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Cemex’s transition from a multinational building materials producer to a regional one continued this week with the launch of its ‘Operation Resilience’ strategy. The plan is a stew of coronavirus response, earnings growth, debt reduction, portfolio sharpening and sustainability measures. Yet the intent to “construct a portfolio more weighted towards the US and Europe” marks a public confirmation of the company’s direction in recent years.

Chart 1: Geographic breakdown of Cemex’s revenue in the first half of 2020. Source: Cemex.

This direction of travel for the company has at least two threads that can be seen in the announcements surrounding its new strategy. The first covers the geographical spread of its current portfolio of assets. European countries and the US represented a little under half of Cemex’s revenue in the first half of 2020 as can be seen in the chart above. So focussing on these territories makes sense from an existing portfolio perspective, especially if growth has continued throughout the coronavirus crisis, as is the case in the US. In the general information accompanying its new strategy it broke down revenue by business line so far in 2020 as cement (42%), concrete (41%) and aggregates (17%).

To be fair to Cemex, its decision to focus on certain geographical regions mirrors recent moves at other multinational producers like LafargeHolcim and CRH. The former (mostly) sold its operations in South-East Asia in 2018 and 2019. Albert Manifold, the chief executive officer (CEO) of the latter, memorably favoured the safe and stable earnings of investing in assets in Europe or North America over doing so in somewhere ‘more exotic’ in an earnings meeting in 2019. However, Cemex doesn’t seem overly wedded to sticking to assets in Europe and/or the US either. It recently decided to mothball its South Ferriby integrated cement plant in the UK and sold a plant owned by its Kosmos Cement subsidiary in the US earlier in the year. Fernando A González, the chief executive officer (CEO) of Cemex, confirmed this in the questions and answer session after the strategy launch on 10 September 2020. When asked whether the company was considering selling assets in Asia and Latin America he replied that Cemex was open to divestments in Latin America or in the Mediterranean or in Asia but that driving down debt was the motivator, not coronavirus.

Debt is the other factor that has been persuading Cemex to focus on the US and Europe. It has been the smell clinging to its decisions over the last decade since its poorly timed acquisition of Rinker in 2007. The company stuck out with a high debt to earnings ratio when this column looked at the state of the major cement producers as the coronavirus lockdowns started in Europe: hence all the talk of paying down debt in its ‘Operation Resilience’ strategy. The company now hopes to whittle its net leverage down to at most 3x by 2023. At the same time as this market-calming announcement, it is in the process of changing some of its credit agreements such as extending a US$1.1bn loan from 2022 to 2025. It has also priced another US$1bn worth of senior secured bonds this week in its ongoing drive to raise more funds. This reliance on loans may explain why Cemex has shrunk back towards ‘safe’ markets over the last decade.

Cemex isn’t alone in cooing out market-calming noises as the coronavirus crisis continues. Buzzi Unicem has done the same thing this week for example. Yet, these announcements are instructive because they show what’s on the minds of these companies at least, or what they think investors want them to be thinking about. In Cemex’s case it could be summarised as: make more money more efficiently, cut debt and try to factor sustainability into all of this. Note, however, that as dominance in both industry and geopolitics heads east, Cemex is sticking to the west.

Russia: Three workers at Krasnoyarsk Cement and its associated company Sibcemservice have been awarded the title of ‘Honoured Builder of the Russian Federation’ by the central state government. Excavator driver Mikhail Yelkin, grinding workshop supervisor Valentina Trofimova and turner Stepan Grishechko have been issued with the honourary titles for their long service with the company of over 30 years and help in mentoring new employees.

Azerbaijan: Germany-based Sustained Visions has announced the commissioning of Akkord Cement subsidiary Qazax Sement Zavodu’s 1.3Mt/yr-capacity integrated Gazakh cement plant in Ganja-Gazakh region following a phase-two upgrade completed in collaboration with the owner and DAL Holding subsidiary DAL Teknik Makina. The plant, built in 2013, had an original capacity of 0.9Mt/yr.

Sustained Visions praised the collaborative effort, which has resulted in a “significant reduction in specific energy consumption and carbon dioxide (CO₂) emissions” for the plant, and “shows very stable performance.” Managing director Ralf Slomski noted that, in spite of the coronavirus outbreak, the company was able to maintain a project management team of five staff on the site at peak periods.

Canada: Public pensions and insurance fund Caisse de depot et placement du Québec (CDPQ) has bought the debt from “all present and future accounts receivable arising from contracts” of McInnis Cement. The Journal de Québec newspaper has reported that the move is intended to benefit the company’s liquidity position. CDPQ first vice-president Michel Nadeau said, “It’s a solution to find cash quickly.”

CDPQ injected US$152m into McInnis Cement on 2 July 2019 as part of a total US$380m private capital refinancing.

Ukraine: The Interdepartmental Commission for International Trade (ICIT) has pursued a complaint by multiple domestic cement producers including Buzzi-Unicem subsidiary Dyckerhoff, HeidelbergCement subsidiary Kryvyi Rih Cement and CRH subsidiary Podilsky Cement in opening an investigation into imports of cement from Turkey. The Uriadovy Kurier newspaper has reported that, on its preliminary assessment, the ICIT deemed the complaint to provide “sufficiently substantiated evidence on the basis of which it can be considered that the importation of cement into Ukraine originating in Turkey could be at dumped prices, the margin cannot be considered minimal and the import volumes are not insignificant in accordance with the law.” It added, “The complaint also provides sufficiently substantiated evidence that imports were made to an extent and under conditions such that they may cause material injury to the domestic producer.”

China: Cement companies produced 220Mt of cement in July 2020, up by 3.6% year-on-year from 230Mt in July 2019. Production was 1.2Bt of cement in the first seven months of 2020, down by 3.5% year-on-year from 1.3Bt in the corresponding period of 2019. Revenues over the period declined by 5.5% to US$74.7bn from US$79.0bn.

Kazakhstan: EuroChem subsidiary EuroChem Karatau has entered into talks with Zhambyl Region governor Berdibek Saparbayev over plans for the construction of a mineral fertilisers plant at a total investment cost of US$800m. Kazakhstan Newsline has reported that the facility will additionally produce aggregates for use in cement production. The plant will exploit the region’s Karatau-Zhanatassky phosphorite basin, from which the company has already extracted and carried out primary processing on phosphorite ore.

Italy: Buzzi Unicem says that it has implemented a number of measures to enable it to deal with any economic downturn resulting from the financial impacts of the coronavirus outbreak. The Il Sole newspaper has reported that the company’s strategies fall under two headings, namely increasing efficiencies and improving products and services. As such, the company is targeting a medium-term increase of Italian cement plant capacity utilisation of 70 - 75% from 55 - 60%, while also increasing its product range to offer custom concrete blends “to best suit the needs of the customer.”

Kazakhstan: Germany-based Gebr. Pfeiffer says that it has secured a contract for the supply of an MVR 5000 C-4 vertical grinding mill to SemeyCement’s 1Mt/yr integrated Semey cement plant in East Kazakhstan. Gebr. Pfeiffer says that the 200t/hr capacity mill will have a drive power of 4000kW and be equipped with an SLS 4500 BC classifier. Delivery of the vertical roller mill is scheduled for autumn 2021.

US: Cemtech Materials will produce cement using bauxite residue supplied under a new contract signed with New Day Aluminium Holdings subsidiary Noranda Alumina. Noranda Alumina has executed a letter of intent with Cemtech to sell it 60,000t of bauxite residue starting in the fourth quarter of 2020. The bauxite will be used in the cement production process as the raw material for iron, replacing other current iron bearing raw materials.

Noranda Alumina chair and chief executive officer (CEO) David D’Addario said, “We are focused on continuously improving the sustainability of our business and reducing our environmental footprint on our path to a zero residue refinery, and look forward to helping our partners in the cement industry to achieve their aligned goals.”

The deal follows a beneficial use approval from the Louisiana Department of Environmental Quality. Noranda Alumina is located in Gramercy, Louisiana. It produces smelter grade alumina for the production of aluminium and chemical grade alumina for non-metallurgical applications.