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Votorantim shone a glimmer of hope for the Brazilian cement industry with the release of its first quarter financial results this week. Increased sales volumes in Brazil, Turkey, India and Latin America led to an 11% rise in revenue to US$682m in the period. Admittedly back home in Brazil, most of this came from concrete and mortar sales, but after the slump Brazil’s had they’ll take whatever they can get. This compares to a 14% drop in sales revenue in the same period in 2017 due to falling cement consumption.
Graph 1: Accumulated 12 months local cement sales in Brazil. Source: SNIC.
SNIC, Brazil's national cement industry association, preliminary figures for April 2018 show a similar trend. Cement sales for April 2018 rose by 8.9% year-on-year to 4.35Mt from 4Mt. Sales for the first four months of the year dipped slightly by 0.2% to 16.9Mt although this is an improvement on the first quarter figures showing the benefit a strong April has had. Improvements are driven by growth in the central and southern parts of the country. SNIC’s graph of accumulated sales (Graph 1) definitely shows a slowing trend of decreasing cement sales with April 2018 being the only the second month in over two years where sales have risen.
Paulo Camillo Penna, the president of SNIC, even went as far as to speculate that the three months from April to June 2018 might see the first sustained period of improvement since 2015 and that sales could even grow by 1% for the year as a whole. This is a far cry from Penna’s description of his industry at the start of 2017 as, “One of the worst moments in its history.”
Votorantim reported that some regions of Brazil were starting to show a positive trend in the second half of 2017. Unfortunately it wasn’t enough to stop the cement producer’s overall sales falling for the year. LafargeHolcim didn’t release specific figures for its Brazilian operations in 2017 but it did say that its cost savings programme had, ‘provided for material improvement versus prior year both in recurring earnings before interest, taxation, depreciation and amortisation (EBITDA) and cash flow.’ It reckoned that despite the market contracting, it had managed to increase its market share. Meanwhile, on the supplier side RHI Magnesita said in a first quarter trading update that its cement and lime business was flat due to continuing low capacity utilisation rates in China and Brazil.
If this truly is the end of the Brazilian cement market slump then it seems surprising that there haven’t been more mergers or acquisitions. Mineração Belocal, a subsidiary of Belgium’s Lhoist, said this week that it had purchased L-Imerys, a lime producer that operates a plant at Doresópolis in Minas Gerais. Local refractory producer Magnesita merged with RHI in mid-2017.
The big deal that hasn’t happened is the sale of InterCement, the country’s second largest cement producer. Owner Camargo Corrêa was reportedly selling minority stakes in the company in 2015. Then in early 2017 local press said that it was aiming for a price of US$6.5bn for the whole company with Mexico’s Cemex as a potential bidder. Since then nothing has happened publicly although the initial public offering of InterCement’s Argentine subsidiary Loma Negra in November 2017 for US$954m may have bought Camargo Corrêa the time it needed to wait for the market to improve. Rumours of a public listing of InterCement’s European and African operations have followed.
In its World Economic Outlook in April 2018 the IMF forecast a 2.8% rise in gross domestic product (GDP) in Brazil in 2018. If SNIC’s forecast for 2018 is correct then Camargo Corrêa may have survived the worst of the slump to live to trade another day. The price for InterCement at this point can only rise, as should the prospects of the Brazilian industry.
Update on Saudi Arabia
25 April 2018No consolidation has happened yet in the Saudi Arabian cement industry but exports have started to be announced. Yanbu Cement signed an export deal in March 2018 to despatch 1Mt of clinker and 0.5Mt of cement from one year from 1 April 2018. Prior to that, Al Jouf Cement Company started a contract to export 72.000t/yr to Jordan from late February 2018. Earlier still, Bahrain was expected to benefit from a lifting of cement export tariffs at the end of January 2018.
Its early days yet but some of sort of action is starting to happen about the country’s falling cement sales. If export deals are in the early stages of being set following the lifting of the ban, then local movements of cement have intensified. As Al Rajhi Capital reports in its latest market update, that producers have been forced by low sales and high inventory levels to take action. It says that cement companies have started to sell products in different parts of the country than they do normally leading to a ‘price war’. The financial services and analytical company has pinpointed the central region as the key battleground as company market shares have fallen over the last six months as northern producers have moved in.
Graph 1: Cement sales (Mt) by quarter in Saudi Arabia, 2015 to March 2018. Source: Yamama Cement.
Cement sales fell by 15% year-on-year to 11.8Mt in the first quarter of 2018 from 13.7Mt in the same period in 2017. This is the first time in recent years that sales did not rise from the fourth quarter to the following first quarter. Not a good sign. Despite the bad news, a few producers did mange to increases their deliveries in the first quarter, including Saudi Cement, Hail Cement, Umm Al Qura Cement and United Cement.
Bizarrely, into this sales environment, plans for the long delayed Al Baha Cement cement plant project have re-emerged. The project previously has received coverage at various stages over the years. This time it has reportedly gained a licence to set up the company and it hopes to start tendering for the build in the second half of 2018. The investors may want to leave it a little longer given the current state of the Saudi cement industry.
Cemex Puerto Rico switches Ponce cement plant to grinding
11 January 2018Puerto Rico: Cemex Puerto Rico plans to stop clinker production at its Ponce cement plant. The site will move to grinding cement in January 2018, according to Sin Comillas. The cement producer has been unable to rule out job losses.
The changes come in response to poor cement sales that the company says are the worst in the territory since the 1950s. Cement sales have been falling since 2009 and Hurricanes Irma and Maria punished the market in the autumn with big declines in September and October 2017. At present Cemex Puerto Rico says that the local market only needs around a third of the country’s capacity. However, the Ponce plant has a production capacity of 1.2Mt/yr. The company has also cited high electricity costs as part of its decision.
SNIC pins hopes on recovery in second half of 2018
11 January 2018Brazil: The Brazilian cement association SNIC expects an ‘effective’ recovery in cement sales to come in the second half of 2018. The association forecasts sales to grow by 1 – 2% overall in the year, according to the Valor Econômico newspaper. However, it expects a few months of weak demand before the market starts to change. Cement sales volumes fell by 6.4% year-on-year to 53.8Mt in 2016. The market previously peaked at 71Mt in 2014.
Dangote Cement Cameroon claims 45% market share
07 November 2017Cameroon: The local subsidiary of Dangote Cement in Cameroon (DCC) claims to control 45% of the cement market just two years after opening a grinding plant in Douala. The cement producer aims to producer 1.3Mt of cement in 2017 from its 1.5Mt/yr plant, according to the Journal du Cameroun newspaper. Other producers in the local market include Cinencam, a subsidiary of LafargeHolcim that has a 45% share, and Medcem and CIMAF, which share the remaining market share.
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.
Emami Cement to commission Jaipur grinding plant by March 2018
13 September 2017India: Emami Cement plans to commission it 2Mt/yr Jaipur grinding plant in Odisha by March 2018. It has spent US$94m on the unit. Once completed the new plant will bring the company’s cement production capacity to 6Mt/yr, according to the Press Trust of India. It operates an integrated plant at Risda in Chhattisgarh and a grinding plant at Panagarh in West Bengal. The company also plans to increase the market share of its Emami Double Bull Cement product by 10% in all the regions of its operations by March 2019.
SOCOCIM aims at 56% market share in Senegal
06 September 2017Senegal: Youga Sow, the director general of SOCOCIM Industries, says that his company is aiming for a market share of above 56%. He made the comments at a local festival, according to local press. Sow added that the country produced 3.2Mt of cement in 2016 despite having a production capacity of 8Mt/yr. The other major cement producers include Ciments du Sahel and Dangote Cement.
Lafarge Malaysia profits slump due to weak markets but plant expansions set to cut clinker transport costs
06 September 2016Malaysia: Lafarge Malaysia Bhd's management has said that for the first half ended June 30 2016, core net profit was down 69.4% mainly due to lower cement revenue (-5.3%) due to weaker demand for cement on the back of a slowdown in the property market and delay in the commencement of mega projects such as KL118 Tower project, Tun Razak Exchange; Holcim 'synergisation' costs of about US$4m and a higher effective tax rate (+13.8%) from lower capital allowances.
Management expects the effective tax rates to be normalised in the 2017 financial year from capital allowances from its newly-commenced Rawang (Selangor) and Kanthan (Perak) plants expansions.
With the new capacity expansion in the Rawang and Kanthan plants commencing in March and April 2016 respectively, management revealed that this would provide savings in overall transportation costs as clinker is no longer required to be delivered from Langkawi (Kedah) to its grinding units in Pasir Gudang (Johor) which can now be delivered from Kanthan instead - which is approximately half the travelling distance.
Malaysia is due to see an increase in overall cement production capacity of 13% in 2016 due to the completion of expansion projects and the weak market is expected to become tougher-still. Besides looking out for further cost-saving avenues, Lafarge Malaysia is also looking for differentiation in this competitive market through higher investment in dry-mix cement and strengthening of its brand name through more aggressive marketing.