Displaying items by tag: YTL Cement

There was good news from the corporate finance sector for cement producers this week in the form of an approving statement by Fitch Ratings. It declared that it expected the sector to be able to pass on the costs of decarbonisation to customers due to a lack of alternatives. It recognised the challenges posed by regulators, investors and societal pressure but, even so, it suggested that cement was still an industry worth backing. Or at least for now. Added to this, it forecast that demand for building materials would grow to support the transition to a low carbon economy and to combat the damage caused by climate change. It did admit that the capital or operating costs required to decarbonise are seen as being potentially large, especially with uncertainty over how much governments will pay or incentivise. Yet the timescales involved are beyond the ratings agency’s ‘horizon’ hence no really disruptive shifts in producer economics are expected anytime soon.

This was obviously a win for the cement industry and its cheerleading associations led by the Global Cement and Concrete Association (GCCA), the World Cement Association and the regional associations. After all, the increasingly convergent message to the wider world has been along the lines of ‘concrete is part of the solution and you need our products because there’s nothing else.’ Good timing then for the GCCA to launch its collaboration with the World Economic Forum, the ‘Concrete Action for Climate’ (CAC) initiative. The collaborative platform is planned to help drive the industry’s journey to carbon neutral concrete by 2050 as part of the wider Mission Possible Partnership, a wider coalition of public and private organisations working on setting the heavy industry and transport sectors towards net-zero. Expect lots more of these kinds of announcements on the road to the 26th UN Climate Change Conference of the Parties (COP26) taking place in Scotland in late October 2021.

Fitch Ratings did point out that societal awareness was likely to accelerate decarbonisation. The sharp end of this trend was experienced by the building materials industry this week when environmental activist group Extinction Rebellion forced operations to stop temporarily at LafargeHolcim’s Port de Javel ready-mixed concrete plant in Paris on 30 June 2021. This followed a similar incident by the same group at a LafargeHolcim subsidiary ready-mix plant in London in mid-2019. Given the share of global CO₂ emissions from the cement-concrete production chain, it is perhaps surprising that climate activists haven’t targeted clinker-producing cement plants directly in the same way that they have gone after coal-fired power stations. Clinker kilns are, after all, the source of the majority of the sector’s emissions. However, blockading a concrete plant in the city may conjure up a more potent media image than doing the same to a factory out in the country.

Instead the battles with cement plants and their quarries tend to be of a ‘not in my back yard’ (Nimby) nature. Or rather ‘not in my monastery (Nimmon?) this week, with the news that a subsidiary of YTL Cement in Malaysia is attempting to evict a group of Buddhist monks and their underground place of worship from a quarry on Mount Kanthan in Perak. In the latest twist of the long running saga, the monks have hit back with an attempt to get their portion of the site recognised as a place of worship and a heritage site. Thankfully a more positive example of how quarries can fit in with the wider community could be found this week in the guise of an archaeological dig at CRH subsidiary Tarmac’s Knobb’s Farm quarry in Cambridgeshire, UK. The discovery of a Roman Britain-era cemetery with a high proportion of decapitated bodies may have been gruesome but the relations between the operator and the archaeologists were much more harmonious. Another recent example was the discovery of what may be a new precursor species of humans, unearthed at a quarry run by Nesher-Israel Cement Enterprises site at Ramla in late June 2021.

The paradox building materials producers pose to environmental activists could be summed up by the record heat wave that hit the north-western region of North America recently. CO₂ emissions, in minor part produced by the cement and concrete industries, are the most likely reason for an increased frequency of extreme weather events such as this. Yet, infrastructure such as pavements and roads were widely reported as having buckled in the heat, principally because they weren’t built for such high temperatures. They will have to be rebuilt to withstand similar temperatures in the future. Building materials can thus be seen as both part of the problem and part of the solution. Yet with net zero targets nearly 30 years away it seems likely that continued extreme weather events and their potentially lethal consequences will speed up the public demand for decarbonisation. It is worth noting here that one of Extinction Rebellion’s demands in the UK is that the country should become net zero by 2025.

Fitch Ratings has cast its vote for now and Extinction Rebellion and its fellows are set to continue to wage their political campaigns. In the meantime it is debatable how much spiritual solace will be found by the monks of Mount Kanthan during blasting hours at the neighbouring quarry.

Malaysia: Buddhist monks at the Dhamma Sakyamuni Caves Monastery have filed a petition to the state government of Perak to have the site recognised as a place of worship and the local Mount Kanthan area approved as a national heritage site. Mongabay has reported that the caves lie in YTL Cement’s Mount Kanthan quarry. The religious site is located on the still unquarried southern face of Mount Kanthan.

YTL Cement started eviction proceedings at the site in late 2020. It said, “Contrary to what has been claimed by irresponsible parties, we have co-existed harmoniously with the local community. The real issues at hand are safety and the sanctity of the law.” It added with regard to the safety issue, “As the rightful owner of the land, we are responsible for all that occurs on it. We cannot stand by the misleading of the public nor allow such negligence.”

A predecessor company of YTL Cement leased the site in the 1960s. However, the monks allege that they were using the area several decades prior to this. The relationship between both parties broke down in 2013 when the cement company started to ask the monks to leave the monastery during rock blasting.

 Malaysia: Malayan Cement has agreed to acquire YTL Cement’s cement and ready-mix concrete operations in Malaysia. MarketLine News has reported the value of the deal as US$1.25bn.

China: Malaysia-based YTL Corporation has has sold its 100% stake in Zhejiang Hangzhou Dama Cement. The company acquired the producer in 2007. It operates a cement plant located in the Lin’an district of Zhejiang Province. Executive chair Francis Yeoh said that it chose the time to sell based on the high current valuation of the subsidiary.

Managing director Datuk Seri Michael Yeoh Sock Siong said that the disposal was aligned with the group’s focus on becoming a regional cement industry leader in Southeast Asia. He said "Dama was our first substantial foray into China’s cement industry. The vital insight and knowledge that we have gained will be used in our plans to expand our operations within Southeast Asia."

Malaysia: Lafarge Malaysia has been renamed as Malayan Cement. It follows the divestment of the cement producer from LafargeHolcim to YTL Cement in May 2019.

The Malaysian Competition Commission took the rather ominous step this week of saying it was taking extra care to watch the cement industry. Ouch! It said that had taken note of recent price rises by both cement and concrete producers and that it was working with the Ministry of Domestic Trade and Consumer Affairs as it met with the sector. It also said it was well aware of the recent merger between YTL and Lafarge, “...which had led to the market being more concentrated at the upstream and downstream level.”

The background here is that at least one unnamed cement producer announced a price hike of 40% in mid-June 2019. End-users panicked and the local press took up the story. The Cement and Concrete Association of Malaysia then defended price rises in general, when it was asked for comment, due to all sorts of mounting input costs. Although, to be fair, to the association the Malaysian Competition Commission acknowledged the price pressures the industry was under due to input costs in a report it issued in 2017.

Back in the present, the government became involved and Saifuddin Nasution Ismai, the head of the Domestic Trade and Consumer Affairs Ministry, calmed the situation down by saying that producers had agreed not to raise their prices after all and that any future planned price adjustments would be ‘discussed’ with the authorities first. Finance Minister Lim Guan Eng then followed this up with calls for an investigation into prices in Sarawak state in Eastern Malaysia. In response, Suhadi Sulaiman, the chief executive officer (CEO) of CMS Cement, batted this straight back by blaming industry mergers in Peninsular Malaysia and saying the company had no plans ‘anytime soon’ to raise its prices.

As the Malaysian Competition Commission kindly pointed out, this entire furore took place about a month on from the competition of LafargeHolcim’s divestment of its local subsidiary to YTL. The commission agreed to the acquisition of Lafarge Malaysia by YTL knowing that it was giving YTL ownership of over half of the country’s production capacity. With this in mind it is unsurprising that the commission might have wanted to look tough in the face of even a whiff of market impropriety, whether it was real or not.

The problem, as the Malaysian Competition Commission alluded to in its statement, is that the local industry suffers from production overcapacity. On top of this local demand has been contracting since 2015. The country has 11 integrated cement plants with a production capacity of 27.1Mt/yr, according to Global Cement Directory 2019 data. Production hit a high of 24.7Mt in 2015 and then fell year-on-year to 18.8Mt in 2017. Data from the Cement and Concrete Association of Malaysia painted a worse picture taking into account both integrated and grinding capacity reporting an estimated production capacity utilisation rate of just 59% in 2016. Lafarge Malaysia reported a loss before tax of US$97.7m at the end of 2018 as well as declining revenue. Shortly thereafter it announced it was leaving the country, as well as neighbouring Singapore.

In theory the buyout by YTL should have been one step closer to solving Malaysia’s overcapacity woes as either it gained synergies through merging the companies or shut down some of its plants. Certainly, the system appears to be working at some level, as the proposed 40% price rise hasn’t happened. Yet, if the government is reacting to voters rather than the market it could prolong the capacity-demand gap indefinitely. Under these conditions LafargeHolcim’s decision to exit South-East Asia may prove prescient.

Malaysia: YTL Cement has increased its shareholding in Lafarge Malaysia to 76.98% following the conclusion of a mandatory general offer (MGO). In a bourse filing, Maybank Investment Bank said the MGO had been concluded at the close of business on 14 June 2019, with YTL Cement acquiring an additional 220.72 million shares, or 25.98% of Lafarge Malaysia, for US$198m.

On 6 May 2019 YTL concluded its purchase of 51% of Lafarge Malaysia from Associated International Cement Ltd (AICL). It paid US$390m on that occasion.

Malaysia: Yeoh Khoon Cheng has resigned as the chief executive officer (CEO) of Lafarge Malaysia. He will remain as the group’s executive director, according to the Edge Malaysia.

Several executives of YTL Corporation have been appointed to Lafarge Malaysia’s board. YTL’s executive chairman Francis Yeoh and managing director Yeoh Seok Kian have been made executive directors of Lafarge Malaysia. Other members of the Yeoh family appointed to Lafarge Malaysia’s board as executive directors are Yeoh Soo Keng and Yeoh Seok Hong. In addition, Lafarge Malaysia’s vice-chairman Martin Kriegner and non-independent and non-executive director John William Stull and Pei Ling have resigned.

Malaysia: LafargeHolcim has completed the divestment of its activities in Malaysia with the disposal of its entire 51% shareholding in Lafarge Malaysia to YTL Cement for around Euro872m. The group says that the transaction will reduce its net financial debt by close to Euro530m. Together with the divestment of its activities in Indonesia, Singapore and the Philippines, this transaction is expected to ‘significantly’ reduce the company’s net debt to recurring earnings before interest, taxation, depreciation and amortisation (EBITDA) ratio.

Malaysia/Singapore: Switzerland’s LafargeHolcim has signed a deal to sell its 51% stake in Lafarge Malaysia to YTL Cement for US$396m. Lafarge Malaysia operates three integrated cement and two grinding plants. With the divestment, LafargeHolcim will fully exit the Malaysian market. LafargeHolcim has also signed an agreement with YTL Cement Singapore for the divestment of its entire 91% share in Holcim Singapore.

YTL Cement is part of YTL Corporation, a Malaysian infrastructure conglomerate, which is active in cement production, construction, property development and utilities. The deal is expected to be completed within the second quarter of 2019. It is subject to approval by regulatory bodies.