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India: Dalmia Bharat has suspended operations across its entire integrated cement production apparatus, equalling 26.5Mt/yr capacity, as of 26 March 2020. The move is a response to a government ordnance of 25 March 2020 imposing a 21-day lockdown on the whole of India due to the coronavirus. The company will implement the closure ‘until further notice,’ according to Mint News.

Dalmia Bharat CEO and managing director Mahendra Singhi said, “While cement production is continuous in nature and the plants have requisite permission from both the state and the central governments to operate with minimum employees during the lockdown, Dalmia Bharat will only carry out mandatory activities required for safety and security of the plants in the larger interest of its staff.”

Coronavirus had claimed 13 lives in India on 27 March 2020.

Cement producers and suppliers are now reacting to the coronavirus pandemic at scale. The biggest obvious development has been the lockdown in India that began on 24 March 2020. The implications for the cement industry are profound given the country’s population (1.3Bn) and massive cement consumption under normal conditions. It is the country with the world’s second largest cement production capacity.

UltraTech Cement, the biggest producer, said that it was suspending production at ‘various’ locations although it added that the situation was ‘dynamic’ and that it was monitoring it from time to time. Ambuja Cement and JK Lakshmi Cement have done likewise. The latter has suspended cement production at an integrated plant in Rajasthan and three grinding plants in Gujarat. Some Indian states have moved faster than others towards shutting down movement of people so JK Lakshmi’s decision may merely be based on legal necessity. However, a difference may arise in producer strategies between keeping integrated and grinding plants open. Building up inventory is one strategy seen in poor market conditions previously around the world. Alternatively, moving to more of a grinding model might make sense in some territories if, as is happening, countries implement lockdowns at different periods. However, some Indian states have moved faster than others towards shutting down movement of people and JK Lakshmi Cement’s closure pattern may simply reflect this.

At the international scale HeidelbergCement gave an idea to Reuters of the challenge facing the multinationals. Chief executive officer (CEO) Dominik von Achten described the start of 2020 as being strong but that construction projects were being delayed in the US and that activity in France and Spain was starting to weaken. Unsurprisingly, the company has shut down three of its plants in Lombardy at the centre of the Italian epidemic. He added that the group was holding a daily crisis call to assess the effect of the virus upon staff. He also said that the group was stockpiling cement amid the disruption. The clear warning sign was of an existential threat like that faced by the airlines whereby sales could simply stop for a three or four week period… or longer.

On the supplier side, Denmark’s FLSmidth has issued a robust plan on how it is aiming to maintain service and support for its customers. Past all the now-usual stuff such as remote working it included detail on how to support clients on site where absolutely necessary on a case-by-case basis. With regards to its supply chain it pointed out that it was confident, “that any local interruptions to our suppliers can be minimised, even when the agility of some suppliers is put to the test. We have redundancy built into the system.” To this end it emphasised the global nature of its business to ensure that it could deliver parts and equipment to its customers. It claimed that it coped with coronavirus in China due to its ‘very flexible’ supply chain but did admit to some supply chain impacts. Yet it says that production is back to approaching full capacity with workshops in Qingdao and Shanghai above 90% as they work their way through accumulated backlogs. Finally, it is also offering advice on how the company can support its customers on reducing or shutting down operations.

Other supplier comments on the situation have mainly been about protecting staff, working remotely and supporting customers through continued supply of equipment and services. Back in India, Sameer Nagpal, the CEO of refractory manufacturer Dalmia-OCL told Business Standard that the company was coping so far with the crisis with little major impact seen so far. Its raw material supply chain was dependent on China but after some minor disruption it was secure. Most of its customers are domestic, where it hadn’t reported problems so far, although this may change with the Indian lockdown. Exports were a different story as it sends around 10% of its production abroad and it has a plant in Germany. In Europe it was seeing a challenge due to supply chain disruption.

The experiences above are a snapshot of some of what is happening in parts of the industry as coronavirus disruption hits home. China’s restrictions are easing, most of Europe is in lockdown, India has started its quarantine and the US has restricted movement in about a third of its states. The current restrictions in the UK, for example, allow for construction work to continue but local media is debating the associated risks for workers. Other territories have different rules. All of this is affecting demand for cement and concrete. This in turn feeds through to producers and their suppliers. Global Cement continues to monitor the situation and wishes readers a safe passage through the pandemic.

India: Several cement producers have responded to the coronavirus pandemic with plant closures. Reuters has reported that India Cements has temporarily closed all of its plants. JK Lakshmi Cement has suspended cement production at its 4.2Mt/yr integrated plant in Jaykaypuram, Rajasthan and at three grinding plants. JK Lakshmi subsidiary Udaipur Cement Works has shut its 1.6Mt/yr integrated Udaipur plant, also in Rajasthan.

Dalmia Bharat refractory production subsidiary Dalmia-OCL’s CEO Sameer Dagpaal told the Business Standard newspaper that he expected the virus’ impact on the company to be ‘relatively limited,’ with a slowdown in demand from the cement sector lasting at most ‘a couple of months.’ He noted that there had been ‘some minor supply-side disruptions relating to a shortage of raw materials from China.’

On 24 March 2020 the all-India total number of coronavirus cases crossed 500, with nine dead, according to Al Jazeera. 200 cases are in the western states of Maharashtra and Kerala.

With events moving fast in Europe with regard to the on-going health crisis, here are a few threads to consider from the cement industry news this week.

Firstly, there have been two solar power stories over the last week in North America. Grupo Argos said that it had installed a 10.6MW solar power plant at Cementos Argos’ Piedras Azules cement plant in Comayagua. Then US-based Alamo Cement Company was reported to have signed a contract with Renergetica to build a solar power plant at its integrated plant in San Antonio, Texas. Global Cement has looked at this topic on and off over the years from the steady addition of photovoltaic (PV) solar plants around the world to supply electricity to cement plants to more ambitious plans such as research into using concentrated solar power to start powering creating clinker directly. These two latest PV stories follow projects in El Salvador and Cyprus so far this year. We’re not going to comment now on the overall progress the cement industry is making towards moving away from fossil fuels but the general trend is encouraging.

Next, there are on-going investments and upgrade projects being announced. Germany’s KHD revealed on 17 March 2020 that is building a new raw mill and pyroprocessing line for an ACC plant in India. FCT combustion recently announced that it has won a deal to supply Titan Cement in the US with an upgrade to a kiln line to natural gas. Buzzi Unicem’s SLK Cement in Russia has agreed to co-process solid municipal waste at its Sukholozhskcement plant. South Africa’s PPC has invested in a pneumatic offloading facility and a silo for its George Depot cement terminal in the Western Cape. These will have likely been agreed before the global coronavirus outbreak but they are reminders that some level of capital expenditure by cement companies is happening.

In China the Ministry of Industry and Information Technology (MIIT) said this week that the domestic cement sector’s net profit grew by 20% year-on-year to US$26.6bn in 2019. With this in mind the first quarter results for 2020 from cement producers in China will make essential reading for producers from elsewhere around the world wondering what to expect. However, a recent interview with the president of Huaxin Cement, a company based in Hubei province at the epicentre of the outbreak, revealed that despite the short term economic disruption from the quarantine the company was expecting a rapid economic rebound after April 2020 provided that there is a suitable government stewardship. He also mentioned the key role the company was playing in disposing of clinical waste. As such it was hoping for tax breaks to support continuing incineration and the advancement of co-processing in general.

Finally, also on the health crisis, many cement industry events have been cancelled or postponed as work practices change including those organised by Global Cement. We’re taking our events online in the short term as virtual conferences with opportunities for information exchange and networking. We encourage as many of you as possible to register.

India: KHD’s subsidiaries Humboldt Wedag India and Humboldt Wedag have signed a deal with LafargeHolcim’s subsidiary ACC to build a new raw meal grinding unit and a pyroprocessing line for an existing cement plant. The contracts also include the supply and installation of the electrical and instrumentation package for the entire cement plant. The entire contract package is worth over Euro35m.

India: Representatives from Aditya Birla subsidiary UltraTech, Ramco Cements, India Cements, JSW Cement and KCP have met with Andhra Pradesh Chief Minister Jaganmohan Reddy and other state officials to negotiate the sale of their products to construction companies working on public projects ‘at lower prices.’ The Hindu newspaper has reported that the state forecasts a year-on-year rise in its annual cement consumption of 67%, to 30Mt in 2020 from 18Mt in 2019. India Cements’ vice chair and managing director Narendra Srinavasan said that all planned infrastructure projects ‘ought to be implemented in order to bail out the industry from the turmoil it has been undergoing.’

India: The Competition Commission of India (CCI) has fined Aditya Birla flagship company Grasim Industries US40.6m for anti-competitive practices, specifically for failing to disclose its discount policy as instructed by the CCI. Accord Fintech News has reported that cement accounts for almost 50% of Grasim Industries’ profit.

India: Cement Corporation of India has signed a memorandum of understanding with power supplier NHPC Limited in order to ‘address the cement requirement’ for the Dibang Multipurpose Project in Lower Dibang Valley district, Arunachal Pradesh. The project is aimed at the construction of a 2880MW hydroelectric power plant and gravity dam for flood control in the Dibang Valley.

Announcements from two very different countries serve to highlight the global cement sector’s on-going and seemingly intractable overcapacity issues this week.

First up, India, the world’s largest democracy and second-largest cement market, will reportedly struggle to exceed 70% capacity utilisation in the forthcoming 2020-2021 fiscal year, according to the credit ratings agencies ICRA, India Ratings and Crisil. In the same week, however, we have heard that UltraTech Cement will launch a 3.5Mt/yr capacity expansion at its Bhogasamudam plant in Andhra Pradesh, while ACC committed to launching a 2.5Mt/yr plant in Chandrapur, Maharashtra early last week. In February 2020 Deccan Cements firmed up plans to expand its Mahankaligudem plant in Telengana and JSW wants to turn its Bilakalagudur plant into a 6Mt/yr beast. Back in January 2020. Shree Cement launched ambitious plans to spend US$1.3bn on upgrades in the period to 2023. With Indian capacity estimated to hit 500Mt/yr by the close of 2020, what do all of these producers know that ICRA et al don’t?

Second on the list is centrally-planned Vietnam, the world’s third-largest producer, having produced 96.5Mt of cement in 2019. Here, long-standing excessive capacity is looking increasingly ridiculous following a massive collapse in export sales in January and February 2020 due to the coronavirus outbreak. This, of course, continues to affect cement producers and users alike.

Just today, Nguyen Quang Cung, chairman of the Vietnam Cement Association (VNCA) said that demand is expected to remain high throughout 2020 as a whole. The Ministry of Construction (MoC) currently stands by its autumn 2019 forecast that Vietnam will produce a whopping 103Mt of cement this year. It expects domestic consumption to be around 70Mt, with exports of 33Mt. A 2.5Mt/yr plant in Tân Thắng Commune in the central province of Nghệ, and a 4.6Mt/yr plant in Bỉm Sơn Commune, Thanh Hóa, will come online in 2020, further adding to the country’s capacity. Exports were touted as the saviour of the sector back in January 2020. This assertion may now have to be revisited.

The drivers behind the overcapacity are different in each country. Indian producers have a long history of capacity addition in order to maintain or improve their market share. Standing still is tantamount to walking (or even running) backwards, so the biggest producers (and those that want to become big producers) tend to go ‘over the top’ with their expansion aims. Market forces eventually catch up with the smaller players, which find themselves bought up or shut down. This has the seemingly inevitable effect of maintaining low capacity utilisation rates.

In Vietnam, the overcapacity is due to central targets, which, as noted previously, are an entirely alien concept for cement producers across much of the rest of the world. As Vietnam’s obsession with high cement production has developed, it has become hooked on exports, entering a void recently vacated by Chinese exports. It often sells at scarcely-believable prices and now, with the introduction of the coronavirus into the mix, even these seem to be too high. After all, Vietnam’s cement association cannot ‘set targets’ for cement demand in other countries.

So… how to reduce capacity? There are two examples, again from different types of market. China has, of course, reduced its overcapacity massively to eliminate outdated capacity and improve the country’s environmental performance. This has been possible due to orders from the top of government. The other example can be found in Europe, where the EU Emissions Trading Scheme has finally found its teeth, with the oldest and least efficient plants now feeling the financial bite of their CO₂ emissions.

It remains to be seen whether the collapse of the export market will force the Vietnamese cement sector to rationalise its inventory. From a market-based mindset it is clear that it should follow China’s lead. India, meanwhile, has a massive overcapacity that market forces seem slow (or indeed unable) to clear. The EU route may be more applicable here, but one might expect resistance from cement producers. Also, the development and demographic differences between India and Europe are stark, indicating that there may be a need, at some point in the future, for 500Mt/yr of capacity. The Indian majors are counting on this and laying the groundwork for a step-change in the future. Indeed, in a few years, 500Mt/yr may look vanishingly small if demand increases rapidly. What are the chances of that?

India: Aditya Birla subsidiary UltraTech has announced plans for a 3.5Mt/yr clinker production capacity expansion to its integrated Andhra Pradesh plant in Bhogasamudram, Anantapur district, to 10Mt/yr from 6.5Mt/yr. The new kiln line will cost US$169m and reach completion in March 2022.