Global Cement Newsletter

Issue: GCW418 / 14 August 2019

Headlines


One of the summer news stories in the UK has been the drama surrounding the near-failure of dam near Whaley Bridge in Derbyshire. Concrete slabs on an overflow spillway fell away after a period of heavy rain leading to fears that the dam could fail inundating the area. Around 1500 local residents were evacuated for about a week as a precaution until the reservoir’s water level could be pumped down low enough for inspection.

No one was hurt in the incident but it has raised questions about the maintenance and renewal of infrastructure and how this fits with changing weather patterns caused by anthropogenic climate change. A sadder example of this is the collapse of the Morandi Bridge in Genoa, Italy in August 2018 that killed 43 people. This was later blamed on decaying steel rods in the structure. There have been similar debates in the US with President Donald Trump’s on-going attempts to push through a US$2tn infrastructure bill to repair the country’s structures. Although, predictably, it is floundering on the question of who is actually going to pay for it all.

In the UK, for example, cement production hit a high of over 15Mt in the late 1980s before declining to a low of 7.6Mt in 2009 and eventually climbing to above 9Mt/yr since 2015. A big cause of that decline was the 2008 financial crash and the subsequent government austerity policies. Yet, even with this taken into account, production was at around 11Mt/yr in the 2000s. How much, if any, of this production capacity gap of at least 4Mt between the late 1980s and the 2000s might be needed to maintain the country’s infrastructure? Southern Mediterranean countries like Spain and Italy offer even starker examples. Italy’s cement production fell to 19.3Mt in 2017 from nearly 40Mt in 2001. Spain’s production hit a high of around 50Mt/yr in 2007 with apparent production (local consumption and exports) falling to around 20Mt in 2018. Much of these declines are due to loss of export markets but the same basic questions remain about how much capacity will be required in the future to maintain and repair existing structures in developed nations. This could be imported but the usual constraints about moving heavy building materials around inland mean than at least some of this cement will need to manufactured locally.

The International Energy Agency (IEA) estimated in 2010 that the world would need 50Bnt of cement between 2015 and 2030. The global cement industry was already producing around 3.5Bnt/yr in 2015 according to the Global Cement Directory 2015 giving it overcapacity even then towards the estimated target. Global production capacity is just under 4Bnt/yr today. Estimates for the cost of global infrastructure requirements in this period range from US$1Tnr/yr to US$6Tnr/yr. The majority of this will go towards new infrastructure in developing countries but a minority portion will be required for maintenance. One study by the Brookings Institution and the Global Commission on the Economy and Climate estimated that developed countries would need around US$2Tn/yr for their infrastructure bills.

A study by management consultants McKinsey & Company in late 2017 reckoned that there was a worldwide US$55Tn spending gap between then and 2035 for infrastructure spending. It estimated that countries like the UK, Germany and the US needed to increase their annual spending on infrastructure as a percentage of gross domestic product (GDP) by 0.5%. Although Italy only needed to improve by 0.2%. Looking at the change in infrastructure investment rates suggests that the European Union (EU) actually started to improve its investment from 2013 to 2015 by 0.2% but that the US did not.

All of this goes to show that the show is definitely not over for building materials producers in developed countries. These industries may be mature but they should not be complacent. Roads need patching up, bridges need replacing and all sorts of other infrastructure projects are required even in places that have them already.


South Africa: The South African cement industry is calling on the International Trade Administration Commission (ITAC) to probe a flood of imports into the country. South Africa, which has six cement producers and more than 30% over-capacity, has become a net importer of cement. Imports have increased by 139% since 2016, according to The Concrete Institute’s (ITC) managing director Brian Perrie.

Perrie said in an interview that TCI, representing AfriSam, Dangote Cement South Africa, Lafarge Industries South Africa, Natal Portland Cement and PPC were approaching ITAC to investigate whether the industry required protection from an 18-month surge in imports.

He said that imported cement was undercutting South African prices by as much as 45%, while local producers also had to meet the requirements of the Southern African Customs Union (SACU), meet black empowerment and other social requirements and, at the same time, protect thousands of jobs in the domestic industry. Also, the recent carbon tax translated into a 2% increase in selling prices, putting the local industry at a further price disadvantage. “Trade remedy protection is required," said Perrie, pointing out that producers did not want a ‘ban’ on imports, rather some form of protection to ‘level the playing field.’

South Africa instituted anti-dumping duties of 17 – 70% against importers from Pakistan in 2015. Imports duly fell in 2016 but rose again in 2017 and 2018, mainly from Vietnam and China. Perrie said that 350,441t of cement arrived in the second quarter of 2019 alone, the most since the third quarter of 2015. Most came in through Durban (260,909t), an 85% increase on the first quarter.


Nepal: A large number of cement plants are reported to have violated standard manufacturing practices and are selling products that are not up to international standards, according to the Nepal Bureau of Standards and Metrology.

The national standards body said that 25% of factories were producing sub-standard products, based on the tests of samples and market inspections conducted in the last fiscal year that ended in mid-July 2019. Some of the larger manufacturers included in the 25% were Hongshi Shivam Cement, CG Cement and Arghakhanchi Cement. A further 14 smaller suppliers were also included.


Liberia: The management of Star Cement has welcomed government approval from the Government of Liberia that will allow it to build a cement grinding plant in Monrovia. The special investment incentive was signed into law by President George Manneh Weah in a move stated to be consistent with his promise of giving ‘power to the people.’

The US$41m facility will have the capacity to produce 0.6Mt/yr of cement. Star Cement’s management is optimistic that it will create employment opportunities, both directly at the plant and via the wider construction and distribution sectors. It is also expected that the new capacity will cause a reduction in cement prices, to the benefit of Liberians, particularly those building their own houses.

Meanwhile, the company is aggressively making efforts to ensure that Liberia benefits from the ECOWAS Trade Liberalisation Scheme (ETLS) by commencing cement exports. This will help the country to earn US Dollars.

Star Cement expects to begin production within the second half of 2020, at which point it will share shares to Liberians who wish to invest in the cement sector.


Spain: Cemex España plans to build a cement import terminal at the port of El Musel in Asturias in northern Spain. Cemex has requested 2491.2m2 of space within the second tranche of the Olano Engineer Dock. It is expected that the installation will be built by June 2020.

The Euro5m facility will have 6000t of cement storage capacity from two 41.1m-high silos with bulk truck loading capacity of 200t/hr and a cement bagging plant with a capacity of 1950bags/hr (25kg).


Colombia: Argos, the cement company of Grupo Argos, reported a 10.6% increase in revenue during the first half of 2019, driven mainly by higher cement volumes in the US and the start of price recovery in Colombia. Its consolidated earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 4%.

The company earned US$1.42m in revenue, with a net profit of US$22m, 33.5% higher than in the first half of 2018. Its EBITDA in the US was US$262.4m. Cement shipments were close to 8Mt, 1.2% higher than in the first half of 2018, and concrete dispatches were 5Mm3, a decrease of 2.5% due to the impact of heavy rains in some regions of the US.

“In the first half of 2019 we continued to strengthen our operation and our presence in the United States with the execution of the BEST 2.0 efficiency plan, which, added to the best price dynamics that we began to see in Colombia, allowed us to compensate the pressure we experienced in energy costs,” said Juan Esteban Calle, CEO of Argos. “The significant progress of our divestment plan in non-strategic assets allows us to continue focusing on improving the competitiveness of the company and innovating in products, services and solutions to support the growth of our customers.”

In the US Argos earned revenues of US$781m, 3.5% higher than in the first half of 2018. Its US EBITDA was stable year-on-year at US$108m. Cement dispatches in the US increased by 6.9% to exceed 3Mt, but concrete dispatches decreased by 3.8%, mainly due to heavy rains in the south-central region. The profit in the US was US$11m.

In Colombia revenues during the first half of 2019 were US$352m, 3.3% higher than in the first half of 2018. EBITDA was US$72m, 4% lower year-on-year. Cement dispatches totaled 2.4Mt, a 2.5% reduction. On the other hand, concrete sales remained stable at 1.4Mm3. The company reported that its Argos ONE digital platform continued to give ‘great’ results. From January 2019 to July 2019, 63% of cement and 44% of concrete dispatches were made through this digital platform.

In the Caribbean and Central America, the company highlighted that operations in the Dominican Republic and Haiti continued to be positive, compensating for the challenging political environment that was evident during the period in Honduras and Panama.

In this region, revenues stood at US$286m, a 4.5% reduction year-on-year. EBITDA in this region came to US$79m dollars, 19.8% lower year-on-year. Cement dispatches were 2.5Mt and concrete dispatches were 194,000m3, 1.5% and 3% lower respectively year-on-year.


Austria: RHI Magnesita, a global supplier of refractory products, systems and services, achieved a revenue of Euro1.54bn in the first half of 2019, an increase of 2.2% year-on-year despite challenges in some of its major markets. Its adjusted earnings before interest, tax and amortisation (EBITA) increased by 12.3% to Euro234m from Euro209m, driven by the realisation of a further Euro10m of synergies and the strength of its Industrial Division. RHI Magnesita’s operating free cash flow of Euro129m was driven by EBITA growth.

“I am pleased to announce a robust financial performance in the first half of 2019,” said Stefan Borgas, CEO of RHI Magnesita. “Despite difficult end markets, we have seen a very strong performance from our Industrial Division, offsetting a slightly softer performance from the Steel Division in more challenging market conditions.”


China: China Resources Cement (CRC) has reported lower net profits for the six months that ended on 30 June 2019, largely on falling sales of cement, clinker and concrete amid a slowing Chinese economy. Its net profit was US$481m, compared with US$510m in the first half of 2018. Revenue for the first half dropped by 6.0% year-on-year to US$2.22bn. The company said it will continue to seek partnerships with domestic and overseas companies as it noted that the Chinese economy is facing new downward pressure.


Kenya: East Africa Portland Cement Company (EAPCC) has withdrawn a restructuring and staff rationalisation notice that it had earlier issued. The firm had sought to declare 800 employees redundant, with the aim of trimming its bloated wage bill.

“A replacement notice about the intended company restructuring and staff rationalisation, shall be circulated, in due course,” stated EAPCC’s acting managing director Stephen Nthei.
EAPCC is stuck in negative working capital with obligations maturing within the next 12 months outstripping current assets by US$71m. This potentially makes it difficult to service its short-term obligations.


Nigeria: Dangote Cement has stated that the rate at which consumers are winning valuable prizes in its on-going national consumer promotion, tagged ‘bag of goodies,' is not a gimmick, but a means of giving back to the loyal consumers of its cement products. The response follows criticism that there are too few winners.

At a prize ceremony in Port Harcourt, Aliko Dangote, Chairman of Dangote Cement, stated that the presentation events were proof that the promotion was not a scam. The company is giving out 43 cars around Nigeria as well as other prizes, including televisions. “We value everybody in our value chain – distributors, wholesalers and retailers – and this is our own way of giving back to our consumers,” said Dangote.


Vietnam: Cement and clinker exports from Vietnam are well on track to meet the central target for 2019, with turnover of nearly US$750m generated in the first seven months, according to the General Department of Customs’ statistics.
During the period, 17.3Mt of cement and clinker were shipped overseas.

In the first half of 2019 the country exported 15.6Mt of cement and clinker, which generated revenues of US$667m. This represents a 1.3% rise in volume and 18% rise in value compared to the same period of 2018.

The Vietnam Cement Association attributed the seven-month’s performance to positive demand from the global market and the export prices of cement, which have increased by 15-17% year-on-year. The closure of China’s worst-polluting cement plants and forced campaign operation at many others has created a significant opportunity for Vietnamese firms to increase exports.

The ministry forecasts that overall demand for cement from Vietnam’s cement producers would be likely to increase marginally to 98-99Mt by the end of 2019, comprising 70Mt domestic sales and 28-29Mt in exports.


Argentina: Loma Negra, Argentina’s leading cement producer, saw its net revenue decline by 2% to US$165m in the second quarter of 2019, with its earnings before interest, tax, depreciation and amortisation (EBITDA) rising by 7.1% to US$44m. This was driven by the domestic cement, lime and masonry sector.

Sergio Faifman, CEO of Loma Negra, said, “We are pleased to announce another set of solid results, our business continues to deliver adjusted EBITDA margin expansion based on our constant focus in profitability and cost enhancement initiatives. In this sense, during this quarter we adjusted our production-footprint by reconverting the Barker facility to a grinding and distribution centre, this initiative will let us be a more efficient and agile company. Considering the Argentine context, our business continues to deliver both adjusted EBITDA margin expansion and Net income growth.”


India: UltraTech Cement has reported a 91% rise in its profit for the first quarter of the 2020 fiscal year, to US$170m from US$89m in the first quarter of the 2019 fiscal year. Its net sales were up by 15% to US$1.49bn, despite flat sales volumes. These were 2% higher at 17.86Mt, compared to 17.48Mt a year earlier.


Australia: James Hardie Industries, the world's largest fibre cement producer, highlighted the potential for higher earnings in the 2020 fiscal year, citing an improved performance for its North American fibre cement segment.

The company said it expected full-year adjusted net operating profit to be US$221-248m, compared with US$204m a year earlier.

"Our North America Fiber Cement segment delivered very good volume growth in a down market while generating an earnings before interest and tax (EBIT) margin at the top end of our target range," said CEO Jack Truong in a statement.


India: UltraTech Cement’s net sales grew by 15% year-on-year to US$1.42bn in the quarter to 30 June 2019 from US$1.23bn in the same period in 2018. Its profit before interest, depreciation and tax rose by 61% to US$402m from US$250m. Its local sales volumes increased by 3% to 17.3Mt from 16.8Mt but exports fell by 7% to 0.6Mt from 0.65Mt.

It said that it had fully integrated its UltraTech Nathdwara Cement subsidiary with its systems and processes. The plants it acquired from Jaiprakash Associations in June 2017 were operating in line with its existing plants and had achieved break-even profit before tax during the reporting quarter. The commissioning of its 4Mt/yr Bara grinding plant in Madhya Pradesh has been delayed to late 2019.


India: India Cements is planning to spend up to US$200m on a new integrated plant in Madhya Pradesh and a grinding unit near Allahabad in Uttar Pradesh. The move will increase its production capacity to 20Mt/yr by 2023 from 16Mt/yr at present, according to the Hindu newspaper. N Srinivasan, Vice-Chairman and managing director of India Cements said that the company was in the process of buying land in Madhya Pradesh and that it hoped to complete this by late 2019. The company holds mining lease for more than 100Mt of limestone following its acquisition of Springway Mining in Madhya Pradesh in 2018.


India: Shree Cement has ordered a MVR 6000 C-6 mill from Germany’s Gebr. Pfeiffer. The mill will be used to grind cement at a grinding unit near Pune in the state of Maharashtra. No value for the order has been disclosed.

The new mill will be used to alternately produce 300t/hr of Ordinary Portland Cement (OPC) at a product fineness of 3100cm²/g acc. to Blaine or 300t/hr of Portland Pozzolana Cement (PPC) containing as much as 35% of fly ash at a product fineness of 3500cm²/g acc. to Blaine or 180t/hr of ground granulated blast-furnace slag (GGBFS) at a product fineness of 4500 cm²/g acc. to Blaine. The mill will come equipped with a 6700kW drive.

Gebr. Pfeiffer SE will supply the core components of the mill and the gear unit from Europe and its Indian subsidiary, Gebr. Pfeiffer (India), will provide the components such as the housing of the mill and classifier, the steel foundation parts as well as the internal parts of the classifier. The Indian subsidiary will also design the plant layout and advise the customer on the equipment he will procure on his own.

Shree Cement has ordered 34 mills from Gebr. Pfeiffer previously. It has recently commissioned a grinding plant in Jharkand that also uses a mill supplied by Gebr. Pfeiffer.


Japan: Taiheiyo Cement’s sales fell by 2.1% year-on-year to US$1.94bn in the quarter to 30 June 2019 from US$1.99bn in the same period in 2018. Its profit dropped by 37.6% to US$58.7m from US$94.1m. It blamed falling sales on the end of construction booms linked to preparations for the 2020 Tokyo Olympic Games, earthquake reconstruction work and the construction of Yatsuba Dam. Exports also fell.


Turkey: Sales from Sabancı Holding’s cement businesses fell by 5% year-on-year to Euro132m in the first half of 2019 from Euro139m in the same period in 2018. Its cost of goods sold grew by 7% during the same period. It made a net loss of Euro1.35m compared to a net profit of Euro23.3m previously. Overall, the group’s sales rose by 24% to Euro1.48bn but its profit fell by 17% to Euro577m.


Vietnam: 20 factories in Quang Ninh, Thanh Hoa, Quang Nam and Thua Thien Hue provinces will be subject to a new carbon tax in a pilot project. The Ministry of Agriculture and Rural Development has started to put the programme into action following approval from Prime Minister Nguyen Xuan Phuc, according to the Vietnam News Agency Bulletin. The pilot project will start in 2020 and run until the end of 2021.

The scheme will include 11 cement companies and nine power plants. Cement producers and traders will be charged US$0.09/t of clinker, equivalent to US1.35/t of CO2. The tax will also increase electricity costs for cement producers. It is expected to increase the production cost at plants by 0.29%.

Nguyen Van Vu, head of Finance and Planning Department under Vietnam Administration of Forestry (VAF), said that the tariff was lower than the World Bank’s Forest Carbon Partnership Facility pledge to pay for emission reduction efforts in North Central Region of US$5/t of CO2. The provinces running the tariff are expected to generate around US$7.4m/yr. Most of this revenue will be accrued in Quang Ninh, followed by Thanh Hoa, Thua Thien Hue and Quang Nam.


Denmark: FLSmidth’s order intake for its cement business grew by 29% to Euro604m in the first half of 2019 from Euro469m in the same period in 2018. It said this was mainly due to ‘strong’ order intake in the first quarter of 2019, which included two large cement orders, together worth around Euro120m. The second quarter also included a larger order worth Euro45m. The division’s revenue rose by 7% to Euro548m and its earnings before interest, taxation, depreciation and amortisation (EBITDA) remained stable at Euro28.4m.


Spain: A 29-year old man has died in a failed attempt to base jump at Cemex España’s former integrated plant at San Vicente del Raspeig near Alicante. The deceased wanted to film a nocturnal descent from a 50m tower at the site for his social media channel, according to the El País newspaper. However, his parachute failed to open during the incident. In June 2018 Cemex was denied permission to demolish the San Vicente del Raspeig plant.