champagne corks, consider the wider picture. China has banned imports of foreign waste in 2018 including RDF from the UK, a major exporter. Unless new markets are found this may impact the price of RDF in Europe. Brexit is another example how of European waste markets might be disrupted in the medium-term. Cement producers want a steady supply of cheap fuels but if the providers can’t make enough money from their products then the market will fail. The tightrope for Cembureau to walk with plastics is to promote RDF use and secure its supply. Persuading the EC to support this may involve some wobbling along the way.

The 12th Global CemFuels Conference on alternative fuels for cement and lime takes place in Berlin on 20 – 21 February 2018

Plenty to mull over this week in Cembureau’s newly published Activity Report for 2016. The association pulls together data from a variety of places including its own sources, Eurostat and Euroconstruct. For competition reasons much of it stops in 2015 but it paints a compelling picture of a continental cement industry starting to find its feet again.

Graph 1: Cement intensity of the construction sector in Europe, 2000 – 2015. Source: Cembureau calculation based on Eurostat and Euroconstruct in Activity Report for 2016.

The really interesting data concerns so-called cement intensity. This is the quantity of cement consumed per billion Euro invested in construction. Figures calculated by Cembureau from data from Eurostat and Eurocontruct show that cement intensity has remained stable in Germany, France and the UK but that it fell sharply in Spain and Italy from 2000 to 2015. In other words the pattern of construction changed in these countries. One suggestion for this that Cembureau offers is that construction moved from new projects to renovation and maintenance. These types of construction projects require less cement than new builds. Seen in this context the huge production over capacities seen in Italy and Spain in recent years makes sense as the local cement industries have coped with both the economic crash and a step change in their national construction markets.

Further data in the report falls in line with the impression given by the multinational cement producers in their quarterly and annual financial reports. Cement production picked up in the Cembureau member states from 2012 and in the European Union members (EU28) from 2013. Meanwhile, import and export figures disentangled from a close relationship at the time of the financial crash in 2008 with imports of cement declining and exports increasing markedly. Much of it will have originated from Italy and Spain as their industries coped with the changes. Cembureau then forecasts that cement consumption will rise in 2017 by 2.4% and 3.5% in 2018 in the 19 countries than form the Euroconstruct network. A key point to note here is that most of the larger European economies will see consumption consistently grow in 2017 and 2018 with the exception of France where it growth will remain positive but it will slow somewhat in 2018. This fits with last week’s column about France with the early reports from LafargeHolcim, HeidelbergCement and Vicat reporting slight declines in sales volumes so far in 2017.

Cembureau’s country-by-country analysis also provides a good overview of its member industries. Looking at the larger economies, residential construction was the main driver for cement consumption in France and Germany in 2016. In Germany further growth is hoped for from an increased infrastructure budget set by the Federal Government. Italian cement consumption fell in 2016 and further decreases are anticipated for 2017, particularly from the public sector. By contrast though the story in Spain is still one of declining cement consumption but one heavily mitigated by exports. Spain is the described by Cembureau as the leading EU export country. Finally, there’s little recent on the UK other than uncertainty concerns about the Brexit process and an anticipated rise in infrastructure spending by 2019. The sparse detail here is probably for the best given the current political deadlock in the UK following the continued fallout from the general election in early June 2017.

In summary, Cembureau’s data shows that modest growth is happening in the cement industries of its member countries. It’s not uniform and some nations such as Spain and Italy are coping with changes in the composition of their industries. Cembureau also highlights the unpredictable consequences of the UK’s departure from the EU as one of the biggest risks in 2017. Check out the report for more information.

The Global Cement Weekly column of 22 February 2017 entitled ‘European Union (very) slowly tightens the screws on its Emissions Trading Scheme,’¹ bears witness to the misconception that we must choose between protecting the cement industry OR the climate. Quite the opposite is true: the objective is the cohesion between economic prosperity, meeting cement market demand AND lowering CO₂ emissions.

It is undisputed that, if climate protection is aspired to, there needs to be an adequate regulatory incentive that supports, perhaps even strengthens, industry’s profitability when companies act to lower their CO₂ emission. Some companies have tried selling low CO₂-cement at a price premium, marketing their lower embedded carbon. In a commodity market of a grey powder where low prices are a decisive purchasing point, this obviously doesn’t fly.

The only sustainable business incentive is to pass on the full cost of CO₂ not only in production but also in consumption of products. This would effectively result in higher cement sales prices for high-CO₂ cement and lower prices but higher margins for low-CO₂ cement, without losing competitiveness to producers that do not face regulatory CO₂ constraints. Hence, a win-win-win situation for low carbon cement producers, consumers and the environment. This is after all the purpose of the sectoral ETS mechanism with inclusion of importers and no free allowance allocation.

The studies undertaken by Boston Consulting Group (BCG) for CEMBUREAU simulated the potential gross margin for the domestic cement industry in case of different leakage prevention mechanisms. While this may sound shocking for some, there is nothing wrong with aiming at maximisation of gross margin. Quite the opposite, gross margin maximisation is absolutely necessary for the cohesion between economic prosperity and climate protection and the effectiveness of an ETS.

The BCG studies led to the conclusion that in case of a tightening CO₂ allowance cap and under certain market conditions the importers’ inclusion mechanism can yield the best margin for the industry. Since however, as the Global Cement Weekly column mentions, the EU only very slowly tightens the screws on the supply of emission allowances, there will be sufficient free allocation for industry and there remains little need to lower emissions and thus little need for an importers’ inclusion mechanism.

CEMBUREAU called into doubt the representativeness of the technology penetration reported by the Cement Sustainability Initiative’s Getting the Numbers Right database. It is a well-established fact that the penetration of modern preheater precalciner kilns in most emerging countries is higher than in Europe, because the industry is younger outside of Europe and hence most installations have been built with more recent, more energy-efficient technology. Besides the CSI database, cement CO₂ inventories exist for about 10 emerging countries. They all confirm the same.

Beyond the comparison with other regions however, an emissions trading system that after 12 years still enables one fifth of production being made using the most energy-intensive technologies objectively misses its purpose.

Despite consuming up to 50% more energy than the Best Available Technology, such installations can survive thanks to free allocation and the revenues from waste derived fuels. The industry legitimately highlights the environmental benefits of using waste as a fuel. However, it is questionable whether keeping energy-intensive installations alive thanks to cheap energy from waste is consistent with this environmental narrative.

The proposed changes to the EU ETS will not improve its effectiveness for the cement industry. Quite the opposite, it will make it even less effective because the introduction of a dynamic allocation based on a clinker benchmark completely nullifies the need for the industry to lower the clinker content in cement.

CEMBUREAU indeed has the right to protect the industry it represents, but is probably short sighted and ill informed when it does so to the detriment of society’s necessity to mitigate climate change. The rejection of the importers’ inclusion mechanism is a missed opportunity for the European Union to make the ETS effective and for the cement industry to maintain its competitiveness in a carbon constrained world.

Eric Olsen, CEO of LafargeHolcim, the largest global cement company, and chairman of the Cement Sustainability Initiative, has called for a meaningful and increasing carbon price that can be passed through the whole product value chain and for trade policy to be included in the ETS.²

Lakshmi Mittal, Chairman of ArcelorMittal, the largest global steel company, has also called for a border adjustment measure and inclusion of consumption in climate policies.³ High quality research by leading economists exists on this topic.⁴ Now that the reform of the EU ETS enters the trilogue negotiation between European Council, Commission and Parliament, these industry leaders should step forward with a concrete and workable solution to combine industrial, trade and climate policies by 2020.

1. http://www.globalcement.com/news/item/5836-european-union-very-slowly-tightens-the-screws-on-its-emissions-trading-scheme
2. WEF, Davos: https://www.youtube.com/watch?v=O_mhqcNR0uA
3. Financial Times: https://www.ft.com/content/8341b644-ef95-11e6-ba01-119a44939bb6
4. Climate Strategies, UK: http://climatestrategies.org/?s=consumption

LafargeHolcim was the last major European cement producer to release its second quarter financial results last week. The collective picture is confused. Cement sales volumes have risen but sales revenue have fallen.

Most of the producers have blamed negative currency effects for their falls in revenue during the first half of 2016. Holding a mixed geographical portfolio of building materials production assets has kept these companies afloat over the last decade but this has come with a price. The recent appreciation of the Euro versus currencies in various key markets, such as in Egypt, has hit balance sheets, since the majority of these firms are based in Europe and mostly use the Euro for their accounting. Meanwhile, sales volumes of cement have mostly risen for the companies we have examined making currency effects a major contributor.

Graph 1 - Changes in cement sales volumes for major non-Chinese cement producers in the first half of 2016 compared to the first half of 2015 (%). Data labels are the volumes reported in 2016. Source: Company reports.

As can be seen in Graph 1, sales volumes have risen for most of the producers, with the exception of LafargeHolcim. Despite blaming shortages of gas in Nigeria for hitting its operating income, LafargeHolcim actually saw its biggest drop in sales volumes in Latin America by 13.2% year-on-year to 11.8Mt. The other surprise here was that its North American region reported a 2.7% fall to 8.8Mt with Canada the likely cause. Vicat deserves mention here for its giant boost in sales volumes due to recovery in France and good performance in Egypt and the US, amongst other territories.

Graph 2 - Changes in sales revenue for major non-Chinese cement producers in the first half of 2016 compared to the first half of 2015 (%). Data labels are the sales reported in 2016. Source: Company reports.

Overall sales revenue for these companies presents a gloomier scenario with the majority of them losing revenue in the first half of the year, with most of them blaming negative currency effects for this. Titan is included in this graph to show that it’s not all bad news. Its growth in revenue was supported by good performance in the US and Egypt. Likewise, good performance in Eastern Europe and the US helped Buzzi Unicem turn in a positive increase in its sales revenue. They remain, however, the exception.

Looking at sales revenue generated from cement offers one way to disentangle currency effects from performance. Unfortunately, only about half of the companies looked at here actually published this for the reporting period. Of these, LafargeHolcim reported a massive rise that was probably due to the accounting coping with the merger process that finalised in 2015. Of the rest - HeidelbergCement, Italcementi and Vicat – the sales revenue from each company’s cement businesses fell at a faster rate than overall sales. Like-for-like figures here would help clarify this situation.

Meanwhile, a mixed global patchwork of cement demand is focusing multinational attention on key countries with growing economies like Egypt and Nigeria. Both of these countries have undergone currency devaluation versus the Euro and are facing energy shortages for various reasons. The exposure of the multinational cement producers to such places may become clearer in the second half of the year.

Europe: Lafarge and Holcim have completed the appointments for the future executive committee of LafargeHolcim following a recommendation by Eric Olsen, future CEO of the combined group. The future executive committee, under the leadership of Eric Olsen, is composed of:

• Finance - Thomas Aebischer, currently in charge of finance at Holcim;
• Integration, organisation and human resources - Jean-Jacques Gauthier, currently in charge of finance at Lafarge;
• Europe - Roland Köhler, currently in charge of Europe at Holcim;
• Asia Pacific - Ian Thackwray, currently in charge of East Asia Pacific and trading at Holcim;
• Middle-East Africa - Saâd Sebbar, currently in charge of Morocco at Lafarge;
• North America - Alain Bourguignon, previously in charge of North America and the UK at Holcim;
• Latin America - Pascal Casanova, currently in charge of France at Lafarge;
• Performance and cost - Urs Bleisch, currently in charge of corporate functions at Holcim;
• Growth and innovation - Gérard Kuperfarb, currently in charge of innovation at Lafarge.

Following appropriate information-consultation processes with relevant works councils and employee representatives, Lafarge and Holcim have now entered a binding agreement with CRH regarding the sale of several assets. The assets include operations mainly in Europe, Canada, Brazil and the Philippines with an enterprise value of Euro6.5bn. The divestments remain subject to the completion of the merger including the acceptance of Holcim's public exchange offer by the shareholders of Lafarge. The merger is expected to close in July 2015.

Europe: In the framework of their proposed merger of equals, the boards of directors (BoD) of Holcim and Lafarge have nominated their candidates for the future BoD of LafargeHolcim, subject to closing of the transaction. The designated BoD will consist of 14 members due to be elected at the Holcim Extraordinary General Meeting on 8 May 2015.

The candidates are:

• Wolfgang Reitzle, Co-Chairman (currently Chairman of the BoD of Holcim);
• Bruno Lafont, Co-Chairman (currently Chairman of the BoD and Chief Executive Officer of Lafarge);
• Beat Hess, Vice-Chairman (currently Deputy Chairman of the BoD of Holcim);
• Bertrand Collomb (currently Honorary Chairman of Lafarge);
• Philippe Dauman (currently member of the BoD of Lafarge);
• Paul Desmarais Jr. (currently member of the BoD of Lafarge);
• Oscar Fanjul (currently Vice-Chairman of the BoD of Lafarge);
• Alexander Gut (currently member of the BoD of Holcim);
• Gérard Lamarche (currently member of the BoD of Lafarge);
• Adrian Loader (currently member of the BoD of Holcim);
• Nassef Sawiris (currently member of the BoD of Lafarge);
• Thomas Schmidheiny (currently member of the BoD of Holcim);
• Hanne Birgitte Breinbjerg Sørensen (currently member of the BoD of Holcim);
• Dieter Spälti (currently member of the BoD of Holcim).

Subject to the execution and completion of the merger project, Anne Wade and Jürg Oleas will resign from their office as members of the BoD at Holcim with effect as of the completion of the merger project.