Displaying items by tag: Production
Closing the demand gap in India
04 October 2017It’s been a pessimistic month for the Indian cement industry with Ministry of Commerce & Industry data showing that cement production has fallen year-on-year every month since December 2016. This was followed by the Cement Manufacturers Association (CMA) saying that the industry was sitting on 100Mt/yr of excess production capacity. Now, the credit ratings agency ICRA has followed the data and downgraded its forecast for cement demand growth to not more than 4% for the 2017 - 2018 financial year.
Graph 1: Annual cement production in India. Source: Ministry of Commerce & Industry.
Graph 2: Monthly cement production growth rate year-on-year in India: Source: Ministry of Commerce & Industry.
Graph 1 shows a production peak in the 2015 - 2016 financial year before falling monthly production broke the trend in the 2016 - 2017 period. Graph 2 pinpoints the month it started to go wrong, November 2016, when the government introduced its demonetisation policy. Production growth went negative the following month in December 2017 and it hasn’t managed to right itself since then and grow. It’s convenient to blame the government for the slump in production but it troughed in February 2017 before taking a lower level of decline since then.
The Reserve Bank of India (RBI) annual report in August 2017 suggests that the policy failed in its principal purpose of reducing the kind of corruption that a cash heavy economy can hide such as tax avoidance. People reportedly managed to find ways to bypass the bank deposit limit and may have successfully laundered large amounts of cash without being caught. However, as commentators like the Financial Times have pointed out, the longer term implications of forcing the economy towards digital payments and increasing the tax base could yet be beneficial overall.
Graph 3: Cement production capacity utilisation rates in India. Source: UltraTech Cement.
Moving on, the CMA has blamed production overcapacity for the current mess and Graph 3 shows the problem starkly. If anything the CMA appears to have downplayed the over capacity crisis facing India, as UltraTech Cement’s figures (using data from the Department of Industrial Policy and Promotion) show an overcapacity of 155Mt in the 2016 – 2017 year and this will grow to a forecast 157Mt in the next financial year, even though the utilisation rate is expected to rise slightly. UltraTech Cement’s estimates don’t see the utilisation rate topping 70% until the 2020 – 2021 financial year. Analysts quoted in the Mint business newspaper concur, although they reckoned it would the rate would bounce sooner, in 2019 - 2020. Last month when the CMA moaned about the industry's excess capacity it pinned its hopes on infrastructure schemes like the Mumbai-Ahmedabad bullet train. This prompted an official at JK Cements to say that he didn't think that one train line was going to make much of a difference.
This is one reason why ICRA’s and the other credit agencies’ growth rate forecasts for cement demand are important, because they indicate how fast India might be able to close the gap between production capcity and demand. Unfortunately demonetisation scuppered ICRA’s growth prediciton for 2016 – 2017. It forecast a rate of 6% but it actually fell by 1.2%! So downgrading its forecast for 2017 – 2018, with fears of weather and the implementation of the Goods and Services Tax (GST) in the second half of the year, is ominious. Major cement producers such as Ultratech Cement and Ambuja Cement have based their road to recovery in their latest investor presentations on a 6% growth rate or higher. Pitch it lower and the gap doesn’t close. Here’s hoping for a brisk second half.
Chinese cement production slipping so far in 2017
04 October 2017China: Cement production has fallen by 0.5% year-on-year to 1.5Bt in the first eight months of 2017. This compares to a rise of 2.5% in the same period in 2016, according to data from the National Development and Reform Commission (NDRC). The Xinhua News Agency has also reported that the property sector stagnated in major cities due to government moves to prevent speculation.
Industria Nacional del Cemento aims for 75% market share in 2018
03 October 2017Paraguay: Jorge Mendez, the president of Industria Nacional del Cemento (INC), says that his company aims to reach a 75% market share by the end of 2018. Production and cement deliveries are expected to rise 77,500 bags/day by the end of 2017 from 55,000 bags/day and sales are forecast to rise by US$50m/yr. The state-owned cement producer plans to reach sales of 13.2 million bags in 2017.
Power cuts hits production at Udayapur Cement plant
27 September 2017Nepal: Regular power cuts have reduced production at the Udayapur Cement plant since mid-September 2017 leading to a loss of US$190,000. The cement producer says that it was doing ‘good business’ so far in the current financial year, according to the Rastriya Samachar Samiti news agency. The company was established in 1987 and it operates a cement plant at Jaljale in Udayapur. It produces cement under the brand name 'Gaida Cement.'
Update on Kenya – September 2017
06 September 2017ARM Cement’s declining fortunes this week may signal the end of the current growth cycle in the Kenyan cement industry. The cement producer posted a 20% year-on-year drop in its sales revenue to US$52m for the first half of 2017. Its financial returns have been turbulent since 2015. However, inward investment from the UK’s CDC Group in 2016 had appeared to help the company enabling it to pay of debts and even consider an upgrade project to the grinding capacity at its Athi River plant.
Graph 1: Cement production in Kenya for first half of year, 2013 - 2017. Source: Kenya National Bureau of Statistics.
Graph 2: Cement consumption in Kenya for first five months of year, 2013 - 2017. Source: Kenya National Bureau of Statistics.
Unfortunately it now appears that the Kenyan cement market may have peaked in 2016. As can be seen from Kenya National Bureau of Statistics figures in Graph 1 and 2, production hit a high of 3.31Mt in the first half of 2016 and it has fallen to 3.18Mt for the same period in 2017. Consumption too has fallen, to 2.5Mt for the first five months of 2017. At the same time the value of building plans approved by the Nairobi City Council dropped by 12% to US$1.02bn for the first five months of 2017 with falls in both residential and non-residential applications although the decline in residential was more pronounced. One of the country’s larger infrastructure projects, the Standard Gauge Railway from Mombasa to Nairobi entered its final stage of construction towards the end of 2016 with the completion of track laying.
Bamburi Cement has also reported falling revenue and profit so far in 2017. Its turnover fell by 8% to US$170 and its profit decreased by 36% to US$18m for the half year. Bamburi blamed it on a contracting market, low private sector investment leading to residential sector issues, delays in some infrastructure projects and droughts. The drought also hit the company’s operating profit via higher energy costs. On the plus side though Bamburi’s subsidiary in neighbouring Uganda did record a good performance.
It’s likely that the general election in Kenya in early August 2017 has slowed down the construction industry through uncertainty about infrastructure investment and general fears about political unrest. Thankfully these latter concerns have appeared unfounded so far but the memory of the disorder following the poll in 2007, where over 1000 people died, remains acute. And of course the 2017 election is not over yet following the intervention of the Supreme Court to nullify the result of the first ballot and call for a second. A longer election period with the impending rerun will further add to the pressure on the construction and cement industries.
An industry report on East Africa in February 2017 by the Dyer & Blair Investment Bank fleshes out much of the situation in the region. One particular point it makes though is that, as it stands at present, building materials may be too expensive to grow the market fully. Dyer & Blair suggest that lower construction costs and more affordable home ownership methods might be the key to driving low end housing demands and in turn this might grow cement consumption.
With lots of new production capacity coming online both locally and in neighbouring countries such as Uganda and Ethiopia, the Kenyan cement market faces the dilemma of trying to balance the medium to long-term demographics with the picture on the ground. Low per capita cement consumption suggests growing markets but if the demand isn’t present in the short term then the impetus for cement producers to expand shrivels especially with aggressive imports, rising energy costs and growing local competition. Once the election period finishes the picture will be clearer but the boom times may have abated for now.
BUA plant commissioning increases Nigeria’s capacity further
31 August 2017Nigeria: The Nigerian Vice President Yemi Osinbajo commissioned the 3Mt/yr second kiln line at the BUA Obu Cement plant at Okpella, Edo State on 30 August 2017. He had earlier performed the ground-breaking ceremony at the start of the construction phase of the line. Once the line is fully commissioned in early 2018, it will bring the plant’s capacity to 6Mt/yr.
"This project is a big boost to the Nigerian economy and it will provide employment opportunity for both the skilled and unskilled youths of this state and the country at large," said Osinbajo, adding that the plant's capacity would consolidate Nigeria's self-sufficiency in cement and be a big boost to the nation's export capacity
Czech cement production rises 4.1% in 2016
31 August 2017Czechia: Cement production in Czechia grew by 4.1% year-on-year to 3.94Mt in 2016 as consumption rose by 3.9% from 3.82Mt, according to data from the Association of Cement Producers. The production figure was 17% lower than the country’s record of 4.77Mt that it made in 2007.
Speaking to the Czech News Agency the association's secretary, Jan Gemrich, said, "In 2016, one of the dominant areas was the extension of the transport network, chiefly the reconstruction of the D1 motorway, which is to last until about 2020. Another important area, though stagnating at present, is new housing construction for young families." For 2017 Gemrich expects cement consumption to record annual growth of around 3%.
Cement exports increased by 8.5% year-on-year to 585,000t, accounting for about 15% of national output. Imports grew by 7.7% to 463,000t.
Saudi Arabia: Clinker production fell by 10.9% year-on-year to 29.3Mt in the first seven months of 2017. The Saudi Economic Review by the National Commercial Bank has attributed the slowdown in production to weak domestic demand, which fell by 9.8% in 2016, and ‘record high’ clinker inventory levels of 32.5Mt in July 2017, according to the Saudi Gazette newspaper. The local cement industry has also suffered from rising input costs due to higher energy and fuel prices following government policy changes.
Brazilian cement sales drop another 10% in July
15 August 2017Brazil: According to data from SNIC, Brazil's national cement industry association, domestic cement sales came to 4.7Mt in July 2017, down by 10.5% compared to July 2016. Sales per working day were also down by 10.5% in the year-on-year comparison, but up by 3.3% compared to June 2017.
In the first seven months of 2017, domestic cement sales came to 30.7Mt, a fall of 9.1% from the same period of 2016, while in the 12 months ending July 2017 sales totalled 54.3Mt, down by 9.8% year-on-year. Apparent consumption in July 2017 stood at 4.7Mt, down by 10.1% from July 2016, with an accumulated 9.7% drop in apparent consumption in the 12 months to 31 July 2017. SNIC notes that the figures are in line with expectations for the period, though there may have been some impact from the political and economic instability in recent months. SNIC forecasts a 7% drop in domestic cement sales in 2017.
Yguazu takes up slack during INC outage
07 August 2017Paraguay: Yguazu saw record sales of 1.1 million bags of cement in July 2017, according to Ernesto Acosta, the firm's industrial manager, largely because of supply issues that affected state-run cement firm INC. Yguazu reported that it ‘even had to open on Sundays.’ Normally, Yguazu’s sales stand at 0.9 -1.0 million bags per month. INC has now resolved its issues.