Global Cement News

Ed Sullivan, the Portland Cement Association’s (PCA) chief economist was in tub-thumbing mood last week at the IEEE-IAS/PCA Cement Conference in Calgary, Canada. The headline figures that the PCA put out in a press release was a forecast of a 3.5% rise in cement consumption in 2018 and 2019. Yet behind this in a stirring speech given to a cement industry crowd craving growth was a tale of riches ahead. The audience lapped it up. There was only one problem: nothing has really happened yet to make any if this happen. It always seems to be riches ahead. As Sullivan freely put it, “Trump policies will impact cement… But we don’t know what they are!”

Sullivan broke down his forecast into three sections that hinged around President Trump’s desired policy changes kicking in from about the third quarter of 2019. At this point, owing to lack of information about what the Trump administration actually wants to do, Sullivan freely broke open the assumptions. These covered issues such as a tax reform, infrastructure budgeting, immigration reforms and more. As he explained it all of these issues interact, so that reducing taxes potentially pushes national debt up making infrastructure spending harder. Owing to the lack of specifics from the current administration though Sullivan was forced to resort to the more solid plans of Democratic presidential contenders Hillary Clinton and even Bernie Saunders for nuggets of information of how ‘a government’ might act. For example, he used a breakdown of Saunders’s intended infrastructure spend to try and predict how Trump’s policies could play out. Increases in highway building from the overall infrastructure spend in this context being good news for the cement industry. And as for Sullivan’s view on the impact of the Trump border wall: ‘overrated’.

The new forecasts for 2018 and 2019 appear to be retrenchment given that the PCA was predicting growth of 4% for 2016 in the middle of that year. It subsequently reduced its estimate to 2.7% for 2016 by December 2016 after the presidential election. However its figures for 2017 and 2018 have increased since the December forecast. Sullivan predicted that growth will start to surpass 5% in 2020 once Trump’s policies have time to make waves. The crescendo of his presentation at the IEEE-IAS/PCA was a prognostication of an extra requirement of 14Mt of cement in 2021 and 2022. Sullivan topped this off by saying that, “We have the supply infrastructure in place right now.” However, some delegates informally questioned afterwards where that cement might actually come from with mass international clinker capacity waiting in the wings from places like Vietnam and new cement plants such as the McInnis Cement plant in Quebec expressively targeted at the US import market about to come on line.

Sullivan has a tricky job trying to predict what will happen next in the US cement industry and sometimes his forecasts seems to change as much as the weather that cement company financial reports often blame their poor returns on. This column knows a little bit how he feels. As Sullivan’s biography points out he’s been cited by the Chicago Federal Reserve as the most accurate forecaster regarding economic growth among 30 top economists. In short he’s the best we’ve got. But Donald Trump’s approach to government so far has made his job exponentially harder. As we’ve said more than a few times when describing the US cement market, the basis are there for growth but something is holding back faster growth. Will Trump be the catalyst to break the 5% growth barrier? Looks like we’ll have to wait until late 2019 to find out.

Elsewhere, the conference brought together a large cross-section of the North American industry. Surprisingly perhaps given the change in leadership at the US Environmental Protection Agency (EPA) several parts of the speaker and discussion programme focused on coping with National Emission Standards for Hazardous Air Pollutants (NESHAP), carbon tax schemes in Canada and California and practical carbon capture methods at the plant level. The key here seemed to be a piecemeal approach that may not necessarily be at odds with less government environmental legislation. Next year’s outing in Nashville, Tennessee looks set to be an even more important event, especially if more on Trump's infrastructure plans become known.

Germany: Michael Ambros has been appointed as the managing director of KA Schmersal, part of the Schmersal Group. Ambros is responsible for the Administration and Sales & Marketing divisions on a global basis. Fellow managing director Michael Mandel will run the technical divisions alongside Ambros. The company’s management team includes both Ambros and Mandel, plus two managing shareholders, Heinz and Philip Schmersal. The Schmersal Group develops and produces a range of switchgear and control devices.

Dominican Republic: Alejandro Ramirez Cantu has been appointed as the president of Cemex Dominican Republic. Ramirez succeeds Carlos Emilio Gonzalez, who has held the position since 2011, according to the Diario Libre newspaper. Ramirez will also be responsible for the operations of Cemex in Bahamas and Haiti. He has worked for the building materials producer since 2000, managing operations in Thailand, Puerto Rico and Costa Rica.

Mexico: Grupo Cementos de Chihuahua (GCC) has appointed Luis Carlos Arias Laso as its new Chief Financial Officer. Luis Carlos Arias has worked for GCC since 1996 in the Planning, Finance, and Corporate Treasury functions. He holds an undergraduate degree in financial administration and an MBA, both from the Tecnológico de Monterrey (ITESM). He is also a graduate of the senior management program of the Instituto Panamericano de Alta Dirección de Empresas (IPADE).

The changeover at the top of LafargeHolcim, with Eric Olsen standing down and with the appointment of Jan Jenisch (CEO of Sika AG), is worthy of note for a number of reasons. American/French Eric Olsen has been in charge of the merged company since its inception and has made a good job of bringing together two very different companies, while at the same time battling uneven economic growth worldwide which has seen some patchy results over the last two years. Given more time, he would undoubtedly have presided over more robust results as yet more synergies are discovered in the newly-lean company.

In fact, lean-ness is one of the four ‘strategic pillars’ that are now governing LafargeHolcim, according to the recent fascinating 2016 annual report. Alongside ‘commercial transformation,’ ‘cost leadership’ and ‘sustainability,’ the report stipulates that the company will be ‘asset light.’ The report goes on to explain that LafargeHolcim ‘will optimise our current asset base, better leveraging our industrial footprint, reducing our capital expenditure and exploring new growth opportunities with lower capital expenditure.’ It says that ‘Future growth will be focussed on low-capital intensive business models that enable us to access more of the value chain.’ Putting numbers to the words, LafargeHolcim’s capex in 2016-2017 was CHF3.5bn (Euro3.21bn), but it will plummet to CHF2bn (Euro1.83bn) from then on. As CEO, Eric Olsen’s prints are all over this plan.

The company plans to use its ‘know-how in preventative maintenance and capacity optimisation’ to reduce its ongoing capex in the cement industry, and says that ‘we outsource our fleet management whenever possible and develop alternative logistics offers to reduce capital expenditure.’ So, out with its own fleets of vehicles, and in with contractors, freeing-up capital (but possibly leading to lower retained profits). The company also says that ‘the leveraging of our global trading platform enables us to serve some markets without the need to invest in local clinker capacity.’ Alongside various statements in the annual report that suggest that the company has quite enough clinker production capacity already, we can see that it intends to stop building any new greenfield plants, and to potentially invest in clinker grinding facilities in markets where it does not have a presence, supplied by its currently under-utilised clinker-producing plants. It plans to expand into low-capital concrete markets, stating that ‘we are implementing franchise models in the ready-mix and retail segments, enabling us to reach customers in a differentiated way while keeping capital expenditure low.’

Eric Olsen’s plan is/was a sensible one: stop sending money out the door, make the current assets work a lot harder, and get into businesses with a good margin but which don’t cost a lot in which to become established. This is a plan that will take time to come to fruition, but unfortunately, Eric Olsen will not be at the helm of the company to see the benefits. He resigned at the end of April after an internal investigation at the company showed that managers at the company’s cement plant in Syria had paid-off local militias in order to stay open. As Eric Olsen stated at the time, “While I was absolutely not involved in, nor even aware of, any wrongdoing I believe my departure will contribute to bringing back serenity to a company that has been exposed for months on this case.” It seems that the chairman and the board of directors owe Mr Olsen a few beers - at least - for taking the heat off the company.

German national Jan Jenisch steps into Eric Olsen’s shoes at an interesting time then. He is coming from a company, Sika AG, that has also seen some tumultuous events in the last few years. The company’s controlling family wish to sell its 16% stake (including 53% voting rights) to multi-national building materials group Saint-Gobain, which is eager to buy, against the wishes of the company’s board, senior managers and other shareholders. So far the sale has been foiled by Mr Jenisch, but a crucial court case decision is due later in the year. Who knows, in the meantime maybe another building materials company might step-in to try to take over Sika’s attractive business? Mr Jenisch managed to increase Sika’s profit by 22% in the last full year of operation of the company, and the board of LafargeHolcim will be hoping that he can repeat the magic with his new company. If he manages it though, just remember that he has inherited Eric Olsen’s ‘cunning plan that might just work.’