UK: John King Chains has appointed John Wilson as its Chain Division Account Manager. Wilson is a production engineer with 20 years of business development. He brings practical understanding of engineering processes and experience with leading Conveyor Chain manufacturers to the company.

Update on Oman

It’s been an interesting month for the cement industry in Oman with the announcement of various producer projects and a recent market report predicting steady growth in the country.

A late August 2016 sector report from Al Maha Financial Services concluded that government-backed infrastructure projects in the country have pushed cement demand over the production capacity of the two leading local cement producers, Oman Cement and Raysut Cement. The report tempered the good news though with fears that excess production capacity from neighbouring producers in nearby countries would continue to lower prices in Oman. This matches the situation Global Cement found when it visited Oman Cement’s plant in early 2015. Such was the demand-production gap that this producer sometimes imported clinker to keep its supply constant when it shutdown its kiln for maintenance.

Cement production capacity in Oman currently stands at 8.81Mt/yr according to Global Cement Directory 2016 data. The major cement producers hold most of the local market with Oman Cement’s 4.2Mt/yr plant at Rusayl and Raysut Cement’s 3Mt/yr plant at Salalah.

Raysut Cement has announced progress on a number of local projects throughout 2016 including launching a new 20,000t silo at Salalah in May 2016, building a new terminal at the Port of Duqm due to open by the end of the third quarter of 2016, installing a new 150t/hr rotary packing plant with auto truck loader for expected commissioning by the end of October 2016 and it is currently upgrading its gas supply station at Salalah, also to give cement production a boost.

This last project is of particular interest because when Global Cement visited Oman Cement the staff at the Rusayl plant were concerned about the rapidly rising price of natural gas. The plant used gas as its primary fuel and at the time of the interview in January 2015 they were considering diversifying into alternative fuels such as a tyres or using local coal instead. The issue also received a mention in the company’s first quarter report, where it attributed the rise in gas prices to a 26.8% hit in its operational profit taking it down to US$15.6m in the first quarter of 2015.

Meanwhile, both Raysut Cement and Oman Cement are in the process of building a cement plant together at Al Duqm. The latest news on this joint venture emerged in mid-August 2016 when the companies announced that they had registered Al Wusta Cement as the company designated to carry out the project. So far the plant is at the feasibility study stage with further progress to be released at a later date.

Operating in a full-capacity environment will be a dream to many cement producers around the world. However, it is not without its pitfalls from input issues such as gas supply or fighting off external competition who may want a piece of the pie. Oman's construction industry is expected to see growth of 3.4% to US$5.74bn in 2016 backed by government spending. It is there for the taking for the local producers.

Russia: Karel Okleshtek has been appointed the new general director of the Mordovcement plant (included in Eurocement Group). Previously, he headed a plant of the international group HeidelbergCement.

Check out this graph of Chinese cement prices from September 2015. An author at Business Insider attributes it to Larry Hu, the Chief China Economist for Macquarie. It pretty much sums up the mood analysts have at the moment regarding the Chinese cement industry.

Figure 1: China cement prices, 2012 – 2015. Source: CEIC, Bloomberg, Macquarie Research September 2015.

The recent announcement by the Assets Supervision and Administration Commission regarding the merger of China National Building Materials Group Corporation (CNBM) and China National Materials Group Corporation (Sinoma) comes hot on the heels of a series of poor half-year financial returns from China’s major cement producers. Attempts to tackle overcapacity in its local cement industry have been underway for a few years now. Actions taken include demolishing outmoded capacity, merging companies and expanding overseas. However as the construction markets have cooled in the country the scope of what the cement industry is facing has become clear, as revenues and profits have tumbled.

Now that the first half cement sales volume data has become available from the National Bureau of Statistics of China (NBSC) the response of the cement industry to its predicament has emerged. As can be seen in Figure 2 there has been a rough trend of sales decline throughout 2014 and 2015. The first half of 2016 has started to buck this trend as sales volumes have risen year-on-year for both quarters.

Figure 2 – Chinese cement production by quarter, 2014 – 2016. Source: National Bureau of Statistics of China.

Sales revenues have dropped for most of the major companies that have publicly released their results for the first half of the year. The exception is Taiwan Cement, which makes a large proportion of its sales revenue outside of China (People’s Republic of China). Its sales revenue in China barely rose year-on-year in the first half of 2016. However, the cement sales volumes for all these companies have started to show what is happening. They have risen for most of the producers examined. Essentially, each of these producers is producing more cement but making less money. As Digital Cement puts it, the industry is in a 'low-profit position.' Increased market competition and endemic industry overcapacity are causing this.

Mergers and acquisitions have been the big story for the European multinational producers following the economic crash in 2007. Returns from low growth markets have been substituted for efficiencies of scale, knowledge sharing and greater international reach. Lafarge and Holcim merged in 2015 and HeidelbergCement is due to complete its acquisition of Italcementi later this year. However, as LafargeHolcim's disappointing financial returns and its continued slew of divestments show so far, the merger has not worked as well as may have been hoped… yet.

Whether China's version of this works with its large state owned enterprises is uncertain. Mergers are meant to cut out inefficiencies through economies of scale. Yet the question remains: can even larger Chinese cement producers do this when they are state controlled and harangued by pressures outside the normal market, particularly when local regions try to preserve their industries. The last such big deal, between Anhui Conch and China Resources Cement, fell apart in July 2016. The plans for CNBM and Sinoma may fare better but if the price of cement keeps falling then the market may have other ideas.

For more information see the China country report in the September 2016 issue of Global Cement Magazine

Ireland: Mark Towe has confirmed his intention to retire from the CRH Board at the end of 2016. Towe, who joined CRH in 1997 and was appointed a CRH Director in July 2008, will continue in his role as Chairman, CRH Americas.

Cementos Argos’ deal to buy the Martinsburg cement plant in West Virginia from HeidelbergCement makes a lot of sense. After all, the Colombian-based cement producer has seen its US cement assets perform well so far in 2016 with a cement sales volumes increase of 29% year-on-year to 1.99Mt and an overall sales revenue boost of 19.7% to US$700m. Compare that to the challenges the company has faced so far this year on its home turf in Colombia. There, cement sales volumes fell by 15.5% to 2.47Mt and sales revenue fell slightly to US$465m.

Argos has picked up the Martinsburg cement plant and eight cement terminals in the surrounding states for US$660m. The sale was mandated by the US Federal Trade Commission as one of the conditions of HeidelbergCement’s purchase of Italcementi including its US subsidiary Essroc, the current owner of the plant.

Symbolically, the purchase takes Argos right up to the Mason–Dixon line, the old survey line sometimes used to describe the dividing line between the so-called ‘north’ and ‘south’ in the US. The cement plant is south of the line in West Virginia but some of the cement terminals are firmly in the north-east. Outside of the company’s home turf in Colombia it has a maritime presence around the Gulf of Mexico. Although Martinsburg is inland, the new terminals in Norfolk, Virginia and Baltimore push Argos’ distribution network up the east coast. This could potentially push Argos into conflict with the subject of last week’s column, McInnis Cement, a Canadian cement plant under construction with eventual aspirations to sell its cement to the US.

Back in the US specifically the new plant will bring Argos’ total of integrated cement plants to four, joining Roberta in Alabama, Newberry in Florida and Harleyville in South Carolina. All together the producer will have a production capacity of around 6Mt/yr in the US following the acquisition. Back in 2014 when Global Cement visited Martinsburg the plant was distributing its cement about 60:40 via truck and rail. At that time the plant was shifting cement in an area from central Ohio eastwards to western Pennsylvania and south to southern Virginia, as well as in North Carolina.

Argos has paid US$300/t for Martinsburg’s production capacity of 2.2Mt/yr. As ever determining the cost of the terminals proves difficult. This compares to the US$267t/yr that Grupo Cementos de Chihuahua (GCC) paid to pick up two plants from Cemex in May 2016 or the US$375/t that Summit Materials paid Lafarge for a cement plant and seven terminals in July 2015. Previous Argos purchases in the US were around US$220 – 250/t for deals with Lafarge and Vulcan in 2011 and 2014 respectively. It is also worth considering that Essroc upgraded Martinsburg significantly in 2010 to a dry-process kiln and that the site has a waste-to-solid-fuel plant from Entsorga due to become operational in 2017.

The purchase of Martinsburg by Argos seems like an obvious move. It predicts a compound annual growth rate of 5.4% for cement consumption in the American states it operates within between 2016 and 2020. However, this may be optimistic given that the Portland Cement Association’s chief economist Ed Sullivan has downgraded his consumption forecasts for the US as a whole to 3.4% from 5% as he waits for the recovery to really kick in. The southern US states have also recovered faster since a low in 2009 than the northeastern ones. The purchase marks a new chapter in Cementos Argos’ expansion strategy

South Africa: Modilati Gustav Mahlare is to retire from Sephaku Holdings at its annual general meeting (AGM) to be held in September 2016. Mahlare has served on the company’s board as chairman of the audit and risk committee for three consecutive terms. He is not eligible for re-election. MJ Janse van Rensburg has been recommended to replace Mahlare. Her appointment will be subject to shareholder approval at the AGM.

Janse van Rensburg has served as the Chief Financial Officer and, later, Chief Executive Officer at the Trans Caledon Tunnel Authority between 1994 and 2008. Prior to this she worked as a non-executive director for the Bond Exchange of South Africa, the Airports Company of South Africa, the Johannesburg Water Department and Denel, during which time she also fulfilled the role of a member or chairman of the respective audit committees. She is currently a non-executive director of the Development Bank of South Africa and a non-executive member of the Credit Committee overseeing Africa and India at First National Bank.

Sephaku Holdings holds a 36% stake in Sephaku Cement. The remainder is held by Nigeria’s Dangote Cement.

UK: Hanson Cement has appointed Mark Hickingbottom as its national commercial director for bulk cement and Andy Simpson as its national commercial director – packed. The appointments follow the recent retirement of commercial director Keith Ellis.

Hickingbottom has sales and marketing experience within Hanson’s bulk cement team, as well as a degree in Business Management. He is an associate member of The Institute of Concrete Technology and has spent over 12 years at Hanson delivering strategic plans across its product range.

Simpson, previously responsible for sales of all Hanson’s packed products, will build on developing trading relations with merchant customers as well as working with internal teams. He has over 15 years’ experience with Hanson and holds a degree in Business Studies.

The McInnis Cement plant at Port-Daniel-Gascons in Quebec, Canada must be the most famous cement plant that hasn’t been built yet. Every single step of the project’s list has seemed dogged with infamy. Public money it seems comes with public scrutiny. This week, one of the principal investors took control of the plant following allegations of massive budget overruns and the disappearance of the company’s president.

To start with the money, the plant was originally budgeted at US$1bn for a 2.2Mt/yr facility. This has always seemed like an inflated figure given that the general cost of a new or greenfield cement plant is up to US$200/t. The original price tag for McInnis is double this figure. Throw in the need for infrastructure at the site and the requirement of a marine terminal and the cost starts to become a little more realistic with government backing. The importance of the sea links can’t be under stressed given that the plant is targeted at the US market. No port: no cement plant.

This then leads to the quagmire of criticism the project has found itself stuck within. American cement producers took exception to a foreign government-backed plant trying to eat their lunch so they went legal. When the government-subsidised project bypassed the normal environmental clearances Lafarge Canada backed a challenge in 2013. Then in 2014 the provincial opposition in Quebec attacked the local government’s financial involvement in the project describing it as a ‘sinkhole’ in return for a minority stake.

Once these hurdles were overcome, work on building the plant began until the Globe and Mail newspaper revealed in late June 2016 that the project was ‘massively’ over-budget by up to US$350m and that the Quebec government was not prepared to provide any more money. The budget over-run alone is enough to build a cement plant in a more conventional location! Six weeks later and the project has most likely had its chief executive fired and one of the investors has stepped in to run things.

So, some combination of the legal fees, the wrangling over the plant’s unique environmental clearance, the difficulties of the underdeveloped location and potential mismanagement by the company itself have led to the additional costs. This in turn has led to the Caisse de dépôt et placement du Québec, a pension fund firm, taking charge. It, like the previous management, also has no experience in building cement plants. Although it clearly knows how to calm investors. The first thing it did after announcing the new financing was to reassure everybody on the plant’s potential. Best not to consider at this stage what happens if the US bans Canadian cement.

McInnis Cement could be compared to other provincial industrial follies such as the closed Gaspésia paper mill in Quebec that also received over US$350m of government money. Yet if there is a project one might compare it to it is London’s Millennium Dome. Conceived as a national exhibition space to celebrate the start of the new millennium in 2000 the UK government of the time backed the project to much derision from the press as the costs spiralled and the visitors stayed away. However, today the venue has become a popular music and events venue. Flop or triumph: all those investors of McInnis Cement must be wondering what their fate will be. If nothing else perhaps renaming the plant once the dust settles (in an environmentally approved way) might be a good idea. Today, the Millennium dome is known as the 0₂.

Germany: Vivek Bhatia has been appointed as the CEO of ThyssenKrupp Asia Pacific with effect 1 October 2016. He succeeds Stefan Schmitt, who will move to ThyssenKrupp AG as Head of Human Resources Strategy.

Bhatia, aged 38 years, has been Head of Strategy, Markets and Development at the Regional Headquarters in Singapore since May 2014. Prior to this he advised industrial businesses on their strategy and operations, as part of the Boston Consulting Group for several years. He earlier gained experience in the oil and gas Industry as part of Engineers India.