Displaying items by tag: War
Ghanaian government minister blames high cost of cement on exchange rates and fuel prices
29 June 2022Ghana: Alan Kyerematen, the Minister for Trade and Industry, has blamed the increasing price of cement on negative currency exchange effects and growing fuel prices. He informed the Parliament of Ghana that the cost to import clinker has risen significantly, according to the Ghana News Agency. Kyerematen also noted that the cost of freight has surged due to the coronavirus pandemic and then the war in Ukraine.
Russia: Kaliningrad region is redirecting cement deliveries to the region to sea transport following the implementation of trade sanctions by neighbouring Lithuania. The first consignment of cement redirected from the railroad, on the Kholmogory dry-cargo carrier, is scheduled to be transported on the Bronka - Kaliningrad shipping route by the end of June 2022, according to Interfax. The Ursa Major cargo ship will also be used on the Ust-Luga - Baltiisk shipping route. Additional ships will be used to increase transport capacity to supply the Russian enclave.
Deputy head of the regional government Alexander Rolbinov said, "Now, with the support of the Russian Transport Ministry, the logistics of supplying the region with essential cargos are changing. In particular, we are fully redirecting cement deliveries to sea transport. We have already worked out with Eurocement the required amount of material for the construction industry, which will be packed in 'big bags' and shipped by the fleet. The situation is under the constant control of the governor."
The Kaliningrad region needs about 600,000t/yr of cement. Previously cement was transported by rail through the European Union (EU). However, EU economic sanctions in response to the war in Ukraine started being implemented directly by Lithuania from 18 June 2022. The Russian government has threatened Lithuania with retaliatory sanctions.
Energy costs in Australia and beyond
21 June 2022Boral admitted this week that high energy costs in Australia had forced it to reduce production levels. Chief executive officer Zlatko Todorcevski revealed to Reuters that the company was temporarily cutting back some unspecified areas of its operations. He also said that it was going to have to pass on growing energy prices directly on its customers.
This has followed mounting alarm at fuel prices in successive financial reports by the building materials company leading to revised earnings guidance being issued in May 2022. Bad weather was responsible for the larger share of the expected additional adverse impact to underlying earnings in its 2022 financial year but around US$10m was anticipated from rising fuel prices. Growing coal and electricity prices were said to be impacting its production and logistics costs, with price rises in January and February 2022 having proved insufficient to keep up with inflation. In a trading update in March 2022 the company said that its exposure to coal prices was unhedged for the second half of its 2022 financial year, to June 2022.
An energy crisis in Australia may seem hard to understand given that the country is one of the world’s biggest exporters of coal and gas. Yet, the country has faced a number of problems with its electricity generation sector in 2022 with disruptions to coal supplies to power stations, outages, ongoing maintenance and a cold winter that adversely affected the market. This led the Australian Energy Market Operator to suspend the country’s main wholesale market on 15 June 2022 in an attempt to stabilise the supply of electricity. New South Wales has also reportedly forced coal mines to prioritise the local market over exports. Energy minister Chris Bowen even asked the residents of New South Wales to try and reduce electricity use in the evenings in an attempt to prevent blackouts. However, with the consumer electricity market now looking more stable, attention has turned to industrial users such as Boral.
Global Cement Weekly has covered energy costs for cement producers a couple of times in the last year. There has been plenty of angst about growing energy costs on cement company balance sheets since mid-2021 as the logistics problems following the lifting of the coronavirus-lockdowns became clear. The biggest story at this time was an energy crisis in China that caused supplies to be rationed to industrial users. This then intensified with the start of the war in Ukraine in February 2022 and energy prices went up everywhere as economic sanctions were imposed upon Russia. One standout was Turkey where cement producers publicly raised the alarm about jumps in coal prices.
Recently, some North American lime producers such as Lhoist North America and the Mississippi Lime Company have been notably bold in announcing price rises due to energy costs and other factors. This week, for example, Lhoist North America said it had raised the price of its lime products by up to 45%. It cited the ‘challenging circumstance’ for all parties at an ‘unprecedented’ time. One alternative to the direct approach of simply putting up prices has been the use of energy surcharges. Japan-based Taiheiyo Cement announced earlier in June 2022 that it was going to introduce a coal surcharge for its cementitious products in September 2022 due to rising energy prices. Its system is based on the coal price with revisions planned every two months. The scheme will run for one year in the first instance. How customers will react to this remains to be seen.
We have looked above at a few disparate examples of the problems that energy costs have been causing cement and lime producers over the last month. These issues look set to continue in an acute phase while the war in Ukraine rages on, but the longer term trends from the economic recovery from coronavirus will undoubtedly last for longer. As examples in Australia and China have shown, local energy crises can easily spill over into the industrial sector as domestic users are prioritised. So, even if cement companies source their supplies carefully, they may face issues if the wider market struggles. Meanwhile, cement producers face the dilemma of justifying price rises to customers adapting to mounting inflation. Taiheiyo Cement has shown one way of doing this. The problems caused by surging energy prices to other cement companies look set to become more apparent in the next few months as reporting of the first half of the year emerges.
Russia: A study commissioned by the National Association of Manufacturers of Building Materials and the Construction Industry (NOPSM), SM PRO and Soyuzcement, the national cement manufacturing union, has found that 80% of components required for repairs and upgrades to cement plants in Russia are manufactured abroad. The research was intended to assess the sector’s requirement for foreign equipment and to determine the prospects for import substitution. The results of the survey were presented in late May 2022.
Anton Solon, the executive chair of NOPSM, noted that Russian cement sector holds a ‘critical’ dependence on imported equipment. He said that domestic analogues were either ‘significantly’ inferior to imports or simply not available. The main equipment affected included separators, burners, drives, compressors and grinding mills. Parts for packaging lines, some types of quarry equipment, grinding media, refractories, additives and linings were also negatively affected. However, he did point out that low-efficiency and large-sized gas cleaning plants (including bag and electrostatic precipitators) were produced domestically. Vyacheslav Shmatov, the chairman of Soyuzcement, called for the development of local engineering products to remedy the situation.
Update on India, June 2022
01 June 2022One big story in India in recent weeks has been the start of action by the central government to tackle rising cement prices. First it reduced tax duties on petrol and diesel in late May 2022. Finance minister Nirmala Sitharaman also said that they were looking at ways of improving the availability of cement in the country, including better logistics, to help lower its cost. A delay to a change in the Goods and Services Tax (GST) rate structure is also being considered to slow inflation generally. Local press then reported a few days later that the government had set up a panel to explore ways of reducing the price of cement by distributing supplies better around the country. Specifically, it was talking to the South India Cement Manufacturers’ Association to work out ways for their members to meet the rising demand in other parts of the country. Reported options included looking at better use of rail and sea connections.
Chart 1: Map of Indian regions showing integrated/clinker production capacity per capita. Note: the chart does not include standalone grinding plant capacity. Source: Global Cement Directory, Indian census data. Map image adapted from Filpro CC BY-SA 4.0.
The map above (Chart 1) summarises the general problem the country faces from a clinker production point of view. More clinker can be produced in the south of the country than elsewhere. This map is partly a reflection where the limestone reserves are. However, it does not show that the East region of India has a higher concentration of cement grinding plants than elsewhere. Additionally, a number of new integrated/clinker plants have been built in the East and more have been proposed. The data in Chart 1 suggests that India has an integrated production capacity of 312kg/capita nationally. This compares to a cement consumption of 200 – 250kg/capita as reported by the ratings agency Crisil.
Data from Crisil indicates that cement prices grew by 9% from the start of 2021 to March 2022. A similar rise of 8.1% month-on-month was reported in April 2022. It is not a direct comparison but retail inflation in India was reported as being 7.8% in April 2022. The cause of this has been blamed on a general tightening in energy supplies in the autumn of 2021 followed by the effects of the war in Ukraine that started in early 2022. Rising international coal and petcoke prices have made manufacturing cement more expensive. Growing petrol and diesel prices have made moving it around costlier still. Looking at the cement market generally, Crisil noted that demand for cement grew sharply in the first half of the 2022 financial year but then slowed in the second half due to poor weather, issues with sand supply and a labour shortage. The ratings agency has forecast stable growth in the 2023 financial year but with the caveat that the mounting costs of construction, including building materials, could dent this.
The fundamentals for the world’s second largest cement market look good as Adani Group’s recent deal to buy Holcim’s Indian assets for US$6.34bn attests. This won’t be much comfort for end-users though who are watching the price of cement rocket upwards. Yet how far the central government will be able to help the southern cement producers move their wares around more easily remain to be seen. If it succeeds, it may slow the rise in prices but it seems unlikely to halt it. The reaction of the more northerly producers is also key, since one option they have is to slacken their own price increases by just enough to fight off the new competition. Already they are facing the dilemma of raising their prices to cover input costs versus the effect this may have on overall demand. All of this looks set to put pressure on the producers’ margins. Indian cement prices look set to go up whatever happens next, making everyone unhappy. Some may be more unhappy than others.
India: India Cements’ fourth-quarter sales were US$183m in its 2022 financial year, which ended on 31 March 2022, down by 4% year-on-year from US$190m in the corresponding quarter of the 2021 Indian financial year. The producer’s net loss was US$1.37m, as against a first-quarter 2021 financial year net profit of US$6.47m. During the quarter, the company’s cement sales volumes fell by 1.4% to 2.63Mt from 2.67Mt, while its clinker sales volumes fell by 88% to 38,000t from 324,000t. For the full 2022 financial year, India Cements’ sales of cement rose by 2% to 9.07Mt from 8.9Mt. Coal costs ended the financial year at US$300/t, five times the 31 March 2021 price of US$60/t.
India Cements said “The spiralling prices of fuel, along with the shortage in availability of the same, affected the margins of the industry. The woes of the industry worsened further with the outbreak of Russia's war with Ukraine resulting in sanctions being imposed on Russia and its exports, fuelling further shortage of coal and oil in the market.”
Russia: SibCem’s first vice president Gennady Rasskazov says that the local production cost of cement is expected to rise by 30% year-on-year in 2022 due to the new ‘economic circumstances’ the country faces. He added that, due to economic sanctions, the price of coal rose by 76 - 86%, goods and materials by 55%, diesel by 30%, oils and lubricants by 83% and transport and logistics costs by 14 - 24% in the first quarter of 2022. The average growth in worker pay at SibCem will rise by 30% in 2022 as the company has implemented indexed salaries. Rasskazov made the comments at a meeting with cement producers, consumers and local officials at the Novosibirsk State University of Architecture and Civil Engineering.
Russia: Holcim said that it has received interest from over 30 possible buyers for its Russian business. The group announced that it would sell the assets, including three cement plants, in March 2022, after the Russian invasion of Ukraine on 24 February 2022.
Chief executive officer (CEO) Jan Jenisch said that the sale would need to be handled ‘with very great diligence.’ He continued "We don't expect to write it off completely. I would hope this business has a value." Jenisch asked investors and commentators to ‘give us a couple of months’ to ‘get more clarity.’
Italy: Buzzi Unicem’s net sales grew by 17.2% year-on-year to Euro800m in the first quarter of 2022 from Euro682m in the same period in 2021. Its cement and ready-mixed concrete sales volumes rose by 2.9% to 6.36Mt and 6% to 2.69Mm3 respectively. The group reported growing sales volumes in Central Europe, Poland, the Czech Republic and the US but it noted a slowdown in Italy. Sales volumes were also disrupted in Ukraine and Russia due to the ongoing war between the countries. The group added that its prices were ‘markedly’ up in all markets where it operates to offset rising prices of raw materials and energy.
The company said that in Ukraine it was forced to suspend nearly all of the production and commercial activities at both of its plants when Russia invaded the country. In Russia it said that retaliatory economic sanctions led by the US and European Union had led to a “significant revision of the country's growth prospects.” Local sales volumes significantly slowed down in March 2022 after hostilities started but local operations still managed to report some growth in sales even in spite negative currency exchange effects. Buzzi Unicem said that, “Due to the sanctions imposed on Russia by the European institutions, we decided to immediately withdraw from any operational involvement in the activities carried out by the subsidiary OOO SLK Cement in Russia. Consequently, further strategic initiatives in the country will be suspended.”
Vicat increases sales in first quarter of 2022
05 May 2022France: Vicat recorded first-quarter sales of Euro789m in 2022, up by 12% year-on-year from Euro707m in the first quarter of 2021. The group reported ‘solid’ year-on-year consolidated sales growth across all of its regions, with price rises offsetting negative volume effects. Cement sales grew by 7.4% in France, 4.1% in the rest of Europe, 18% in the US, 26% in Brazil and 8.5% in Africa. The Russian invasion of Ukraine did not manifest in any impacts on group activity in the quarter. Vicat estimates that in order to offset higher power costs it will need to raise its cement prices by 15% year-on-year in 2022 as a whole.
Group chair and chief executive officer Guy Sidos said “Vicat’s first-quarter sales performance reflects the dynamism of its markets, despite a high basis of comparison.” He continued “In a global environment providing little visibility in the short term, especially as regards energy costs, we are executing our strategy to improve our production performance, make greater use of secondary fuels and implement a pricing policy tailored to this new environment in pursuit of our operational, environmental and societal targets."