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A few days ago my family faced a financial crisis caused by demonetisation. The family piggy bank holds a number of one-pound sterling coins. However, the Bank of England is set to introduce a new 12-sided one-pound coin in March 2017 and withdraw the old type circular coin by the end of October 2017. Unfortunately the piggy bank in question is of the variety that can only be opened by smashing it. There followed various attempts to extract the coins via the narrow opening.

Now just imagine if a country of over 1.25bn inhabitants and a gross domestic product of US$8.7tr faced a similar problem. Well, you don’t have to imagine it because India’s demonetisation plan to remove 500 and 1000 rupee banknotes from circulation started in November 2016. Some commentators reckoned that the banknotes represented nearly 85% of its currency by value. Indian citizens then had until the end of December 2016 to take the old bank notes to a bank to have them exchanged. The government has said that the plan was conceived to cut corruption, increase tax revenue and reduce cash hoarding. However, critics have attacked the policy for unduly penalising the poorest members of society as they struggle to move from using cash to electronic methods.

That’s the background. Global Cement is interested in cement markets. Although its early days yet some reactions and data are starting to emerge. Ambuja Cement launched a marketing campaign in December 2016 to help its customers cope with a cashless business environment. The initiative has included working with a bank to operate a helpline assisting people in opening bank accounts as well as putting out the message in various media including sending one million text messages. Clearly, at least one of India’s major cement producers is taking the problems caused by demonetisation seriously.

Alongside this, various reports have trickled out since November 2016 trying to work out the effects of the financial transition on the cement industry. Firstly, the India Cements reported in mid-November 2016 in a financial report that demonetisation had not impacted its cement sales. Deutsche Bank Markets Research then predicted that the policy would reduce cement demand by up to 20% for the last few months of 2016 and then reduce growth by 3% in the first three months of 2017. Its analysts reckoned that the residential sector would suffer the most and that although infrastructure spending might offset this a little, reduced taxation from a punctured property market would also adversely affect infrastructure funding. A report in the Hindu newspaper in early December 2016 feared that cement demand might be reduced by up to 50% in November 2016. It also raised the concerns of the managing director of Shiva Cement who said that contractors were finding it difficult to buy raw materials and pay wages.

Now in early January 2017 the India Ratings and Research credit ratings agency released a research note predicting that cement production growth was likely to fall to 4% for the 2017 financial year ending on 31 March 2017 from a previous estimate of 6%. It reported that production growth rose by only 0.5% year-on-year in November 2016 following a growth rate of 4.3% from April to November 2016 and rates of 5.5% and 6.2% in September and November 2016 respectively. It added that the housing sector constitutes around 65% of cement demand and that this share is likely to fall.

After a strong start to the year the Indian cement industry was looking forward to a growth rate above 5% in its 2016 - 2017 financial year. The figures aren’t out yet and the year isn’t finished but it is looking likely that demonetisation, a direct government policy, has smashed demand for cement in India in the short term.

Global Cement would be interested to hear from any readers in India for their comments on demonetisation and its effect on the cement industry – This email address is being protected from spambots. You need JavaScript enabled to view it.

Brazil: Eduardo Ferraz has been appointed as the chief financial officer and Investor Relations Officer of Magnesita with immediate effect. Ferraz is currently the finance director for South America, a role he will continue to hold. He replaces Eduardo Gotilla who has resigned from the roles following the on-going merger between Magnesita and RHI with the transfer of some executive officers of the company to the UK.

Gotilla will continue to be an officer for Magnesita International and lead finance and investor relations globally for the Magnesita Group, but will no longer hold an officer position in the company, principally due to Brazilian legislation requiring statutory officers to be residents in Brazil.

India: The India Ratings and Research credit ratings agency has said that demonetisation of the economy is likely to reduce growth in the cement industry by 2% to 4% in the 2016 – 2017 financial year that ends on 31 March 2017. Previously it had predicted growth of up to 6% in this period. The agency reported that cement production grew by 0.5% in November 2016 following rates of 5.5% and 6.2% in September and November 2016 respectively. It added that all India volumes fell by up to 25% in November and December 2016. The agency expects demand for cement from the housing sector will to decline further from its current contribution of 65% of all demand.

US: The Center for Biological Diversity, a non-government agency, has described plans to give Mitsubishi Cement a 120-year permit to mine limestone from a new quarry in San Bernardino National Forest in southern California as ‘unreasonable.’ Ileene Anderson, a senior scientist with the Center for Biological Diversity, made the comment on the basis that local flora and fauna would be adversely affected by the decision, according to the San Bernardino Sun newspaper. The US Forest Service and the County of San Bernardino are seeking comment on the proposal until 1 February 2017.

The new quarry will be located on public land abutting Mitsubishi Cement’s existing quarries at the site. It will serve the nearby Lucerne Valley cement plant.

US: Drake Cement has applied to the Arizona Department of Environmental Quality (ADEQ) to revise its air quality permit in order increase its clinker production at its Paulden plant by 10% to 0.73Mt/yr from 0.66Mt/yr at present. The cement producer is required to make the application as the increased production could increase its emission of particulate matter. The plant is also requesting a removal of the rolling three-hour clinker production rate limit of 83.3t/hr and an increase in the allowable hours of quarry crushing operation. The ADEQ will be holding a public hearing on the revision on 19 January 2017.

Vietnam: Nguyen Quang Cung, chairman of the Vietnam Cement Association, has predicted that the country will face an oversupply of nearly 50Mt in 2020. The local industry’s cement production capacity was nearly 88Mt/yr in 2016. It is expected to reach 108Mt/yr in 2018 and up to 130Mt/yr in 2020, according to comments made by the association to the Saigon Times. Domestic demand is estimated to be 82Mt in 2020 thereby creating the shortfall. The association is also lobbying for a two-year delay in regulation changes made in 2016 that are expected to make exporting cement more expensive for producers.

Vietnam: Ha Tien is to close its cement grinding plant in the Thu Duc district of Ho Chi Minh City following failed attempts to move the plant. The cement producer was ordered to cease all operations at the plant by 31 December 2016, according to Vietnam News. The plant reduced its production capacity to 1Mt/yr from 1.7Mt/yr in 2015 following accusations of air pollution. Ha Tien attempted to move the plant to District 9 in 2016 but the proposal was turned down by city planners.

Pakistan: Bestway Cement says it is considering making a bid for Dewan Cement's north plant and related assets. It joins Lucky Cement, Fecto Cement, Kohat Cement and a Chinese company in expressing interest in Dewan Cement, according to the News International newspaper. Bestway added that the final outcome will depend on due diligence and the bidding process.

Poland: The Polish cement industry is expected to meet a sales forecast of 15.8Mt made by the Polish Association of Cement Producers (SPC). Jan Deja confirmed the prediction based on data for November and December 2016 from the Central Statistical Office (GUS) and the weather at this time in comments made to the Polish News Bulletin. He added that 2016 had seen a 'significant' drop in investments and that a boom in residential construction had compensated for a decline in infrastructure development. However, tenders for infrastructure projects have been launched suggesting that sales might reach up to 16.5Mt in 2017.

China: Sinoma Hanjiang Cement, a subsidiary of China National Materials Company (Sinoma), has been ordered to pay back a US$8.3m tax rebate by the Tax Office of Hantai District, Hanzhong City in Shaanxi. A notice issued by the office said that the cement producer failed to meet the requirements for the rebate, according to ET Net News agency. The office decided to disqualify Sinoma Hanjiang from the entitlement due to its policies regarding rebate and exemption of value-added tax for products and labour services involving comprehensive utilisation of resources. Sinoma said that the extra cost is expected to decrease its profit in 2016.