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Last week Lafarge received a US$20m slap-in-the-face for cartel-like activity in South Africa. The case, which has been running since 2008, has investigated dealings at Lafarge, Pretoria Portland Cement, AfriSam and Natal Portland Cement-Cimpor. Yet the question remains: are cartels ever a good thing for the industry?

Back in December 2011 we covered the Common Price Agreement (CPA) in an article on cement price trends in the UK in Global Cement Magazine. This legally-approved cartel, operated by the UK Cement Makers' Federation, ran from 1934 until 1987. It was dissolved to allow UK producers to compete with cheaper foreign imports. Its supporters argued that it kept prices down in remote areas and stabilised the industry, a situation that cement buyers faced with escalating prices in Tanzania and Saudi Arabia might sympathise with this week. Despite this, prices in the UK fell after the CPA ended in 1987.

An uncited 'fact' on Wikipedia – itself a virtual monopoly on online knowledge – suggests that the median price increase achieved by cartels over the last 200 years could be 25%. Lafarge's fine represented 6% of its 2010 annual turnover in the region. Depending on how Lafarge's sales relate to its turnover this raises the possibility that even with its hefty fine Lafarge may still be in profit over the venture.

Cartels dog the cement industry given the prevalence of small groups of sellers in many markets. Throw in the current economic pressures in regions with over-capacity and the temptation must be irresistible. When one makes a link from this week's story from Pakistan about over-capacity to January's headline of 'inexplicably high' prices, the feeling occurs that Lafarge's chastening in South Africa is just the tip of the iceberg.

What do you think? Join our discussion on cartels in the Global Cement LinkedIn Group

Switzerland: Wolfgang Reitzle has been proposed to the Annual General Meeting on 17 April 2012 for election to the board of Holcim Ltd. Reitzle, aged 63 and a German citizen, studied engineering and economics at the Technical University of Munich and holds a degree and a PhD in mechanical engineering.

From 1976 to 1999 he worked for the car manufacturer BMW, where in 1987 he was appointed as a regular member of the Executive Board, responsible for research and development. In 1999, Reitzle took over as CEO of the Premier Automotive Group and Vice President of the US car manufacturer Ford. In 2002, he joined the Executive Committee of Linde, a world-leading gases and engineering company, and became CEO in 2003.

India: The Cement Manufacturers Association of India (CMA) has asked the Railway Board of India to reduce the cost of freight haulage. The CMA raised the issue in the wake of the board's decision to raise freight rates by 24%, which came into effect on 6 March 2012.

The CMA highlighted the disparity in the transportation costs of cement by rail compared to road. Other key concerns included the need to reduce the total cost by suitably lowering the classification for cement and clinker and by curtailing penalties, wharfage/demurrage charges and terminal charges.

The CMA now expects that cement prices will rise. "With this steep hike, the rail transportation cost of cement, which is already very high, will go up further including the transportation cost of input materials like coal, slag, gypsum assuming an average rail lead of 600km for the cement industry," said the CMA's President MMAR Muthiah.

According to Muthiah, transportation contributes about 20% to the operating cost of the cement industry. In addition, the industry has been highly taxed at over 60%. In the last couple of years railways have revised the classification of cement and clinker consistently from class 130 to 150 resulting in indirect freight hikes. In addition, a further burden on cement industry has been imposed by levy of various surcharges like a busy season terminal surcharge and development surcharge in the last few years.

Myanmar: Indonesian giant Semen Gresik has announced plans to build a cement factory in Myanmar with a production capacity of up to 2.5Mt/yr. The project is estimated to cost US$500m according to Ahyanizzaman, the finance director of Semen Gresik.

PT Semen Gresik is one of four state companies asked by the government under Indonesia Incorporated to expand its operations to Myanmar. Ahyanizzaman added that Semen Gresik chose to expand to Myanmar as demand for cement in that country is strong with supplies falling well short of demand. Cement demand in Myanmar is approximately 8Mt/yr compared to a current domestic production of 4Mt/yr.

The three other state companies asked to expand their operations to Myanmar include oil and gas company PT Pertamina, construction company Wijaya Karya and Bank Negara Indonesia.

Indonesia: Indonesia's domestic cement sales grew strongly in February 2012, up by 23.9% year-on-year, according to data from the country's largest cement firm PT Semen Gresik. Sales for the month reached 4.1Mt, slightly higher than January 2012's 4.06Mt.

"Low 2011 loan to GDP ratio at around 30% combined with low interest rates should allow credit to continue growing, paving the way for economic growth," said Teguh Hartanto, deputy head of research at Jakarta-based Bahana Securities. The country's cement sales fluctuate from month to month depending on a variety of factors, including religious holidays, which can delay construction, and the government's end-of-year project completion deadlines.

Mexico: Cemex has paid 20% of the US$361m in taxes it owes the Mexican government, with the rest due in January 2013.

The company said it made a US$72m payment on 1 March 2012. It said it has an option to extend the January 2013 obligation and opt for 36 instalments instead, a move that would cost the company a bit more.

"Cemex thinks it has adequate provisions to meet the (tax) requirement," the company said in a statement.

In 2008 the Supreme Court overturned a ruling that protected Cemex from paying taxes linked to investments in offshore tax havens. The court cited several articles in Mexico's income tax law that required Mexican companies to pay taxes locally on investments in countries where there are no taxes or where levies are 75% lower than in Mexico.

Pakistan: Cement manufacturers in Pakistan are regretting their decision to increase capacity as consumption has remained stagnant over the past four years, according to the All Pakistan Cement Manufacturers Association (APCMA). Exports are also declining, forcing the sector to operate at 69% of its installed capacity.

An APCMA spokesman explained how capacities were increased when the economy was booming and that most of the plant capacities were increased in the northern part of the country. For these regions Afghanistan was the only export market but its potential was limited. Exports to India were limited at that time and today as well due to many non-tariff barriers erected by India.

The spokesman regretted that the growth during the past four years had been much below expectations and that the government also failed to provide funds for, what he called, 'essential' infrastructure. The fierce competition between the mills sitting on huge capacities kept the rates of the commodity much below the average inflation in the country, he added. Rates of inputs of the industry increased in line with the inflation and rupee devaluation while the cement prices increased by just 6% from the average cement rates in 2006.

The APCMA spokesman added that exports, which provided some relief to the industry in the past few years, have declined at a rapid pace during the first eight months of the current fiscal year (July 2011 to February 2012). During this period the decline in exports was 5.57% to 5.62Mt from 5.95Mt during the corresponding period in 2010-2011. He said that exports to India, mostly via train, had increased by 39.5%.

Tanzania: The Tanzanian government has urged cement producers to establish their own depots in remote areas to reduce the risk of rising cement prices. The Minister for Industry, Trade and Marketing, Dr Cyril Chami, said the time had come to ensure cement prices were uniform throughout the country.

"Although the manufacturing firms incur transport costs in shipping the product to the market, they offer it at retail prices that are not affordable to ordinary people," said Chami. He cited the case of Coca Cola, which sells its drinks at the same price in all the regions, saying this has been made possible with the availability of depot services. "Cement manufacturers should emulate what the soft drink producers are doing by establishing their own depots so as to ensure equitable retail price of the products in all the regions," he added.

According to one of the major producers in the country, Tanzania Portland Cement Company (TPCC), development in the construction industry will increase demand for cement demand rapidly. A recent report conducted by the Tanzania Securities Limited (TSL), shows that the cement industry is expected to grow further due to high demand from the construction industry, which has already increased by 10% since 2007.

"We expect demand to grow at 18% if the retail business, infrastructure development and mining investments are sustained and the economic momentum quickly returns to pre-global financial crisis levels," said Moremi Marwa, the TLS's report analyst.

Tanzania remains a net importer of cement and, despite the recent up-cycle expansion of about 1.4Mt/yr, there are plans to increase capacity by 0.75Mt/yr. This comprises 0.25Mt/yr from Lafarge (Mbeya Cement) and 0.5Mt/yr from Lake Cement in the next two years.

US: Officials from Carolinas Cement Company have announced that the Division of Air Quality of the North Carolina Department of Environment and Natural Resources (DENR) has issued an air quality permit to parent company Titan America LLC to construct a cement plant in Castle Hayne. The issuance comes after four years of technical review of the proposed facility to ensure it will comply with North Carolina's air quality regulations and standards.

The permit was issued after extensive evaluation by DENR, including using air models that incorporate government-approved local meteorological, topographic and site-specific information. The models calculate the concentrations of regulated emissions at the boundaries of the plant property and ambient concentrations throughout the local region and other designated locations to assure they are below legal limits.

"These laws and regulations governing industrial emissions are among the strictest in the world," said Dan Crowley, Titan America's VP of Corporate Engineering. "The issuance of our air quality permit is only a first step. After the plant begins operating we will be subject to unannounced audits by State and Federal regulators as well as internal compliance audits to ensure our emissions are consistently within permitted limits." Carolinas Cement will meet all the new Environmental Protection Agency federal regulations for Portland cement plants that were finalised in 2010, and these regulations are fully represented in the Department of Air Quality permit.

Now that the air quality permit has been issued, Carolinas Cement plans to proceed with completing the federal Environmental Impact Statement (EIS) needed to obtain necessary wetlands permits. The EIS is an 18-24 month process led by the US Army Corps of Engineers (COE) and it requires Carolinas Cement to hire an independent third party to conduct studies of potential impact to numerous ecological and social factors, such as water, aquifers, traffic and flora and fauna.

Parallel to the COE permitting process, Titan America will begin a two-year process to design and engineer the new plant. The design process could not begin prior to the issuance of the air permit, as the design must correspond to the exact standards outlined by the air permit. The new plant will pioneer the industry's most advanced emission control technologies to ensure that public health, the aquifers, Cape Fear River and Island Creek are protected throughout every step of this process.

When it clears all of the regulatory hurdles, Carolinas Cement will create 161 permanent, full-time jobs. During construction it will create 1000 temporary jobs over two-years.

South Africa: Lafarge Industries SA has admitted taking part in a cement cartel and agreed to pay a US$19.6m penalty. The company reached the settlement with the South African Competition Commission after admitting to having taken part in price fixing and market division in the cement industry. As part of the deal Lafarge agreed to pay the penalty, 6% of its 2010 annual turnover in the Southern African Customs Union (SACU) region, which covers South Africa, Botswana, Lesotho, Swaziland and Namibia.

The case, which has been running since 2008, has investigated dealings at Lafarge, Pretoria Portland Cement (PPC), AfriSam and Natal Portland Cement-Cimpor (NPC-Cimpor). Following a 2009 raid at the offices of the accused parties, PPC applied for leniency and confirmed the existence of a cartel among the four cement producers. In December 2011, an agreement was reached with Afrisam, in which it confirmed the information provided by PPC and agreed to pay a US$16.5m penalty, representing 3% of its 2010 annual turnover in the SACU region.

The commission said that it will continue to investigate NPC-Cimpor.