Displaying items by tag: Forecast

Japan: Sumitomo Osaka Cement expects to record a 9.5% year-on-year rise in its sales in the 2024 financial year (1 April 2023 – 31 March 2024), to US$1.5bn. Nikkei Financial News has reported that this represents a downward revision of 1.3% from the producer’s previous estimate of US$1.52bn. On the other hand, Sumitomo Osaka Cement revised its profit forecast upwards by 12%, to US$79m. Previously in the 2023 financial year, it reported a loss of US$38.3m.

US: Portland Cement Association (PCA) chief economist and senior vice president of market intelligence Ed Sullivan forecast a recovery of the US economy in the second half of 2024 at the World of Concrete conference in Las Vegas, Nevada. However, Sullivan told attendees that the economy will ‘gradually weaken’ in the first half of the year. The anticipated weakening is compounded by the end of Covid-19 relief programmes, delayed monetary policy effects and credit tightening. Supporting growth throughout the year are some of the US$550bn infrastructure investments under the Infrastructure Investment and Jobs Act. The US government says that 40,000 new projects under the act are either in progress or completed.

Ed Sullivan said "In terms of the construction outlook, there will be a battle between interest sensitive construction sectors and less interest sensitive construction activity such as infrastructure spending and the construction of large manufacturing plants associated with the CHIPS and Science Act."

China: China Shanshui Cement expects its full-year loss to exceed US$120m in 2024. Reuters has reported that the producer attributes the anticipated decline to a ‘substantial’ drop in cement sales prices.

Eastern Province Cement said this week that it had awarded a new production line project to Sinoma CDI. The subsidiary of China-based CNBM Group and Sinoma International Engineering has picked up the contract to build a 10,000t/day plant from design to installation at the cement producer’s Al Khursaniyah plant. Word on project finance is to follow later and the contract should be signed by the end of March 2024. The cement company last mentioned the project to the Saudi Exchange back in March 2023, when it suggested that it was focusing on upgrading existing lines at its Al Khursaniyah plant rather than building a brand new clinker plant at Najibiyah. The plans for the latter project date back to 2015. Eastern Province Cement holds limestone extraction licences in both locations.

It is worth noting that the last couple of new conventional production line projects announced in Saudi Arabia have been picked up by Sinoma International Engineering and related companies. Sinoma International Engineering won an engineering, procurement and construction (EPC) contract to build Southern Province Cement's upcoming Jizan cement plant in May 2023. This followed the awarding of a new 10,000t/day line by Yamama Cement, also to Sinoma International Engineering, in November 2022. However, Germany-based IBAU Hamburg was confirmed by Hoffmann Green Cement Technologies (HGCT) in September 2023 as being the company that would build a ‘clinker-free’ cement plant in Saudi Arabia in 2024. This will be a copy of HGCT’s H2 plant in France, which uses a combination of activated clay, ground granulated blast furnace slag (GGBFS) and gypsum to manufacture its products. HGCT has signed a deal with Shurfah Group to build several Hoffman plants under a 22-year exclusive licensing agreement.

Arguably though, despite all these new plant news stories, the bigger issue so far this year was Saudi Aramco's decision to raise its feedstock and fuel prices from the start of 2024. Several Saudi cement producers released warnings in response that production costs would rise and earnings would fall. Al Jouf Cement, Arabian Cement, Qassim Cement, Saudi Cement, Yamama Cement and Yanbu Cement each made statements to shareholders on the issue, saying that they were working out the impact, would announce what this might be when known and that it was likely to make a difference from the first quarter results onwards.

The timing of Aramco's price hike is poor given that after a tough year, with falling sales for some producers, demand was expected to pick up somewhat. Aljazira Capital, for example, in a cement sector report released in late December 2023, forecast a 3% year-on-year increase in cement sales volumes in 2024 following an estimated fall of 8% in 2023. Its reasoning was that the domestic housing construction market had declined in 2023, leading to high levels of competition in the central region of the country caused by high levels of company inventory. Looking ahead, the competition was expected to ease as more projects were generated outside the central region and demand from the country’s various large-scale infrastructure plans took off. We will have to wait for Aljazira Capital’s next report to find out how they think the market will cope with higher fuel costs, but it seems likely that business may remain tougher than expected for the cement producers in the short term at least.

Finally, one more story to consider is that Al Jouf Cement signed a deal with Rabou’ Al-Taybeh Company this week to export cement and clinker to Jordan. The initial period covers six months with the option for renewal. Up until 2022, at least, clinker exports from Saudi Arabia were growing most years since the export rules were relaxed in 2017. With a difficult market reported domestically in 2023, the appetite to focus on exports may be growing and this could be a sign of that. Another example this week of Saudi-based cement companies looking outside the domestic market could be detected when Northern Region Cement said it had sold a 49% stake in its Iraq business to Al-Diyar Al-Iraqia for Investments Company. The cement company said that the new strategic partnership would help it to further expand its investments in the promising market. It will use the proceeds of the deal to repay loans and for ‘external investments.’ It valued the transaction at just under US$44m. For more on what Northern Region Cement and others have been up to in Iraq, see Global Cement Weekly’s analysis from November 2023.

The steady stream of new clinker production lines suggests confidence in the cement sector in Saudi Arabia in the medium to long term. It is also fascinating to witness a secondary cementitious material plant like the one HGCT is planning on the way too. Unfortunately though, the recent fuel price rise looks like it might ruin the party in the short term for those hoping for better things in 2024.

The 26th Arab International Cement & Building Materials Conference and Exhibition takes place in Cairo on 15 - 17 January 2024. Visit Global Cement at stand N3

Saudi Arabia: Utilities provider Saudi Aramco has notified Saudi Arabian cement producers of a rise in the price of its feedstock and fuel products from 1 January 2024. Zawya News has reported that Saudi Kayan Petrochemical Company forecast the effect of the price rise to be a 1.2% increase in producers’ cost of sales in 2024.

Yanbu Cement said “The impact of changing the price of fuel products will lead to an increase in the cost of production.” Umm Al-Qura Cement echoed the concern, while Saudi Cement Company said that it is working out the extent of the financial impact and will study ways to mitigate it.

Russia: Mikhail Polyanichko, the finance director of Cemros, has warned that growing gas prices, logistic costs and the interest rate set by the Central Bank of the Russian Federation will “significantly” increase input costs for cement producers in 2024. Tariffs on gas and railway transport both rose by around 10% in December 2023, with a further gas rate rise scheduled for July 2024. Polyanichko noted that the price of gas is particularly sensitive for cement plants given that it represents, on average, about 30% of the energy mix. He described the impending situation as a “stress scenario” and forecast that investment projects were likely to be reduced.

India: Ratings agency Crisil has forecast all-Indian cement consumption growth of 11% year-on-year to 440Mt during the current financial year, which ends on 31 March 2024. Crisil attributed this to a 51% year-on-year rise in infrastructure spending, to US$6.75bn throughout the year. Press Trust of India News has reported that infrastructure projects currently account for 30% of all cement consumption.

Peru: The Central Reserve Bank of Peru expects national cement consumption to fall by 3.7% in 2023. The Gestión newspaper has reported that demand declined month-on-month over seven successive months up to August 2023. It fell by a double-digit figure year-on-year in the first half of 2023. In August 2023, imports of cement declined by 95% month-on-month, to 2000t from 38,000t.

Peruvian Chamber of Construction executive director Guido Valdivia said "The first factor to consider is El Niño. If it starts in November 2023, it will affect construction output in 2023; if it is postponed to 2024, we expect a drop of only 3.3% in 2023.″ The Peruvian Property Developers’ Association (ASEI) forecast a 4% drop in construction output in 2023, followed by growth of 3.2% in 2024.

Grupo Gloria’s vice president, cement, concrete and lime, Luis Díaz told investors that the gap between Peruvian cement production and consumption will close ‘substantially’ during the remaining months of 2023, due to raised demand from infrastructure projects.

India: Ratings agency ICRA says that the cement industry in India will reach a renewable energy reliance of 40% across its operations in the 2025 financial year. The Hitavada newspaper has reported that this will involve the construction of 537MW-worth of new renewable power capacity. During the 2023 financial year, which ended on 31 March 2023, producers used 35% renewable energy. ICRA said that they can expect to make costs savings of US$240m/yr from 2025 through the scale-up of renewables, including solar, wind and waste heat recovery. This would correspond to a 15 – 18% reduction of estimated energy costs for the 2025 financial year.

Over the same two-year period, ICRA forecast blended cements to rise to 81% of cement sales in the 2025 financial year, from 78% in the 2023 financial year.

The big US news this week has been that Summit Materials and Argos USA are planning to merge their operations. The new organisation will operate six integrated cement plants with a production capacity of 8.4Mt/yr, based on Global Cement Directory 2023 data. The companies say that this will make them the fourth biggest cement producer in the country, at 11.8Mt/yr, based on grinding capacity, and the largest domestically-owned operator. Additionally, the combined entity will also hold just under 5Bnt of aggregate reserves, 224 ready-mixed concrete (RMX) plants and 32 asphalt plants.

The deal is expected to close in the first half of 2024 subject to the usual regulatory clearances and shareholder approval. At this point Argos should own approximately 31% of the new company and Summit Materials’ shareholders will be the majority owner. Although, if we remember anything from the Lafarge-Holcim merger from nearly a decade ago, it is that if the share prices between the two companies diverge too much in the next six months then that proportion may change. In simple terms that split for Argos USA is in the region of where one might expect it to be given that Argos USA made 39% of the combined revenue for both itself and Summit Materials in 2022 and 28% of the combined earnings.

The two companies complement each other well for the purposes of forming a new heavy building materials concern. Summit Materials reported revenue of US$2.41bn in 2022, with 30% deriving from its aggregates businesses, another 30% coming from RMX and about 20% from paving. Cement generated US$341m, or 14%, of total revenue. By contrast Argos USA reported revenue of US$1.57bn in 2022 from a business just concerning cement and concrete. Geographically, Summit Materials’ integrated plants are in the Midwest, in Iowa and Missouri respectively, and its cement terminals follow the Mississippi River from Minneapolis to New Orleans. Notably, it made the point in the merger announcement that the deal would reduce the seasonality of its cement business. Argos USA’s plants and terminals are mostly spaced out in the Southern states with its plants in Alabama, Florida, South Carolina and West Virginia.

It goes against recent trends for a US-based company to be increasing its share in the domestic cement market, although it has resorted to teaming up with a Colombia-based one to do so. Usually it is foreign-headquarted companies making moves in the US. For example, Ireland-based CRH is in the final stages of switching its primary listing to the New York Stock Exchange. Its head Albert Manifold described the US construction market as going through a “golden age” earlier in the year whilst trying to sell the stock market move at the company’s annual general meeting. Meanwhile, there have been various smaller acquisitions such as Peru-based UNACEMs’ agreement to buy the Tehachapi cement plant in California from Martin Marietta Materials in August 2023.

Given the ongoing importance of the North American market for the international cement producers it is not surprising that merger and acquisition activity has been taking place. Each of the four largest US-based cement producers performed well in the first six months of 2023, increasing both revenue and earnings significantly. However, the picture is mixed. The Portland Cement Association (PCA) forecast at the start of 2023 that cement consumption would decline in the second half of 2023 due to a worsening general economic outlook. The downturn was estimated to be brief though as interest rates were expected to dip and infrastructure spending to rise in 2024. Half-year data from the United States Geological Survey (USGS) supported this view as shipments reached an estimated 51.0Mt, a slight decrease from the same period in 2022. The cement companies have made money so far in 2023 partly by raising their prices. Yet, some segments of the residential homebuilding market have also driven demand despite the general economic picture.

One last thing to consider is how much thought was given to the carbon risk of forming a new heavy building materials company in a developed economy in the 2020s. Sustainability receives a mention in Summit Materials’ investor presentation in the form of current achievements such as switching to blended cements or reducing fossil fuel usage but there is no suggestion that any serious investment to curtail process emissions is expected any time soon. However, one could make the case that the enlarged company might benefit from synergistic effects if it were forced to spend more on CO₂ emission reduction. This proposed merger concerns two existing organisations teaming up rather than new equity entering the arena. In this context it will be worth noting whether the next cement industry merger or acquisition in the US or Europe will involve existing companies or new entrants.