Global Cement Newsletter

Issue: GCW420 / 28 August 2019

Headlines


The publication of CNBM’s financial results presents a good opportunity to take stock of the Chinese cement industry in the first half of 2019. Looking at the big picture first, cement sales rose by 5% year-on-year to 1.03Bnt in the first half of 2019 from 0.98Bnt in the same period in 2018. Graph 1 below shows the sales over the last five years since 2014. Generally, sales are decreasing each year but there has been some variation in the half-year periods.

Graph 1: Cement sales in China, 2014 – 2019. Source: National Bureau of Statistics of China. 

Graph 1: Cement sales in China, 2014 – 2019. Source: National Bureau of Statistics of China.

As the China Cement Association (CCA) pointed out in its summary for the first half of 2019, the cement industry ‘swelled in volume and price’ as industry efficiency grew but that the growth rate dropped ‘significantly’ compared in 2018. By region, as Graph 2 shows, variation can be seen between the south-east of the country where growth was slow or even fell compared to stronger performance elsewhere. Cement production increased by above 20% in Jilin, Shanxi, Shandong, Tibet and Heilongjiang and by over 10% in Hebei, Gansu, Tianjin, and Liaoning. However, it fell in Hainan, Beijing, Qinghai, Guizhou, Guangxi, Hunan, Guangdong and Ningxia. Most of these changes were attributed to either rising or falling demand for cement, except for Jilin where reduced imports from neighbouring provinces pushed up its demand. In most of these latter regions it attribute the decline to falling demand for cement.

Graph 2: Cement production growth by province in first half of 2019. Source: China Cement Association. 

Graph 2: Cement production growth by province in first half of 2019. Source: China Cement Association.

Other points of note from the CCA include the surge in imports to China. Imports of cement and clinker rose by 149% year-on-year to 8.97Mt in the five months from January to May 2019. Vietnam supplied 68% of this followed by 11% from Thailand. On the production side, 10 new production lines with a total capacity of 15.5Mt/yr were commissioned in the period. These were fairly scattered across nine provinces, in Shanxi, Anhui, Hubei, Fujian, Guangxi, Hunan, Guizhou, Gansu and Yunnan respectively.

Sales and profits were supported by growing demand and prices on the corporate side. CNBM’s operating income for its cement businesses grew by 16% to US$8.14bn from US$7.04bn. Its adjusted profit increased by 40% to US$2.76bn from US$1.98bn. Anhui Conch’s sales rose by 17.9% to US$2.15bn from US$2.11bn. It blamed poorer profits in the south of the country on adverse weather leading to weakened demand.

The weaker sales in the south could be seen in China Resources Cement’s (CRC) results with its turnover down by 6% to US$2.22bn from US$2.36bn. Likewise, its earnings before interest, taxation, depreciation and amortisation (EBITDA) dropped by 8.5% to US$820m from US$896m. The majority of its cement plants are based in Guangxi, Guangdong and Fujian. Jidong Cement was also reported as having received US$30m in subsidies from the government during the first half of 2019 in relation to its ‘daily activities.’

As is usual for these kinds of roundups the dynamic in China is between government industrial policies, like peak shifting and pollution mitigation, and local demand and price trends. One of the latest spins on peak shifting, for example, is a rating system that is being considered to decide which companies should be subject to production limits and for how long. General cement sales are slowly falling each year but the rise of imports into the word’s biggest cement producing nation (!) mark an interesting trend. Also, it may not be connected, but lots of those provinces with falling demand so far in 2019 are those on the south coast facing the heavy clinker exporting nations of South-East Asia. Given the decisiveness with which the Chinese government dispensed with imports of waste materials under its National Sword initiative since 2017, those countries importing cement to China should beware. It could change very quickly. The Chinese cement market is never dull.


Mexico: LafargeHolcim has appointed Jaime Hill Tinoco as the new chief executive officer (CEO) of Holcim Mexico.

Hill, aged 50 years, was born in El Salvador. He holds a degree in Business Administration from the University of Georgetown in Washington DC. He joined LafargeHolcim in El Salvador in 1996, at first in marketing and sales. He was appointed Commercial Director in 2004 and then held the same position in Colombia. In 2015 he became CEO of Holcim Colombia.


China: CNBM have reported a good first half of 2019, with profits of US$1.23bn, an increase of 30.6% from US$0.94bn in the same period of 2019.


Australia: Adelaide Brighton’s net profit in the first half of 2019 was US$37.0m, down by 35% from US$57.0m in the half year up to 30 June 2018. Chief executive Nick Miller told The Australian that Adelaide Brighton may consider a merger with Barro Group, which holds a 43% stake in the former.


Egypt: In a statement sent to EGX, Sinai Cement recorded first half net losses of US$11.3m, an increase of 20.1% on the US$4.00m recorded in losses in the same period of 2018.


Niger: Dangote Cement has expressed an interest in establishing a 1.64Mt/yr cement production unit, complete with a grinding plant and gas energy plant, in Niger. Agence Ecofin reports that Dangote, Africa’s leading cement producer, aims to fill the Nigerien cement supply gap amidst an infrastructure boom fuelled by the country’s oil ambitions.


Australia: Boral has suffered a decline in full year net profits of 38% to US$184m. This comes following USG-Boral’s statement regarding substantive changes to its gypsum dealings with Knauf.


Nigeria: Dangote Cement’s net first half profits have increased by 5.4% to US$329m from US$312m in 2018. The Cement Company of Northern Nigeria have reported a corresponding increase of 163% to US$40,000 from US$15,000.


Oman: Bank Nizwa has granted US$50.7m to Raysut Cement, the country’s largest cement producer, as part of its commitment to national economic diversification.


Kenya: The Kenyan government have compulsorily purchased the site of the 0.6Mt/yr Athi River cement plant, which it leased to the East African Portland Cement Company for 945 years in April 1960. The Central Organisation of Trade Unions has complained that the National Social Security Fund, representing workers who held 28% of shares in the plant, was not consulted first. The land will be used for affordable housing, manufacturing and other urban uses.


Romania: The national competition authority stated yesterday that it will investigate LafargeHolcim’s deal with Oresa for the latter’s takeover of the precast concrete producer Somaco. LafargeHolcim assumed the asset in July 2019 at an undisclosed price.


Kenya: Bamburi Cement’s first half profits have declined year-on year by 96% to US$0.22 from US$6.99m. Its Building for Growth strategy has seen the topline hold steady amidst setbacks to demand, including higher operating costs and reduced uptake from the Standard Gauge Railway, one of numerous infrastructure projects impacted negatively by rising tensions between Rwanda and Uganda.


Morocco: Morocco’s second largest cement plant in Safi, HeidelbergCement’s largest in the country, is to receive an adjacent algae pond. Environmental innovator Omega Green has estimated the pond’s rate of carbon dioxide removal at 80-100t/yr. The algae can be sold on to food, cosmetics, and animal feed producers.


Philippines: The tariff on cement imports will not exceed US$5.68/t, the figure recommended by the Tariff Commission. Trade and Industry Secretary Ramón López has stated that the safeguard ought not cause prices to rise. The provisional safeguard duty of US$4.02/t will remain until 10th September 2019.


Iraq: The Ministry of Finance has approved construction work to restore the capacity of a cement plant in Kufa, Nafaj governorate, damaged in recent conflict. Thompson Reuters reported that work is set to commence pending the imminent release of the funds. Member of Parliament Fadhil Al-Fatlawi of the Labour and Social Care Committee has expressed the expectation that, at its full capacity of 0.18Mt/yr, the plant will accelerate the country’s restoration.


Egypt: Misr Beni Suef Cement has reported net profits for the six months to 30 June 2019 of US$2.76m, down by 78.8% from US$13.0m in the same period of 2018. This is part of a wider profit slump for Egyptian domestic cement producers, with Misr Cement Qena’s first half figure down by 85.2% to US$0.87m from US$6.00m a year ago.


China: The net profit of Anhui Conch Cement in the first half of 2019 was US$2.15bn, up 17.9% from US$2.11bn at the close of the first half of 2018. Anhui Conch’s interim report stated that the gross profit margin increased in the eastern and central regions by 2.67% and 0.51% respectively in response to steadily increasing market demand, and remained flat year-on-year in the southern region in spite of adverse weather precipitating a decline in the local market.


Ireland: CRH’s revenue for the six months up to 30th June 2019 was Euro13.2bn, up 11% from Euro11.9bn over the same period in 2018, with a 36% increase in EBITDA to Euro1.54bn from Euro1.13bn in the first half of 2018.

In its interim results, CRH attributed increased cement volumes in the US to synergy delivery and strong price realisation in spite of adverse weather conditions in its key markets, noting ‘a strong contribution from our Ash Grove acquisition,’ obtained at the end of June 2018.

A general improvement in cement pricing in the EU28 saw operating profits ahead of the first half of 2018, with increased demand in the French market from non-residential and civil engineering sectors offsetting the effects of reduced residential demand. The UK market reversed this trend, with operating profit behind 2018 due to higher input costs and volume pressure.

In addition to operating profit improvements reported by subsidiary businesses in the Philippines, CRH group benefited from its share in profit after tax of China’s Yatai Building Materials and India’s My Home Industries Limited, both of which enjoyed improved operating profits compared to 2018.


Germany: Dyckerhoff has installed a solid recovered fuel processer at Germany’s largest capacity cement plant in Deuna, Thuringia. Lindner has stated that it installed the production line, consisting of four Lindner shredders and developed by B+T Group, during the overhaul phase without disruption to Deuna’s 2.4Mt/yr capacity output. B+T will provide a constant supply of mostly pre-sorted non-recyclable post-consumer packaging and rubber and textile waste. The fuel will feed Deuna’s rotary kilns with sustainably-sourced energy at a rate of 720t/day.


Canada: The federal carbon tax, set to increase to US$37.64/t in 2022 from C$15.06/t as of January 2019, may drive Canadian businesses abroad to polities with less stringent climate laws, most notably the US. The Fraser Institute, an independent, non-partisan public policy think-tank, has named cement and concrete product manufacturing amongst the 13 industries most heavily affected, with a forecasted rise in production costs of 2.69%.


US: The Environmental Protection Agency has recognised Cementos Argos’ South Carolina Harleyville Plant’s commitment to sustainable development in the United States with a second Energy Star. The award acknowledges energy efficiency and preservation of environmental resources 25% above that of comparable facilities across the US. The plant joins Argos’ consecutive Energy Star-holding plants at Newberry, Florida and Roberta, Alabama.