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Financial results for 2020 from the major Chinese cement companies are now out, making it time for a recap. Firstly, information from the China Cement Association (CCA) is worth looking at. The country had a cement production capacity of 1.83Bnt/yr in 2020. For an idea of the current pace of industry growth, 26 new integrated production lines were built in 2020 with a clinker production capacity of just under 40Mt/yr.

This is as one might expect from the world’s biggest cement market. However, the CCA also revealed that the country has over 3400 domestic cement companies, of which two thirds are independent cement grinding companies. Most of these were reportedly created during the late 2000s as dry kilns started to predominate. The CCA is concerned with the quality of the cement some of these companies produce and the lack of order in this part of the market such as regional imbalances. This suggests that the government’s attempts to consolidate the cement industry as a whole had led to the independent companies heading down the supply chain. It also raises the possibility that the government-led consolidation drive may move to grinding next. One news story to remember here is that in February 2021 the CCA called for its industry to respect competition laws following a government investigation. Later in the month it emerged that eight cement companies in Shandong Province had been fined US$35m for price fixing in a sophisticated cartel whereby the perpetrators went as far arranging a formal price management committee to regulate the market.

The CCA described 2020 as a year of sudden decline, rapid recovery and stability. Coronavirus hit cement output in the first quarter of 2020 leading to unprecedented monthly year-on-year declines before it bounced right back in a classic ‘V’ shaped recovery pattern. Despite the pandemic and bad weather later in the year, annual output rose by 2% year-on-year to 2.37Bnt in 2020 from 2.32Bnt in 2019. This has carried on into 2021 with a 61% increase in January and February 2021 to 241Mt from 150Mt in the same period in 2020. That’s not surprising given that China was suffering from the pandemic in these months in 2020 but the growth also suggests that the industry may have gone past stability and is growing beyond simply compensating for lost ground.

Graph 1: Year-on-year change in cement output in China, January 2010 - February 2021. Source: National Bureau of Statistics of China. Note that accumulated data is issued for January and February each year so these months show a mean figure.

Chart 2: Annual cement production growth by Province in 2020. Source: China Cement Association.

Chart 2 above shows cement production in 2020 from a provincial perspective. Note the sharp decline, more than 10% year-on-year, in Hubei Province (shown in dark green). Its capital Wuhan is where the first documented outbreak of coronavirus took place followed by a severe lockdown. Zooming further out, China’s clinker imports grew by 47% year-on-year to 33.4Mt in 2020. This is the third consecutive year of import growth, according to the CCA. The leading sources were Vietnam (59%), Indonesia (10%), Thailand (10%) and Japan (8%). China has become the main export destination for South East Asian cement producers and Chinese imports are expected to continue growing in 2021.

Graph 2: Revenue of large Chinese cement producers in 2020 and 2019. Source: Company reports.

Moving to the financial figures from the larger Chinese cement producers, CNBM and Anhui Conch remain the world’s two largest cement producing companies by revenue, beating multinational peers such as CRH, LafargeHolcim and HeidelbergCement. Anhui Conch appeared to be one of the winners in 2020 and Huaxin Cement appeared to be one of the losers. This is misleading from a cement perspective because Anhui Conch’s increased revenue actually arose from its businesses selling materials other than clinker and cement products. Its cement sales and cement trading revenue remained stable. On the other hand, Huaxin Cement was based, as it describes, in the epicentre of the epidemic and it then had to contend with flooding along the Yangtze River later in the year. Under these conditions, it is unsurprising that its revenue fell.

CNBM’s cement sales revenue fell by 3% year-on-year to US$19.5bn in 2020 with sales from its new materials and engineering compensating. Anhui Conch noted falling product prices in 2020 to varying degrees in most of the different regions of China except for the south. CNBM broadly agreed with this assessment in its financial results. Anhui Conch also reported that its export sales volumes and revenue fell by 51% and 45% year-on-year respectively due to the effects of coronavirus in overseas markets. The last point is interesting given that China increasingly appears in lists of major cement and clinker exporters to different countries. This seems to be more through the sheer size of the domestic sector rather than any concerted efforts at targeting exports.

One major story on CNBM over the last 15 months has been its drive to further consolidate its subsidiaries. In early March 2021 it said it was intending to increase its stake in Tianshan Cement to 88% from 46% and other related transactions. This followed the announcement of restructuring plans in mid-2020 whereby subsidiary Tianshan Cement would take control of China United Cement, North Cement, Sinoma Cement, South Cement, Southwest Cement and CNBM Investment. The move was expected to significantly increase operational efficiency of its constituent cement companies as they would be able to start acting in a more coordinated manner and address ‘fundamental’ issues with production overcapacity nationally.

In summary, the Chinese cement market appears to have more than compensated for the shocks it faced in 2020 with growth in January and February 2021 surpassing the depression in early 2020. Market consolidation is continuing, notably with CNBM’s efforts to better control the world’s largest cement producing company. Alongside this the CCA may be starting to suggest that rationalisation efforts previously focused on integrated plants should perhaps be now looking at the more independent grinding sector. The government continues to tighten regulations on new production capacity and is in the process of introducing new rules increasing the ratio of old lines that have to be shut down before new ones can be built. Finally, China introduced its interim national emissions trading scheme in February 2021, which has large implications for the cement sector in the future, even if the current price lags well behind Europe at present.

Indonesia: Semen Indonesia has detailed its plans for future exports of cement to North America. The Investor Daily newspaper has reported that the producer and subsidiary Solusi Bangun Indonesia will target 0.5 – 1Mt of cement exports to North America in 2021, according to president director Hendi Santoso. The export plans will be carried out in partnership with Japan-based Taiheiyo Cement, which already has a US market presence and owns a 15% stake in Solusi Bangun Indonesia. Hendi said that the move aims to ‘cushion’ the decline in domestic cement sales, down by 28% bulk and 13% bagged year-on-year in 2020. The company successfully exported cement to Australia, Bangladesh, China, Fiji and Sri Lanka in 2020.

President commissioner Rudi Antara said, "The Covid-19 outbreak still colours our lives. There is no other choice but to increase business efficiency and the top line outside of our main markets."

Philippines: The Department of Trade and Industry (DTI) has issued an order amending its previous order on cement safeguards. The Manila Bulletin newspaper has reported that the amendment extends safeguard measures to 13 new countries which now exceed the necessary 3% import volume share. These are Chile, the Czech Republic, Estonia, Hungary, Israel, Indonesia, Latvia, Lithuania, Poland, Slovenia, Slovakia and South Korea. Imported cement from these countries will now face a safeguard duty of US$0.2/bag. An official source quoted by the newspaper called the surge in importation from these countries "trade diversion" tactics by importers since these countries were previously exempt from the safeguard duty.

News has been dripping out slowly over the last few months about which assets HeidelbergCement is planning to divest. This week reporting from Bloomberg suggested that the German-based building materials producer might be seriously considering selling one or more integrated plants in Spain. The idea is reportedly part of a wider review of its portfolio in the country with the possible inclusion of cement plants at San Sebastian and Bilbao at a future date also. A proposed price of Euro300m for the national business was put forward by the sources to the reporters but it is unclear how many cement plants that figure includes.

HeidelbergCement announced in July 2020 that it had reduced the value of its total assets by Euro3.4bn following a review. It blamed this on reduced demand for building materials due to the coronavirus pandemic and the devaluation of its Hanson subsidiary in the UK, in part related to the UK’s exit from the European Union. A divestment plan followed at its Capital Markets Day event in September 2020 when it said it was simplifying its country portfolio and prioritising the strongest market positions. To this end it said it was setting up a watch list of underperforming assets to keep an eye on.

Over the next few months a number of corporate reorganisations and actual confirmed divestments occurred as well as plenty of speculation. HeidelbergCement-controlled Suez Cement started to acquire a 100% stake in its own subsidiary, Tourah Portland Cement, in September 2020. Suez Cement then sold its majority stake in Kuwait-based Hilal Cement in late January 2021. This week HeidelbergCement Bangladesh informed the local stock exchange that it is planning to amalgamate its subsidiary Emirates Cement.

Signs that European reviews had taken place could be seen later in the autumn of 2020. In November 2020 the Italian press picked up on rumours that HeidelbergCement was planning to move subsidiary Italcementi’s research centre from Bergamo, Lombardy, to Heidelberg in Baden Württemberg. Whether this was ever a serious proposition or not, this appeared to have been avoided in early February 2021 when an Italian union said it had agreed with Italcementi to keep the research centre in Italy as well as a preserving jobs generally. Meanwhile, also in November 2020, France-based subsidiary Ciments Calcia announced a major upgrade at its integrated Airvault cement plant but along with the conversion of two other integrated plants into a grinding unit and a terminal respectively, and changes at the French headquarters at Guervill.

Just before Christmas the bigger speculations started to appear in the press, with a story suggesting that HeidelbergCement was considering selling assets in California, US, with a target price of US$1.5bn for three integrated plants and associated concrete and aggregate units. That story is particularly beguiling given Cemex’s decision this month to reopen a kiln in Mexico to supply cement to the southwest US to meet shortages (See GCW 493)! Incidentally, readers should also note the story this week about a shortage of natural gas exports from Texas, US, that has caused cement plants in northern Mexico to shut down. This week, as mentioned at the start, has seen Spain added to the list of places that HeidelbergCement might be considering selling up in. The Spanish market like Italy has been rationalising heavily over the last decade particularly as export markets have dwindled. Oficemen, the Spanish cement association, reported that domestic cement consumption fell by 10% year-on-year to 13.3Mt in 2020 from 14.7Mt in 2019. On top of this Oficemen has repeatedly warned of the threat that CO₂ emissions prices pose for its members’ exports.

Group chairman Dominik von Achten told Reuters this month that the company plans to sell the first of the five assets in early-to-mid 2021. Of course he wouldn’t say where, except for adding that the company would stay in ‘rock solid’ markets like Northern Europe. Indonesia has been seen as a candidate for disposal by analysts, likely due to local production overcapacity levels and LafargeHolcim’s own departure in Indonesia 2018. All Von Achten would say on the matter was that Indonesia was an ‘important’ market for the group. Whether it’s seen as important for reducing company debt or building value remains to be seen. HeidelbergCement hasn’t exactly been shy about saying what they are doing over the last half year or so but they are only going so far and they won’t comment on speculation. So in the meantime we must wait to find out more.

One news story to note recently has been Cemex’s decision to recommission a kiln in Mexico to address cement shortages in the southwest US. In early February 2021 the Mexico-based producer said it was spending US$15m to restart a 1Mt/yr kiln at its CPN cement plant in Hermosillo, Sonora. The unit is over 250km from the US border but Cemex said it was making the investment to cope with cement shortages and project delays in California, Arizona and Nevada. At present it supplies over 3Mt/yr to California, Arizona, and Nevada from its integrated plant in Victorville, California and via sea-borne imports. Efficiency improvements at Victorville and other unspecified supply chain changes are also planned.

Cemex isn’t the only company with an eye on the south-west US. Around the same time Japan-based Taiheiyo Cement concluded its deal with Semen Indonesia to buy a 15% stake in its subsidiary Solusi Bangun Indonesia (SBI) for around US$220m. It’s a long way from Arizona but the related statement mentioned plans to make SBI’s integrated Tuban plant in East Java more export focused, with the construction of a new jetty and silos. It intends to export 0.5Mt/yr of cement to Taiheiyo Cement’s business in the US. Its local subsidiary, CalPortland, runs two integrated plants in California and one in Arizona.

Chart 1: Annual change in US cement consumption by state, December 2019 – November 2020. Source: PCA & USGS.

In its recent winter forecasts the Portland Cement Association (PCA) reported that the Mountain region of the US recorded the highest growth in cement consumption in 2020, at 10%, due to underlying economic fundamentals and favourable demographic trends. Data from the United States Geological Survey (USGS) supports Cemex’s view too. Ordinary Portland Cement and blended cement shipments rose by 21% year-on-year to 2.74Mt in Arizona and New Mexico in the first 11 months of 2020 from 2.28Mt in the same period in 2019. This doesn’t quite tally in California where shipments fell slightly, by 0.8%, to 9.42Mt. However, it reported 12% growth to 2.38Mt in the first quarter of 2020, suggesting that the market could return sharply once the coronavirus epidemic is better under control. Overall, shipments in the US grew by 1.03% to 82.3Mt in the first 11 months of 2020, driven by growth in central regions. The PCA expects national cement consumption to grow by about 1% in 2021 with a ‘robust’ recovery driven by residential housing but slowed by uncertain coronavirus vaccination supplies and general market volatility.

In a world with too much clinker production capacity, it stands out to see two established producers so visibly chasing market share in a mature market. Rather than building new plants, both Cemex and Taiheiyo Cement are using or reviving existing production lines in other countries, and building import strategies as well as optimising their existing facilities in the regions. With the western building material multinationals now often looking to focus on ‘safe’ markets in Europe or North America the fight to grow market share in these regions is likely to become more intense. It also complicates decisions about when or if an existing plant should be mothballed or shut. After all, Cemex’s old production line in Hermosillo is about to become very useful indeed.

Germany: HeidelbergCement has completed a review of its business and identified five assets to sell. Reuters has reported that the company plans to sell the first of the five assets in early - mid-2021. Chairman Dominik von Achten said that the group would not exit ‘rock-solid’ markets like Northern Europe. He added that Indonesia, where it holds a 51% stake in Indocement, is an ‘important market.’

Von Achten said that the group has made a strong start to 2021, though ‘visibility on future prospects’ remains low. Its focus is on raising the productivity of underperforming assets or selling them. He added that a margin improvement plan in its underperforming North American region is on track.

Japan/Indonesia: Taiheiyo Cement says that its board has approved and concluded its deal with Semen Indonesia to buy a 15% stake in its subsidiary Solusi Bangun Indonesia (SBI) for around US$220m. As part of the agreement, SBI’s Tuban plant will increase its export capacity by building a new jetty and silos. It will then export 0.5Mt/yr of cement to Taiheiyo Cement’s subsidiary in the US. The Japanese cement producer said that is focusing on markets in South-East Asia as part of its sustainable business development strategy in response to projected long term declining cement demand in Japan.

Indonesia: Subhan has been appointed as the managing director of Semen Gresik. This follows his management of Semen Tonasa, another subsidiary of Semen Indonesia, from 2017 to 2020, according to the Antara news agency. Previously, he was the finance director of Semen Tonasa and head of its accounting department. He originally started working for the cement producer in 1998. Prior to this he worked for Humpus Group. Subhan holds degrees in accounting and management from the Hasanuddin University in Makassar.

Indonesia: Semen Indonesia subsidiary Semen Padang’s cement and clinker exports totalled 1.6Mt in 2020. Indonesia Government News has reported that the company said that it exported 0.2Mt of cement and 1.4Mt of clinker throughout the year. The main markets for its products were Bangladesh, China, Malaysia, Myanmar, the Philippines, Australia, the Maldives and Sri Lanka.

Semen Indonesia group senior export sales manager Fifit Abriyanto said, “There are two types of cement that we export, namely ordinary Portland cement (OPC) Type I grade 52.5N and OPC Type I grade 42.5N."

Indonesia/Japan: Taiheiyo Cement and Semen Indonesia have finalised a collaboration agreement with the aim of building a comprehensive partnership, including consultations on promotion and sale of cement and clinker. Taiheiyo Cement said, “The business alliance is for business collaboration and research and development of cement, resources, environment, building materials and more.”

In accordance with the agreement Taiheiyo Cement will buy shares in Semen Indonesia’s subsidiary Solusi Bangun Indonesia, formerly Holcim Indonesia. The deal is expected to be completed in early 2021. In April 2020 Taiheiyo Cement agreed to buy a 15% stake in Solusi Bangun Indonesia for between US$186m and US$232m.