Displaying items by tag: Magnesita

UK: Refractory producer RHI Magnesita says that its cement and lime segment was ‘flat’ in the first half of 2018. It blamed this on on-going low capacity utilisation in China and Brazil and ‘some’ market share losses due to its prices. The adjusted sales revenue of its Industrial Division, including cement and lime, rose by 14.3% year-on-year to Euro413m in the first half of 2018 from Euro362m in the same period of 2017. Overall, the company reported a 24.6% increase in revenue to Euro1.51bn from Euro1.21bn.

In a separate release RHI Magnesita subsidiary Magnesita said that the company’s revenue rose by 81.6% to US$133m. This was attributed to sales to the cement business in North America and higher deliveries in Europe in 2018. However, Magnesita’s services business suffered from a poor cement market in Brazil.

“One of the worst moments in its history.” That’s how Paulo Camillo Penna, the newly appointed president of SNIC - the Brazilian National Union of Cement Industry - described his industry last week. Few people are likely to be envying his position at the moment. As Camillo Penna went on to explain, domestic sales of cement fell by 11.7% year-on-year to 57.2Mt in 2016. He added that following capacity utilisation rates of 70% in 2015 and 57% in 2016 that he expected the rate to fall below 50% in 2017. When he said it was bad he wasn’t kidding.

Graph 1: Brazilian cement sales from 2011 to 2016. Source: SNIC.

Graph 2: Regional Brazilian cement production from 2014 to 2016. Source: SNIC.

Graph 1 illustrates how stark the decline in cement sales has been since the growth period at the start of the 2010s. Sales have fallen by 15Mt since 2014 in a country that has a production capacity of 88Mt/yr. Graph 2 presents a regional picture of sales. Note in this graph the sharp drops in sales (21%) in the southeast region of Brazil, an area that contains the key cement producing states of Minas Gerais and Rio De Janeiro. The decline in the northeast region including the state of Bahia, another key cement producing state, has been less extreme but it is still over 15%.

Votorantim, the country’s largest cement producer by production capacity, reported that its cement sale volumes fell by 6% to 26Mt in the first nine months of 2016, with declines in Brazil offset by business in other countries like the US. Its sales revenue also fell, by 7% to US$3.03bn. InterCement’s cement and clinker sales volumes fell by 16% to 11.8Mt in the first half of 2016 and its sales fell by 31% to Euro898m. As it described it, ‘the political and economic instability in Brazil in the first half, impacting on unemployment, investment and government spending, ultimately retracted the construction activity, compressing cement consumption.’ To compound these problems newly opened production capacity also ‘intensified’ competition. Later in 2016 InterCement’s parent company Camargo Corrêa was reported to be in talks to sell a minority stake in Argentina’s Loma Negra to pay off its debts from the cement business in Brazil. Finally, from an international perspective, LafargeHolcim’s global results for the first nine months of 2016 were negatively impacted by ‘challenging’ conditions in Brazil amongst other countries. It laid out an environment of reduced sales volumes and falling prices, although it said that it had used cost cutting to fight this.

Politically, the fallout from the Petrobras bribery scandal is continuing to shake out in the construction industry. In October 2016 it was revealed that the Brazilian Development Bank BNDES had frozen loan payments to construction firms involved in overseas projects worth up to US$7bn, including Camargo Corrêa. The Brazilian economy is expected to grow modestly, at a rise of 0.5% gross domestic product (GDP) in 2017 after dropping in 2016 although this forecast was falling towards the end of 2016. More hopeful news came from the São Paulo state construction union, SindusCon-SP, that in December 2016 released a report forecasting that the construction industry’s output could rise by 0.5%. However, this was dependent on economic reforms.

The question for Camillo Penna and the rest of the Brazilian cement industry is: where exactly is the bottom of the curve? SNIC forecast that cement sales will contract by a further 5 – 7% in 2017 and this is below the 11.7% drop experienced in 2016. So, does SNIC think that the industry is starting to hit against a bedrock of demand that economic headwinds can’t shift? In this kind of environment it seems likely to expect increased merger and acquisition activity. The merger of Brazil’s Magnesita and Austria’s RHI refractory companies that was announced in the autumn of 2016 may just be the start.

Brazil: Eduardo Ferraz has been appointed as the chief financial officer and Investor Relations Officer of Magnesita with immediate effect. Ferraz is currently the finance director for South America, a role he will continue to hold. He replaces Eduardo Gotilla who has resigned from the roles following the on-going merger between Magnesita and RHI with the transfer of some executive officers of the company to the UK.

Gotilla will continue to be an officer for Magnesita International and lead finance and investor relations globally for the Magnesita Group, but will no longer hold an officer position in the company, principally due to Brazilian legislation requiring statutory officers to be residents in Brazil.

As mentioned last week, there were a number of big news stories, one of which was the planned merger between RHI and Magnesita. On 10 October 2016 both companies announced that they were combing to form a ‘leading’ refractory company with complementary assets and a completion date penned in for 2017. As Informed’s Mike O’Driscoll presents a good overview of the two companies and the general implications of the merger we will focus on the cement industry aspects of the merger here. It is worth noting here that the new company will be established in the Netherlands but its shares will be listed in London. O’Driscoll reckons that had the UK voted to stay in the European Union the new company would have been based in London.

Comparing like-with-like for RHI and Magnesita is difficult because Magnesita doesn’t publish figures on its refractory sales to the cement industry. However, RHI produced 443,000t of refractory materials in 2015 for its Industrial Division, including the cement and lime industries, and Magnesita produced 151,000t for its Industrial Division at the same time. As can be seen in Graph 1 RHI produces nearly three times as much refractory as Magnesita in this area. Sales volumes for RHI have fallen over the last five years and Magnesita’s sales hit a high in 2013. Total revenue for RHI, across all business lines, was US$1.95bn or about double that of Magnesita.

Graph 1: Refractory sales volumes to industrial divisions for RHI and Magnesita, 2011 – 2016. Sources: RHI and Magnesita financial reports. Note: Figures for Magnesita are calculated from percentages.

RHI reported that 12.6% of its revenue in 2015 came from the cement and lime industries. It pointed out that this sector of its business benefited from the growing construction industry in North America. Elsewhere, it had a tough time in most of its territories, with the exception of Indonesia where its revenue grew due to a major contract won in the lime segment. Over the last five years RHI’s revenue from its cement and lime customers dipped to a low in 2013 before recovering year-on-year since then.

However, the situation has deteriorated during the first half of 2016 with revenues from the cement and lime industries falling by 13% year-on-year. China was blamed as the biggest single factor, with business down by roughly a quarter as a result of the downturn in the construction industry, falling property prices and lower investment activities. One interesting point that RHI made at this time was that, “the globally weak economic situation and regional excess capacities are causing a decrease in repair volume.” Another was the importance the refractory producer placed on Africa and on Nigeria and Algeria in particular. This seems to belie the petrodollar woes Nigeria has experienced recently and the scaling back by Dangote Cement of its international expansion plans.

Magnesita reported that sales volumes for its industrial segments sector, including cement, dropped by 11.7% year-on-year to 133,000t in 2016. It blamed the shortfall on the declining cement industry in Brazil with problems in Venezuela also contributing. In contrast to RHI though it reported growing sales in the Middle East and Africa, notably in Saudi Arabia and Egypt. Sales revenue actually rose by 10.2% to US$145m due to favourable exchange rates on sales outside of Brazil.

In the first half of 2016 the negative trend in Brazil continued for Magnesita with sales volumes falling by 22% in its so-called ‘established’ markets. This was compensated for by Bolivia, Mexico, Argentina and the Middle East, Africa and the Commonwealth of Independent States territories. Sales volumes for its industrial segments sector rose slightly by 1.1% to 75,200t in the first half of 2016. Again, sales revenue grew on the back of exchange rates.

As with mergers between large producers in the cement industry, if global growth is stagnating, then mergers offer an alternative way for refractory companies to compensate. However, LafargeHolcim’s promise of savings and synergies has withered to periodic news bulletins of what assets the group is planning to sell next. One question to pose is whether the merger of RHI and Magnesita will herald a similar drip-drip of assets disposals in coming years or whether it will usher in a new era for the refractory industry. A large part of this will depend on the health of the steel industry, as well as minority markets such as cement.

LafargeHolcim has officially opened a new cement line at its Barossa cement plant in Brail. It is unfortunate timing given that the Brazilian cement industry has not had an easy time of it of late. The wider economy in the country has been in recession since it was hit by falling commodity and oil prices and gross domestic product (GDP) fell by 3.8% in 2015. The International Monetary Fund (IMF) has predicted currently that the GDP will fall by a similar amount in 2016. Alongside this, the Petrobras corruption inquiry has enveloped construction companies and led to the suspension of president of Dilma Rousseff. The Instituto Brasileiro de Geografia e Estatística (IBGE) reported that the national construction industry contracted by 7.6% in 2015.

Graph 1: Brazilian cement production from 2011 to 2015. Source: SNIC.

Graph 2: Brazilian cement production by quarter from 2015 to March 2016. Source: SNIC.

Graph 1 summarises, with National Union of the Cement Industry (SNIC) data, what happened to cement production in 2015. It fell by 9.6% to 64.4Mt in 2015 from 71.3Mt in 2014. Unfortunately, as Graph 2 shows, the downward production trend is accelerating into 2016. Production fell by 5.76% year-on-year to 15.6Mt in the first quarter of 2015 from 17.1Mt in the first quarter of 2014. Now, production has fallen by 11% to 13.9Mt in the first quarter of 2016. April 2016 figures also appear to be following the same trend.

Amidst these conditions Votorantim somehow managed to hold its cement business revenue up; increasing it by 6% to US$3.82bn in 2015. Despite this its cement sales volumes fell by 6% to 35Mt. As a result, Votorantim announced plans to temporarily shutdown kilns and plants and sell off selected concrete assets. Cimento Tupi reported that its cement and clinker sales volumes fell by 23% to 1631Mt in 2015 from 2119Mt in 2014. It blamed the fall of the ‘retraction’ of the cement market and a wide-scale maintenance campaign it had implemented on its kilns. Its revenue fell by 26% to US$98.8m from US$134m.

LafargeHolcim pulled no punches when it blamed challenging conditions in Brazil for dragging its financial results down globally in 2015. It didn’t release any specific figures for the country but it described its cement volumes as falling ‘significantly’ with competition and cost inflation adding to the chaos. This has gotten worse in the first quarter of 2016 with volumes further affected. Its cement sales volumes in Latin America fell by 10.7% year-on-year for the period principally due to Brazil. Companhia Siderúrgica Nacional (CSN) has reported an 8% rise in production to 531,000t in the first quarter of 2016 and an 8% rise in sales volumes to 571,000t in the same period. This was partly achieved by the ramp-up of production at its new plant at Arcos in Minas Gerais.

In the wider cement supplier sector the knock-on from falling cement demand has hit refractory manufacturer Magnesita. Its revenue fell by 17% year-on-year to US$66.9m for the first quarter of 2016. This was due to falling steel production in various territories and the negative effects of the construction market in Brazil hurting its cement customers.

It is unsurprising that companies like LafargeHolcim commissioned new capacity in Brail a few years ago given the promise the market seemed to hold. Both the CSN project at Arcos and Holcim’s Barroso project were announced in 2012 near the height of the market. Both are also based in Minas Gerais, the country’s biggest cement producing state. Predicting both the drop in the international commodities markets and a local political crisis would have been hard to predict. All these producers can do now is sit back and wait out the situation with their efficiency gains until the construction rates pick up again. Hopefully the first quarter results for Brazil’s two leading cement producers, Votorantim and InterCement, will not be too depressing.