Displaying items by tag: South Africa

Tanzania: The Fair Competition Tribunal (FCT) has blocked an attempt by Heidelberg Materials to buy a 68% stake in Tanga Cement for around US$59m saying it was contrary to the law. The Germany-based building materials producer announced in October 2021 that it had agreed to buy Tanga Cement from South Africa-based AfriSam via various subsidiaries, according to the Citizen newspaper. The Fair Competition Commission (FCC) provisionally approved the transaction but required the buyer to keep the operations of Tanga Cement running, to continue producing and promoting the Simba Cement (Tanga Cement) brand and to keep employing the existing staff at Tanga Cement. However, Chalinze Cement Limited and the Tanzania Consumer Advocacy Society opposed the decision due to a potential reduction in market competition and successfully made an appeal to the FCT.

In a statement Tanga Cement said that Heidelberg Materials and AfriSam were, “considering how to proceed, but the FCT ruling has placed the acquisition at great risk of not being implemented.” It added that the parties were waiting for a formal ruling from the FCT and would then seek further advice on how to proceed.

South Africa: PPC says that the consumption of cement in South Africa will ‘remain subdued’ without new ‘significant’ infrastructure investments. The producer forecast demand growth of 2.5% year-on-year in 2022. It concluded that growth will likely not suffice to offset its cost inflation.

The company said “PPC will continue its efforts to counter input price inflation through price adjustments, operational efficiencies and improved industrial performance.”

South Africa: Bowman International has launched Bowman Split Bearings South Africa to deliver the manufacturer’s high-load capacity split roller bearings to the South African and African markets.

Managing Director Paul Mitchell said “There are several heavy-side industries in South Africa and Africa that struggle with the detrimental effects of bearing failure. Our new associates – directors Gary Mayer and Leon Van den Berg – will support businesses in these areas to reduce downtime by specifying the Bowman Advanced Roller Bearing, which is specifically designed for high-load applications.”

India: UltraTech Cement has imported a 157,000t shipment of coal from Russia for US$25.8m, which it paid in Chinese Yuan. ET NOW News has reported that this is the first instance of an Indian entity using the currency in international trade. The deal has a value of US$164/t, 50% below average South African coal prices and 20% below average Australian cement prices in India. The deal reportedly signals the possible end of Indian coal prince inflation in the medium – long term.

From 2027, the 27 member states of the European Union (EU) will begin to charge third country-based cement exporters for the CO₂ emissions of their products sold inside the bloc. The new Carbon Border Adjustment Mechanism (CBAM) is a lynchpin in the strategy to reduce EU industries' CO₂ emissions by 55% between 1990 and 2030. Starving foreign cement industries of a source of income may also help to make them change their ways. A regional solution leveraged through an unfair head start, however, might cause progress to falter where it is most needed in the global fight against climate change.

Carbon leakage has hung over the EU’s Emissions Trading Scheme (ETS) since its inception in 2005. Cembureau, the European cement association, reported a 300% five-year increase in third-country cement imports up to 2021, with spikes matching those in ETS credit prices. Companies from Turkey to Australia have produced and transported their cement into the EU, at great CO₂ cost, while benefitting from a competitive edge over domestic producers, it would seem. Lawmakers rectified the situation by maintaining free allocations of ETS credits to EU industries, including cement, which received US$92m-worth in 2021.¹ In the wake of the Paris Agreement, an emissions pricing mechanism on cement imports first came before a vote of the member states in February 2017.

In what would become a recurring theme, opposition from all sides of the issue defeated the proposal. Most interesting was the international response: Brazil, China, India and South Africa voiced ‘grave concern’ over the proposed CBAM. A Russian representative at the Department of European Cooperation lamented the possible necessity of ‘response measures,’ while US Climate Envoy John Kerry coolly urged the EU to wait until after the COP26 climate change conference in November 2021. The outbursts were surprising given that the mechanism clearly conformed to World Trade Organisation (WTO) rules: free allocations were always expected to phase out in a mirror image of the CBAM phase-in. The proposal eventually adopted on 22 June 2022 set the end date for both as 2032.

In 2020, the EU imported US$383m-worth of cement and concrete across its external borders, down by 17% year-on-year from US$463m in 2019.² Imports had previously more than doubled decade-on-decade from US$204min 2009. China accounted for US$167m-worth (43%) of global cement and concrete exports to the EU in 2020, followed by Vietnam with US$34m (9%) and the UK with US$30m (7.9%). Other significant sources include Belarus (US$28m - 7.4%), Russia (US$13.8m - 3.6%), Bosnia and Herzegovina (US$13.5m - 3.5%), Serbia (US$13.1 million - 3.4%), Israel (US$13m - 3.4%), Turkey (US$12.6m - 3.3%) and the US (US$10.3m - 2.7%).

China

China’s first emissions trading scheme will be one year old on 16 July 2021. The scheme, covering more than twice the CO₂ emissions accounted for under the EU ETS, may lend an apparent synergy to EU energy policy and that of the bloc’s main trade partner.³ On the contrary, Chinese carbon credits cost 8.5% the price of EU ETS credits on 29 June 2022, with a growth rate of just 10% year-on-year, compared to 53% in EU ETS credit prices. Unlike their European equivalent, they are also restricted to the energy sector. Chinese cement exporters are unready to meet the CBAM on its own terms. The inclusion of indirect emissions further disadvantages plants operating in China’s 57% coal-powered economy. Premier Li Keqiang has warned countries to be on their guard against a ‘new green trade barrier.’

These concerns ought to be considered in light of the scale and diversified nature of the China-EU trade partnership. The eventual inclusion of polymers, hydrogen and ammonia under the CBAM still does not extend its scope beyond 3% of Chinese imports to the EU by value, enabling China to retain the leverage it has previously proved willing to exercise against those who threaten the perceived interests of global trade.

China plans to reach net zero CO₂ emissions by 2060 through an energy transition in which it invested US$266m in 2021, more than the next six ranked countries combined.⁴ In the medium-term future, the CBAM may become a green bridge, connecting with Chinese emissions reduction policies in a single carbon border measure to raise money for developing countries’ sustainable transitions, as suggested by former governor of the People’s Bank of China Zhou Xiaochuan. Until then, China seems well positioned to ensure that a fair share of the costs arising from the CBAM pass to importers and the consumer.

Turkey

Turkey provided 3.3% of the EU’s cement and concrete imports in 2020, but the volume corresponded to 13% of Turkey’s total exports of the same. Thus, the country has a high exposure to any adverse effects of the CBAM – quantified at an estimated US$789m/yr by the European Bank for Reconstruction and Development.⁵ Turkey’s ratification of the Paris Agreement in late 2021 is among the positive outcomes of the CBAM. The country now plans to align with the CBAM. In this, the Turkish cement industry will rely on a share of a US$3.2bn loan from the World Bank, France and Germany.

The UN has yet to receive an updated climate action plan from the Turkish government in line with its pledges. Should Turkey fail to transition within the short timeframe provided by the CBAM, its cement sector might increase its existing focus on the West African market, where it holds 55% and 46% market shares for cement and clinker imports to Ghana and Ivory Coast respectively. The beleaguered industry has one greater refuge still: the US market, which consumed 18% of Turkish cement exports in 2020.

North America

Discussions of the CBAM’s impacts in Canada and the US are tied to those countries’ on-going deliberations over possible adjustment mechanisms of their own. At present, individual provinces and states are responsible for implementing carbon pricing. An international emissions trading scheme, called the Western Climate Initiative, already exists between the US state of California and the Canadian province of Quebec. The Canadian government is conducting a consultation on federal Border Carbon Adjustment (BCA) credits in the context of economy-wide pricing.⁶ Carbon border adjustment was previously an item on the US Trade Policy Agenda in 2021, but disappeared in 2022. President Biden pledged to impose 'carbon adjustment fees or quotas on carbon-intensive goods from countries that are failing to meet their climate and environmental obligations' during his candidateship in the 2020 US presidential election. On 7 June 2022, two weeks before the EU adopted CBAM, Senator Sheldon Whitehouse introduced a carbon border adjustment bill to the US Senate, which it referred to its Committee on Finance.⁷

North American legislators will need to follow the European Parliament in building a broad centrist majority in order to pass their CBAMs. If they succeed, the world will gain a low-carbon axis of cement markets, bringing their trade partners behind them.

Other European countries

The UK cement industry expects to pay an extra US$30.1m/yr on account of the CBAM.⁹

A November 2021 report by the Ukraine Resource & Analysis Centre (Society and Environment) concluded that Ukraine's 'largest and most technological' cement producers will experience no critical influence from the CBAM when exporting to the EU.⁸ At that time, the Ukrainian strategy consisted of an alignment with any future CBAM. On 31 May 2022, The European Business Association calculated Ukrainian cement producers' total CBAM tax bill as US$3.36m/yr.¹⁰

Montenegro introduced its own emissions trading system, modelled on the EU ETS, in February 2021, a move which Bosnia and Herzegovina and North Macedonia have both announced their intent to follow.¹¹

Norway has called for international acceptance of the CBAM, but questioned the practicality of including indirect carbon pricing.

An example of the possible adverse effects of the CBAM comes from the EU's ban on Russian cement imports in April 2022. The loss of the EU market was one likely contributor to a rollback of climate regulation there.¹²

Developing countries

Non-governmental organisation (NGO) Oxfam has criticised the CBAM's failure to include an exemption for the least developed countries. The EU's solution is an indirect one: it will put CBAM revenues towards its budget, from which international climate finance funding will be raised to an equivalent level. As Paris Agreement signatories, EU member states already expect to contribute towards a total US$100bn/yr in climate finance funds for poorer countries in 2023.

Oxfam has recommended that the EU do more to take account of its disproportionate contribution to cumulative global CO₂ emissions. This would include directly paying CBAM revenues into international climate finance and accelerating the phase-out of free ETS allocations.

Conclusion

On 22 June 2022, the most sustainable cement market in the world successfully harnessed market forces to its emissions reduction ambitions. The European cement industry will be able to celebrate the end of carbon leakage. Cement companies outside of the EU, however, now face increased costs and lower prices for their product. The legislation addresses some of the harm that it causes to less developed countries; those – like China, Turkey and Vietnam – in the middle must meet it head-on.

So far, we have cited governments and lobby groups, but the real question of readiness for the CBAM lies with producers. Global cement companies, including those based in the EU, have implemented their sustainable cement technologies across all continents, and are beginning to reap the rewards of a new world where paying for pollution is unavoidable.

Sources

1. Sandbag, E3G and Energy Foundation, A Storm in a Teacup, Impacts and Geopolitical Risks of the European Carbon Border Adjustment Mechanism, August 2021, https://9tj4025ol53byww26jdkao0x-wpengine.netdna-ssl.com/wp-content/uploads/E3G-Sandbag-CBAM-Paper-Eng.pdf

2. Trend Economy, ‘Imports: European Union: 6810,’ 14 November 2021, https://trendeconomy.com/data/h2/EuropeanUnion/6810

3. Energy Monitor, ‘Carbon trading the Chinese way,’ 5 January 2022, https://www.energymonitor.ai/policy/carbon-markets/carbon-trading-the-chinese-way

4. China Power, ‘How Is China’s Energy Footprint Changing?’ https://chinapower.csis.org/energy-footprint/

5. Politico, ‘EU’s looming carbon tax nudged Turkey toward Paris climate accord, envoy says,’ 6 November 2021, https://www.politico.eu/article/eu-carbon-border-adjustment-mechanism-turkey-paris-accord-climate-change/

6. Canadian Climate Institute/L'Instut Climatique du Canada, 'Border Carbon Adjustments,' 27 January 2022, https://climateinstitute.ca/publications/border-carbon-adjustments/

7. Congress, 'S.4355 - Clean Competition Act,' 7 June 2022, https://www.congress.gov/bill/117th-congress/senate-bill/4355?s=1&r=6

8.Ukraine Resource & Analysis Centre (Society and Environment), ' The Impact of Carbon Border Adjustment Mechanism (CBAM) on the EU - Ukraine trade,' November 2021, https://www.rac.org.ua/uploads/content/624/files/impactcarbonmechanismcbamukrainesummaryen.pdf

9. Burke et al, 'What does an EU Carbon Border Adjustment Mechanism mean for the UK?' April 2021, https://www.lse.ac.uk/granthaminstitute/wp-content/uploads/2021/04/What-does-an-EU-Carbon-Border-Adjustment-Mechanism-mean-for-the-UK_FULL-REPORT.pdf

10. European Business Association, 'Ukrainian exporters to pay more than € 1 billion in carbon tax to the EU under the CBAM,' 31 May 2022, https://eba.com.ua/en/ponad-1-mlrd-yevro-podatku-na-vuglets-shhoroku-splachuvatymut-ukrayinski-eksportery-v-yes-v-ramkah-svam/

11. Balkan Green Energy News, 'Which Western Balkan countries intend to introduce carbon tax?' 18 May 2022, https://balkangreenenergynews.com/which-western-balkan-countries-intend-to-introduce-carbon-tax/

12. Climate Home News, 'Russian climate action and research is collateral damage in Putin’s war on Ukraine,' 26 May 2022, https://www.climatechangenews.com/2022/05/26/russian-climate-action-and-research-is-collateral-damage-in-putins-war-on-ukraine/

South Africa: PPC’s full-year consolidated sales were US$624m in the 2022 financial year, which ended on 31 March 2022, up by 11% year-on-year from US$561m in the 2021 financial year. Its earnings before interest, taxation, depreciation and amortisation (EBITDA) fell by 6.9% to US$94.5m from US$101m. During the year, the group reduced its debt by 55% to US$63m from US$139m.

The group noted high cement demand across its markets in the 2022 financial year, including a sales volumes increase of 28% year-on-year in Zimbabwe. It also noted a 19% year-on-year increase in South African cement imports, mainly from Vietnam, which constituted 10% of sales in the 2022 financial year. PPC said that it will ‘immediately make additional capacity available’ to capture the increased demand through the rest of 2023 financial year.

Zimbabwe: South Africa-based PPC has held a groundbreaking ceremony for a US$40m project to build solar power plants with a joint output of 30MW to support its integrated Bulawayo and Colleen Bawn cement plants. The Bulawayo plant will set up a 10MW plant, with 5MW earmarked for internal use, while the Colleen Bawn plant will develop a 20MW capacity, 12MW being used internally, according to the Chronicle newspaper. The excess electricity will be fed in the national grid. PPC has chosen ATC Consortium to build and operate the solar plants under a 20-year power purchase agreement.

South Africa: PPC expects its group cement sales volumes to increase by 4 - 8% year-on-year for the financial year to 31 March 2022 due to strong performance in Zimbabwe and Rwanda. In an operational update it said that sales revenue is also expected to rise by 11 – 15%. However, sales volumes and sales revenue growth was reported as slower in South Africa and Botswana due to strong demand due to home improvement projects during the previous period.

The cement producer noted that it had yet to experience any ‘meaningful uplift’ in cement sales following the government’s decision to only use locally produced on infrastructure projects. It said that cement sales in coastal regions of South Africa were behind those in the previous reporting year. It said that cement imports, mainly from Vietnam, increased by 11% and accounted for approximately 10% of the local market.

Cement producers in the north of Pakistan have started to increase their use of coal from Afghanistan in response to the ongoing volatility in energy markets. Research from a report by Darson Securities found that companies were already using up to 70% Afghan coal in their fuel mix with a further 20% being considered. Most of the northern producers are reported to have secured the cheaper Afghan coal for about two months of inventory, although Maple Leaf Cement was said to have four to five months of inventory. Meanwhile in the south of the country, producers were reported to be facing a tougher situation as Afghan coal costs more for them due to higher logistics charges and export orders were being reduced due to the low cost of clinker internationally. So they are focusing on the domestic market instead.

Graph 1: Cement despatches in Pakistan, 2015 – 2021. Source: All Pakistan Cement Manufacturers Association.

Data from the All Pakistan Cement Manufacturers Association (APCMA) shows that cement despatches have been steadily growing since the mid-2010s with a blip in 2020 caused by the start of the Covid-19 pandemic. The upward trend has been driven by local sales. Exports have generally grown at the same time, with more variance, but they are yet to regain the high of nearly 11Mt reported in 2009. On a rolling annual basis, local sales have remained steady since mid-2021 but exports have been slowly falling. In April 2021 they were 9.17Mt but by February 2022 they were 7.33Mt. For the February 2022 figures APCMA blamed this on the growing cost of production, rising international freight rates, mounting coal prices and a trade ban with India. On that last point for example, Pakistan-based producers exported 1.21Mt of cement to India in the 2017 – 2018 financial year before exports stopped after February 2019. Despite a brief respite in the spring of 2021 talks are still ongoing to resume trade with India.

On the corporate side the country’s largest cement producer by capacity, Lucky Cement, drew the same conclusion as the APCMA with its half-year results to 31 December 2021. Its local sales volumes were down a little but its exports were down a lot. It noted that the reason its local sales were falling but national industry local sales were up slightly was due to some competitor plants being non-operational in the previous year. However, the company managed to keep sales revenue and earnings increasing year-on-year by successfully combating growing input costs with price rises. Bestway Cement, the country’s other large producer, reported a tougher situation in the second half of 2021, with both local sales and export volumes down. This was attributed to a boom in construction activity in the second half of 2020 as Covid-19 lockdowns were eased. Demand for cement since then was said to be ‘sluggish’ due to inflation and high commodity prices. It also pinned its marked fall in exports on political and economic instability in Afghanistan. However, turnover and operating profit were both up due to higher selling prices.

Elsewhere in the sector news since the start of 2021, Pakistan’s exports to South Africa remained stymied in early 2020 due to a review of ongoing tariffs and the government decision to restrict infrastructure projects to only using locally produced cement. On the sustainability front the APCMA started to set out its decarbonisation strategy in November 2021. It may have a long way to go given that a think tank reported earlier in the year that the cement sector was the largest emitter of coal-related CO₂ emissions in the country, even more than power generation. Alongside this plenty of capacity additions have been announced. Lucky Cement started commercial cement production at its 1.2Mt/yr integrated Samawah cement plant in March 2021. Various new cement plants and upgrades to existing plants have been proposed by Bestway Cement, Cherat Cement, Fauji Cement, Kohat Cement Company, Lucky Cement and Maple Leaf Cement. Finally of note to a sector troubled by energy prices, in September 2021 the Pakistan International Bulk Terminal said it was going to upgrade its coal handling capacity to around 17Mt/yr by 2024.

Last week’s Global Cement Weekly covered Turkey. The contrasts are interesting because both of these countries have high cement exports and have raised energy concerns recently. This leads to the question of whether other cement exporters may be vulnerable to the current situation. Pakistan isn’t the only country where the cement industry is facing the negative effects of growing energy costs. This week in the sector news, Spain-based Tudela Veguín has shut down the kiln at its La Robla plant down for 10 days due to high electricity prices, Thailand-based Siam Cement Group (SCG) announced it was reviewing its investment plans and the UK-based Mineral Products Association lobbied the government on the issue.

The shift to Afghan coal by Pakistan’s cement producers is rational given the current situation. No doubt fuel buyers all over the world are doing similar things. In January 2022 the International Monetary Fund (IMF) forecast that Pakistan’s gross domestic product would grow by around 4% for 2021, 2022 and 2023 but current geopolitical events may test these estimates. Over the last year domestic cement demand has remained strong but inflation, growing input costs and the impetus to further rise prices may change this. Meanwhile, lots of new production capacity is in the pipeline and, if or when it is built, it may add additional competition pressure. This may present a problem in Pakistan if capacity utilisation levels drop but input costs keep on going up.

Pakistan: Cement plants in North Pakistan are using 70% Afghan coal in their fuel mix, and may increase the figure to 90%. Afghan coal costs US$170 – 200/t, in line with local Pakistani coal prices. The News International has reported that fossil fuel supply disruptions ensuing from the on-going war in Ukraine have increased global coal prices. Additionally, Indonesian coal is subject to a ban on exports, while bad rains have disturbed Australian coal production. On 14 March 2022, the price of South African coal exported from Richard Bay, Umhlathuze Municipality, was US$460/t, up by 95% month-on-month from US$236/t on 10 February 2022. South Africa has previously been a major source of coal for Northern Pakistani cement production. Cement producers in the region have on average 4 – 5 months’ supply of coal in inventory.