Displaying items by tag: Holcim

After a couple of weeks looking at the capacity-rich cement markets of Angola and Vietnam, we turn our attention this week to some of those countries on the receiving end of overcapacity.

Costa Rica is an unlikely place to start but it came to our attention this week due to a short but significant news item. In summary, the amount of cement imported into Costa Rica increased by a factor of 10 between 2014 and 2016, from around 10,000t to over 100,000t. This is around 5% of its 2Mt/yr domesitic capacity, so the change is already fairly big news. The fact that an incredible 97% of this came from just one country, China, makes the story far more interesting as it shows the effects that Chinese overcapacity can have on smaller markets.

But when we look at how the value of the cement imports has changed over time, we see an even more dynamic shift. While the amount of cement imported into the country increased by nearly 10-fold, the value of the same imports only increased by around half as much between 2014 and 2016. If these figures can be taken at face value, the implication is stark. Taking the very low base as effectively ‘zero,’ each tonne of cement imported must cost around half as much as it used to.

Digging a little deeper and the picture gets more complicated. While they have fallen, Costa Rican cement prices have not fallen by 50% and why the sudden deluge of imports anyway? In 2015 the country changed its rules on cement imports to facilitate more flexible imports and lower prices for consumers. It did this by changing a regulation relating to how long cement can be stored, previously set at just 45 days, with the aim of allowing cement to come from further afield and, crucially, in bulk rather than bags.

The effects on price were immediate. Previously as high as US$13/bag (50kg) in December 2014, fairly high by global standards, Sinocem, the first Chinese importer, immediately sold its first shipment at US$10/bag. This effect of lower prices has now forced the average sales prices down to around US$10/bag across the country by 2017. This is good for consumers but not necessarily the local plants.

Back in 2015, the two local integrated plants operated by Cemex and Holcim warned that cement quality would suffer if cement bags were not used within 45 days. This apparently self-serving ‘warning’ went unheeded by the Ministry of Economy, Industry and Trade (MEIC), which pointed out that other countries in South America, as well as the European Union and United States, had no analogous short use-by dates for cement bags.

The rule remains in place, although discontent rumbles on. Indeed LafargeHolcim noted in its third quarter results for 2016 that ‘Costa Rica was adversely affected by increased foreign imports.’  This may well be a little bit of posturing and it doesn’t square with the fact that Costa Rica exported three times more cement that it imported in 2016. Of total exports of 0.34Mt, over 95% went to neighbouring Nicaragua, which has a single 0.6Mt/yr wet process plant owned by Cemex. It seems that the two Costa Rican plants have found a way to keep a little bit of the Chinese producers’ margin for themselves.

Of course, Chinese cement overcapacity doesn’t only affect the Central American market. It has been rippling all around the Pacific Rim. In July 2017, this column looked at the decision by Cementos Bío Bío to stop making clinker at its Talcahuano plant in Chile. It now favours grinding imported clinker from Asia. Before that, Holcim New Zealand closed its Westport cement plant in 2016, finally admitting that domestic clinker was not viable.

In the grand scheme of things, this all makes sense. The market has forced those operating on thin margins to adjust. Ultimately, the end consumer is likely to benefit from lower prices, at least for as long as reliable low-cost imports can be secured. What happens, however, if China actually gets round to curtailing its rampant cement capacity, or simply decides to charge more for its cement? Flexible imports, the main aim of the Costa Rican rule change, may then prove vital, as long as there is more than one international supplier of cement.

Change draws nearer this week in the Ecuadorian cement industry with the announcement of further details on a new integrated cement plant. Union Cementera Nacional (UCEM) plans to build its third cement plant. The part-government owned group will build its new 2200t/day facility in the country's central Chimborazo province. The move will expand the group's domestic production from 1600t/day to 3800t/day, adding to its existing 650t/day of plant in Chimborazo and its 950t/day plant in Azogues. The expansion was supported by a US$230m investment agreement agreed in September 2015 between UCEM and Casaracra.

The timing is interesting here given that cement sales have reportedly fallen year-on-year by 7% for the first seven months of 2015, according to Ecuadorian Institute of Cement and Concrete (INECYC) data. Holcim, in its financial report for the first half of 2015, attributed its lower cement volumes to effects on the local economy by lower oil prices and poor weather. This also followed a declining year for volumes in 2014 after Holcim reported a record year in 2013.

Holcim also reported continuing to export clinker to its Ecuador unit in 2014 despite the drop in volumes. To that end it completed the second phase of its own expansion project at its Guayaquil cement plant back in March 2015. It increased its clinker production capacity to 4500t/day at the site at a cost US$400m.

Also of note, but on a smaller scale, was the announcement by the North American subsidiary of Gebr. Pfeiffer in September 2015 that it was supplying a new MPS swing mill for an existing grinding station at a clinker plant run by Hormicreto. Published details are sketchy on this plant but A TEC Greco refers to supplying a burner to the company for a cement kiln in 2013. The mountainous location and ownership by a concrete producer suggest that this may be a mini-cement plant.

Following the departure of Lafarge from the market at the end of 2014, Ecuador now has three main cement producers: LafargeHolcim (inheriting the Holcim assets), UCEM and Union Andina de Cementos (UNACEM). UCEM's expansion plans will increase its share of the industry by production capacity making it the second largest producer in the country. MCPEC - INECYC estimates projected that cement demand would reach 9Mt/yr in 2018. Meanwhile Manuel Román Moreno, general manager of the Empresa Pública Cementera del Ecuador (EPCE), estimated that the country imported around 1Mt/yr of clinker in 2014.

The question then for UCEM is whether the country will want 9Mt/yr of cement in 2018 with a depressed price of crude oil. As an Organisation of the Petroleum Exporting Countries (OPEC) Ecuador's economy is, no doubt, feeling the pinch from the low price of crude oil after a period of growth. In its expansion announcement UCEM reported the reliance of the new plant on bunker oil. This will be trucked in from the Amazonas (Shushufindi) refinery in Sucumbios province and purchased at a subsidised price. Cheap oil can be used to run the plants but it may be needed more to run the country's infrastructure demand for building materials such as a cement.

San Miguel Corporation has upped the pace of its capacity expansion this week to a US$1bn investment towards five new 2Mt/yr cement plants in the Philippines. The announcement builds on its previous plans to build two plants for US$800m. At that time construction had already begun at subsidiary Northern Cement's plant in Pangasinan and Quezon. Plants in Bulacan, Cebu and Davao have now joined the list for completion in 2017.

The scale of this expansion is vast considering that the Philippines has 17 active cement plants with a total integrated production capacity of 24.6Mt/yr. San Miguel president and COO Ramon Ang's comments to media that if there were an oversupply of cement the market would correct itself in a couple of years may sound flippant to anyone who isn't the head of a multi-billion dollar corporation. However, if achieved it will propel the San Miguel subsidiaries from the country's fourth largest cement producer to its largest.

However each of the other major producers also have their own expansion plan in various stages of completion. Holcim Philippines announced US$40m plans in May 2015 to expand its production capacity to 10Mt/yr by the end of 2016, mainly through reviving existing projects. Cemex announced plans in May 2015 to spend US$300m towards building a new 1.5Mt/yr integrated line at its Solid Plant. Lafarge Republic had plans in April 2015 to raise its cement output through the opening of grinding plants at its Rizal and Bulacan cement plants. The former was opened in April 2015 but this is the one plant that hasn't been acquired by CRH following the sale of Lafarge Republic in the run-up to the LafargeHolcim merger. The latter was last reported due for opening in December 2015.

The big change in the Philippine cement industry in 2015 has been the merger of Lafarge and Holcim to form LafargeHolcim. Given that Lafarge Republic and Holcim Philippines held over 55% of the country's production capacity before the merger, it was inevitable that they would be forced to sell off assets. In the end CRH picked up most of Lafarge Republic's cement assets bar the Teresa Plant in Rizal, which stayed with Holcim. The merger has skewed the market towards one clear leader, LafargeHolcim (9.5Mt/yr), followed by Cemex (4.73Mt/yr) and CRH (4.19Mt/yr) with similarly sized cement production bases. These producers are then chased by San Miguel (2.15Mt/yr) and the other smaller firms. If San Miguel succeeds in its expansion strategy then the market will change once again.

Cement sales rose by 11.1% to 11.9Mt in the first half of 2015 according to the Cement Manufacturers Association of the Philippines (CeMAP). They attributed this growth to strong construction activity helped by increases in government infrastructure spending. Alongside this, gross domestic product (GDP) is predicted to rise by 6% in 2015 and 6.3% in 2016 by the Asian Development Bank. Another promising sign for development came from a study by Antoinette Rosete of the University of Santo Tomas which forecast that cement demand would meet 27Mt/yr. Capacity utilisation rates rose to 85% from 68% in 2014 according to Department of Trade and Industry data.

With this kind of encouragement, no wonder San Miguel is betting on such a large expansion project. If Rosete's forecast and capacity utilisation rates hold then the Philippines might need a capacity base of around 36Mt/yr. San Miguel's growth will fill that gap.

Of course other players might have their own ideas about giving away market share. LafargeHolcim and Cemex are likely to be saddled with debt or existing projects. CRH meanwhile is the wildcard as its expansion strategy is opaque. In recent years it has seemed to focus on acquisitions over building its own projects. The Euro5.2bn the company has spent on buying Lafarge and Holcim assets this year seems likely to slow down investment on any internal development plans. However CRH is bringing in local partner Aboitiz in the Philipines to help with a US$400m loan.

The Philippines is clearly an exciting market for the cement industry at the moment. One consequence of the current situation is that it may signal what CRH's global intentions are following the LafargeHolcim merger. If it decides or is able to start building new capacity then it may reveal the start of a new phase for the Ireland-based multinational.

UK: Investment boutique Perella Weinberg Partners has hired LafargeHolcim co-chairman Wolfgang Reitzle as an advisory partner.

Reitzle, also a former chief executive of the German gas maker Linde and chairman of the supervisory board of German car supplier Continental, will provide counsel in a senior role to the investment firm and its clients, especially in Europe, according to Perella Weinberg. He will continue in his role at LafargeHolcim.

Reitzle has had previous dealings with Perella Weinberg Partners; Holcim appointed Perella Weinberg banker Dietrich Becker to renegotiate the terms of its merger with Lafarge. "Reitzle has an exceptional track record of successfully managing growth across a variety of industries," said Joseph Perella, co-founder and chairman of Perella Weinberg Partners.

UK: Aggregate Industries' new cement division will be led by Joe Hudson as managing director of cement and concrete products. He joins Aggregate Industries from Lafarge, where he has worked in a number of key functional and operational roles since 2001. Hudson was heavily involved in preparations for the LafargeHolcim merger as group senior vice president for organisation and development at Lafarge and has experience of running a cement business, having previously worked as managing director / CEO for Lafarge Wapco Plc in Nigeria.

There was a lot of news out of Lafarge and Holcim this week regarding preparations towards their merger. Just this morning we heard that the partners have entered into a binding agreement with Ireland's CRH regarding the sale of the assets that must be divested. Meanwhile, Lafarge and Holcim have also completed the appointments for the future LafargeHolcim executive committee. Its nine members will be responsible for such tasks as finance, integration, performance and costs, growth and innovation, as well as regional activities in Europe, Asia Pacific, the Middle East and Africa, North America and Latin America.

However, it was other types of personnel that featured in Lafarge and Holcim's earlier press releases. On 19 May 2015 Lafarge came out and announced the first (pre-merger) job losses that will result from the merger. It will cut 380 positions in central and regional corporate roles, with 166 going in its native France. For its part Holcim will make 120 pre-merger job losses, all in Switzerland. Ignoring the clear discrepancy in scale between the different sides, Lafarge and Holcim will have lost at least 500 jobs out of their combined ~130,000. This is just a scratch on the surface, but it does raise an interesting question: How many more jobs will go at LafargeHolcim?

First up are the staff that will go to work for CRH. This probably represents the largest number of staff that will come of LafargeHolcim's books relative to Lafarge and Holcim's current staff levels. According to their 2014 Annual Reports, Lafarge and Holcim employ a combined 81,000 staff in cement roles. Given that they have a combined 425Mt/yr of cement capacity (give or take) this equates to around 190 staff for each 1Mt/yr of capacity.

As the new LafargeHolcim will have control over around 340Mt/yr of cement capacity, we can crudely scale the 190 staff up to 64,600 cement sector staff. This indicates that around 16,400 staff that are currently employed by Lafarge and Holcim will be 'off' to CRH (and others). This leaves 48,100 staff in non-cement roles at LafargeHolcim.

Will more jobs be lost post-merger? Lafarge and Holcim have stated that the new entity will have 115,000 staff. However, with around 42% of future employees employed in non-cement roles - compared to 41% and 34% for Lafarge and Holcim respectively in 2014 - it certainly seems that there could be scope for at least some reduction in overall numbers from LafargeHolcim's non-cement functions. Future job losses could therefore be a possibility, but the exact scale of future consolidations and 'synergies' (if any) will only become apparent post-merger. Maybe LafargeHolcim could end up with around 105,000 to 110,000 staff.

A key time may well be early 2016, when LafargeHolcim will launch a new 'corporate structure.' This term was also used by Lafarge and Holcim in their most recent releases, so further job losses could be on the cards.

One member of LafargeHolcim staff with nothing to worry about now will be Bruno Lafont, current CEO of Lafarge. He received a Euro2.5m bonus this week for his 'key role' in conducting the merger. How LafargeHolcim staff who could be nervous about their jobs will take this remains to be seen.

The Lafarge-Holcim Report from Global Cement is available to order now

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.

Switzerland: Kaspar E A Wenger has been appointed as the chairman of the board of Holcim (Schweiz) AG. The role follows more than 20 years at Holcim, including more than ten years of operating responsibility for Holcim (Schweiz) AG and the responsibility for Central Europe.

In the framework of the progressing merger between Holcim and Lafarge, Wenger will become designated chairman of the board of Holcim (Schweiz) AG, effective from 30 June 2015. He will relinquish his responsibilities as area manager for Central Europe (Switzerland, South Germany, Italy). Wenger will play a key role in supporting the activities of LafargeHolcim in Switzerland specifically.

Gerd Aufdenblatten, currently CFO of Holcim Central Europe, will replace Wenger and become cluster-CEO. Gerd Aufdenblatten joined Holcim in 2007 and became CFO of Holcim Central Europe in 2013. A successor for the position of CFO will be communicated in due course.

This week saw the announcement that Cemex and Holcim are both upping their stakes in Nicaragua to increase production. The companies have stated that they expect cement demand to grow significantly in the near future.

Holcim has started work on a US$10m project to increase production by 30% to 400,000t/yr at its Nagarote grinding plant. A second expansion phase will see production raised another 30%. Cemex, for its part, is building a US$55m, 440,000t/yr grinding plant in Ciudad Sandino. Completion is expected by 2017.

These new developments will make significant additions to Nicaragua's cement industry. Currently, it consists of one Cemex-owned 600,000t/yr integrated plant and one Holcim-owned 300,000t/yr grinding plant.

Nicargua has the dubious honour of being Central America's least developed economy and one of the poorest among all of the Americas. In recent years, however, its economy has grown dramatically, with significant expansion in the construction and mining sectors, indicating that Holcim and Cemex are right to bet on Nicargua. Indeed, late in 2014 president of the High Council of Private Enterprise, José Adán Aguerri said that the country had a significant cement shortage and was currently importing from Mexico and Colombia to meet its needs.

Driving cement demand in Nicaragua is the residential housing sector boosted by the growing population, much-needed infrastructure projects and the country's most controversial project, the Nicaragua Grand Canal. The canal will be, according to local media, a 'commercial waterway that will reshape commercial shipping, reap a windfall for investors and haul one of the hemisphere's poorest nations out of poverty.' Heavily backed by Chinese investors, it is deeply unpopular with industry experts and locals alike. There have been lots of questions as to whether there is enough demand for the canal, while its construction will divert scant resources, particularly water, away from agriculture, the country's main industry. The project will, however, contribute significantly to cement demand until its completion, which is expected in 2019.

So is Nicaragua the place to be? Its near-future economic and construction sector outlooks certainly look strong, but the cement industry relies heavily on long-term infrastructure plans, which are sorely lacking. Additionally, none of Nicaragua's neighbouring countries have noteworthy cement deficits. This means that export market opportunities from Nicaragua are in short supply. Nicaragua's future depends overwhelmingly on its leaders' long term-planning abilities...

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.